“The implosion of the subprime lending industry is more than a temporary blip in our economic progress. It is a cancer that, given today’s integrated financial markets, threatens to spread with devastating impact to housing and to our economy as a whole, unless we act to contain it.” Financial Times online August 29
When I first saw the word “implosion” I thought for sure he was talking about his foreign policy, but no, this was Obama’s take on how to fix the economy.
But what exactly does he want to contain? Obama wants to regulate and fine what he called “the unlicensed, unregulated, fly-by-night mortgage brokers who are hoodwinking low-income borrowers.” Aren’t those lenders being punished already with thousands of layoffs and dozens of mortgage companies going bankrupt?
“Lenders who are losing jobs, business, volume, are being fined by the marketplace every day since the mistaken loans were put out and that’s exactly how capitalism works. It doesn’t wait around for a government body to act,” said William Beach the director of the Center for Data Analysis at the Heritage Foundation:
Beach asked, “When Countrywide is on the verge of going out of business, and that’s the nation’s largest mortgage company, what more do you want?”
The most brutal thing that can happen to a company is for it to go out of business. All regulation would do is insulate companies from this harsh punishment the markets will provide to “unscrupulous” (as Obama put it) lenders.
It has become quite obvious what side the media has taken on this issue. They are constantly talking about predatory lending, and reminding us how the poor were taken advantage of. While economists tend to disagree on ways to solve the problems with the markets, the one thing they do tend to agree on is that the government should stay out.
Obama advocated “enact[ing] the regulatory and disclosure laws that the mortgage industry has been lobbying against.” Obama also supported government intervention and heavy regulation.
Alex Pollock, a resident fellow at the American Enterprise Institute, told BMI that one of the reasons for the subprime problem was that buyers didn’t realize what they were getting into. Pollock feels it better “to equip the customers to actually know what is going on and therefore protect themselves,” than to create more regulation.
Pollock himself has created a one page mortgage form that helps to break down exactly what a mortgage entails.
- Stuart James is a Research Analyst at the Business and Media Institute.