Diary

The Problem with the Financial Crisis in America

The problem with the financial crisis in America is not that it happened, but rather that we are trying to fix it the way we created it. The crisis was objectively caused by bad loans, the abundance of credit, and the plummet in home prices. Well, how do we get a plummet in home prices? First, home prices must enjoy a lovely bull market (which they did) before they can plummet; why did they do that? Well, when more people want to buy a home then there are homes available, the price increases (basic economic concept). Why were so many more people buying homes? Well, the Democrats encouraged homeownership for everyone, which is objectively a luxury not a necessity, and said everyone has the right to own a home. This is completely false; everyone has the right to shelter, not to own a home. Anyways, that liberal ideal jumpstarted this mess when Bill Clinton put pressure on FNM and FRE to makes these loans to customers with poor credit who had no business owning a home, simply because they could not afford one. Reluctantly these companies agreed because as home prices skyrocketed they could make a bad mortgage, have the borrower default, and then collect the home at a higher price and make a profit. In mathematical terms: Value of Home X > Value of Defaulting Mortgage X = Profit…However, when the housing market began its freefall, the equation now looked like this: Value of Home Y < Value of Defaulting Mortgage Y = Loss and Massive Writedowns…Now guess who comes in and blames this problem on deregulation and the policies of Republicans? You guessed it, those Socialists…I mean Democrats. So what is their solution? Let’s allow Henry Paulson (I have the utmost confidence in the former Goldman CEO but there is a much better way to execute this plan) to play hedge fund manager with taxpayer money with the exception that he needs to rewrite the principals of certain mortgages and reduce the rates in foreclosure mitigation efforts. This is a socialist idea! If we want to succeed, we must have the ability to fail. As hard as it is to say this, we need these people to lose there homes and we need these bad financial institutions to fail. If we want to enjoy the plunders of prosperity, we must experience the demoralization of defeat. However, there is hope for America; and that hope comes in the form of one man: John McCain. John McCain knows that the answer is not to fundamentally change the role of government in the financial system, but rather to support the free market ideas that have allowed America to prosper. Recently, he voted to pass HR 1424 to provide immediate relief to American families and tax benefits to encourage corporations to do business here. As a nation, we cannot allow Barack Obama’s socialist economic policies to be deployed in office. For example, he wants the government to foot the bill for universal healthcare. The facts on the situation from the BEA: (1) 85% of employees have access to employer sponsored healthcare and the rest can be explained as the risk of owning a small business to take advantage of American capitalism, (2) the Federal Government already spends $100 billion dollars on the uninsured, and (3) 30% of those uninsured are between 18-29 and this demographic is less likely to experience health issues so that is an economic cost-benefit analysis decision they are making. John McCain’s answer: Encourage competition in the healthcare industry. Every economist in America who deserves that title will agree that this is the correct decision. Competition will inevitably lead to more comprehensive coverage at lower prices, because the “invisible hand” of the market WILL correct this problem. Somewhere, Adam Smith is smiling…