Should the Government Clean Up the Mortgage Mess?

Any time the government gets involved in a bipartisan intervention, you should be scared. Their track record of successfully implement something both parties agree to is dismal, at best. And right now, both parties are working to have the government intervene to clean up the mortgage mess.

Let’s expand a bit and not limit the discussion to just the mortgage mess, for the whole mortgage and real estate fiasco has drawn down the economy. Now the government is trying to figure out what is the best “stimulus” to get the economy back on track.

Well, if you look at history, the best stimulus is to just leave it alone!!!

The problem is that your elected officials feel like government intervention is required to make things better, even if it costs the taxpayers billions to bail out the undeserving people, in the name of saving a few deserving ones. The age old “spend a dollar to save a penny” routine.

Economists will back up this thinking, providing scenario after scenario showing how the government could make things better, whether staving off a recession or rebuilding the housing market. Some people even believe that whenever there is a market failure, the government should step in.

But look at history. Markets have failed numerous times before. Humans are imperfect, so they fail as well. But if Martin Biron lets a puck into the net, the Philadelphia Flyers don’t bench him.

So why do we feel the government should step in and be our new goalie? The fact is that they lack the knowledge, experience, or even incentive to intervene appropriately. Just because the markets and our economy is not performing as we want doesn’t mean we believe the government can do any better.

History shows they screw it up almost every time. Look at what happened through government intervention during the Great Depression (many liken today’s economy to that era). Many on the left (Democrats) feel that the 1929 stock market crash showed the failure of the free market and that the New Deal interventions saved the day.

The stock market crash of 1987 was just as big, yet Ronald Reagan resisted the crowds demands for government intervention. The results ended by foregoing another Great Depression and lead to decades of economic prosperity.

The fact is that throughout history, before Presidents Herbert Hoover and Franklin D. Roosevelt, there was no expectation for government to step in when the economy turned south or the stock market collapsed. History up to then experienced stock market crashes and economic downturns, but without the government screwing things up, they worked themselves out faster and less painfully than happened during the Great Depression.

The reasons no government intervention is better are sound. Fundamentally, markets correct themselves for a reason, typically because they paid a price for their mistakes, forcing them not to repeat them again.

If the government steps in, such as writing down loans for distressed homeowners, the pain (or price) is not realized and the learning experience is lost, even turned the opposite way, encouraging repeat occurrences since there is no penalty for doing so.

Today, the Fed keeps pumping money into the system and we can see its effects in drastically rising oil and food prices along with a dollar that has shrunk virtually into oblivion. Do not be surprised if continued government interventions result in greater inflationary pressures, global financial repercussions, and prolonged agony for all.

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