Saturday, March 1, 2008

Predatory Lending--Not

This is actually a continuation of my exposure of leftist (non) thinking on the subprime/housing "crisis".  Follows is a comment under the same AOL featured article (see previous entries today), by the same person trying to make it all the government's "fault" (see previoius entry):

"Actually in lowering the standard for the subprimes the government allowed predatory lending practices to develop"

Absolutely, positively, objectively FALSE.

It is NOT a "predatory lending practice" to give a bad loan to a person. How many BAD LOANS were given to the people starting businesses in the Clinton years? How many people went bankrupt when the bubble burst? Was this "preadatory" lendng, and predatory selling of stocks that were overvalued?

The government is NOT repsonsible for ensuring that financial institutions make only good loans.  The government is not responsible for ensuring that lenders and borrowers make only good loan decisions. In the first oil "bubble", banks in Texas lent money to every driller in sight--including people diving into the business. When oil collapsed to $10.00 a barrel, essentially EVERY BANK IN TEXAS (where I live) went under, as all of these loans defaulted.

Bubbles bursting mean that people get caught. There is NO analysis anywhere showing that "relaxation" of government standards "caused" the mortgage/credit crisis (not just a subprime crisis).  In other words, there is no indication that whatever small relaxation there was in regulatory requirements for SOME loans had any major effect on the final result.  Everyone got euphoric, and bad loans were made.  Once the (both credit and housing) bubble burst, the result was inevitable.  Financial institutions have, of course, tightened standards NOW (and government regulators have increased scrutiny).  While necessary, this WORSENS the "crisis", because many people can no longer get a loan to buy a house (perhaps a house facing foreclousre). 

It is NOT the job of government to regulate every financial instrument, and guarantee that every loan is good. If government tries to do so, it will STRANGLE the financial system, and truly cause economic collapse.

Government could regulate so that no person (absent rare, unforeseen events) could get a loan that they could not pay back. What would be the result. PEOPLE COULD NOT GET LOANS OR HOUSES.

It may be news to some of you out there, but financial institutions do NOT GAIN by bad loans or foreclosures. As with the banks who went under in Texas when the first "oil bubble" burst, many financial institutions are IN TROUBLE (as much trouble as some homeowners) because of the bursting of the housing bubble. Even for those financial institutions which have so far survived, their stocks are WAY DOWN--as they have suffered a financial disaster.

Too many people want us to bail out BOTH homeowners and financial institutions. It would be a bad economic mistake.  The more we try to immunize people from the consequences of mistakes, and the more we try to prevent the mistakes with overwhleming government regulation, the more we strangle our economy.  Bubbles have to be allowed to burst, and people have to be allowed to make mistakes.

That is FREEDOM.  It is also responsibility--accepting the consequences of your own actions.

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