Townhall.com, Where Your Opinion Counts
Talk Radio:   Bill Bennett   Mike Gallagher   Dennis Prager   Michael Medved   Hugh Hewitt   
BREAKING NEWS  LeftArrow - Townhall.com : Conservative, Political, Republican   RightArrow - Townhall.com : Conservative, Political, Republican  
Columns, funnies & more in your inbox!
Login | What's Hot
  • Check the boxes and send us your email address to receveive your free newsletter
  • Your daily must-read of conservative columns, cartoons and news. Coulter, Sowell, Krauthammer and more.
  • Townhall.com’s weekly inside scoop on what’s happening behind the scenes in the world of politics. When news breaks, we report.
  • Signup to receive the latest daily Townhall cartoons
Wednesday, September 24, 2008
John Stossel :: Townhall.com Columnist
What Happened to Market Discipline?
by John Stossel
Forward Print Share Single Page
Vote on It:
Average Vote:
[+] Text [-]
 
 
Poll
Do you feel the leaked information from a global warming alarmist organization is meaningful?



Barack Obama says, "[Today's economic problems are] a stark reminder of the failures of ... an economic philosophy that sees any regulation at all as unwise and unnecessary" ().

What? Does that mean that until last week the Bush administration embraced the free market? Nonsense. Governments at all levels have regulated and subsidized the housing and financial industries for years. Nothing changed under President Bush.

The government-backed Fannie Mae and Freddie Mac were created precisely to interfere with the housing and mortgage markets. In effect, Freddie and Fannie diverted money to people who wouldn't have qualified for mortgages in a real private market.

Had actual private companies performed these activities, they would have been subject to market checks. But they were not. The results were predictable.

Now that it's all tumbling down, the politicians and pundits blame the free market.

It's not simply misunderstanding. It's demagoguery by people who will never admit that their "progressive" social policies have spawned a taxpayer bill that boggles the mind.

This is a story not of private enterprise but of cynical political opportunism. Moral hazard -- the poisonous mix of private profits and taxpayer-covered losses -- is what you get when politicians indulge their hubris to redesign society. The bailout of those companies holding bad mortgages -- big-business socialism -- sets us up for the next crisis.

Maybe the Republican presidential candidate will dissent? Not a chance:

John McCain says, "We are going to fight the greed and irresponsibility on Wall Street. These actions [leading to crisis] stem from failed regulation, reckless management and a casino culture on Wall Street. ... We need strong and effective regulation ... " ().

He proposes a new bureaucracy, the Mortgage and Financial Institutions Trust (MFI), which he says will "provide troubled institutions with an orderly process to identify bad loans, provide funding and eventually sell them at a profit. ... The MFI will supervise the sale of loan assets at market prices and purchase them as necessary" (emphasis added).

A government agency is going buy bad loans and make a profit selling them. Give me a break! Continued...
1 2
| Full Article & Comments | Next >
Share:
Forward Print Single Page
Vote on It:
Average Vote:
 
About The Author
John Stossel blogs at http://blogs.abcnews.com/johnstossel/ is an award-winning news correspondent and author of Myths, Lies, and Downright Stupidity: Get Out the Shovel--Why Everything You Know is Wrong.
 
TOWNHALL DAILY: Be the first to read John Stossel's column. Sign up today and receive Townhall.com daily lineup delivered each morning to your inbox.
 
©Creators Syndicate

Join The Debate!

Post Your Comment
(72 comments so Far)
View in ascending order     View in descending order
Reply # 1
Date: Oct 9, 2008 - 1:19 PM EST
What happened to market discipline?
Mr. Stossel is right. This is a financial crisis arranged by the Government, as prepresented by Rep. Barney Frank (D, MA).

The Government removed Fannie Mae and Freddie Mac from market discipline with a guarantee, then told it what to do through its own, special regulator OFHEO and by legislation. Fan and Fred were staffed with government elite.

The center of the current financial disaster is a runaway government guarantee placed in service of Government affilliated corporations, under the direction of Barney Frank, and the cooperation of most of Congress. Any opposition came from some Republicans and the Bush administration.

How could two companies ruin the US and the worlds financial markets? With the power and credit to buy up 90% of all prime mortgages and 20% of all subprime. Fannie and Freddie together controlled $5.4 trillion of housing debt (that is $5,400 billion, or $5,400 thousand million). Compare that to the $5.5 trillion budget debt of the US.

Congress ran Fannie Mae and Freddie Mac into the ground, plucking presents along the way. Congress set up Fannie and Freddie, () took full responsibility by effectively (but unofficially) guaranteeing repayment of its debts, () removed it from private market discipline, () funded it through massive private borrowing outside of Government budget accounts, () commanded it to do risky business outside usual standards, () restricted its regulation to a special office set up by Congress (OFHEO), and () then ignored that regulator.

Blaming Bush is misguided; blaming the free market is idiotic. Blame the corruption of Congress, mostly the Democrats.

(continued at http://easyopinions.blogspot.com/2008/10/we-guarantee-it.h tml)
Flag as Offensive

Reply # 2
Date: Sep 28, 2008 - 1:00 PM EST
Hagar
While I agree in principal with the sentiment of your Sep 24, 2008 - 10:44 AM post you leave out one major issue which must also be addressed.

Most of the banks who entered into these bad loans did so at the pressure of Federal State and Local governments which used their power to legitimize "community activism" by groups who claimed discrimination of the poor (or even racial discrimination because minorities are mostly poor) when lenders set a limit to who they would loan money to (known as red lining).

Groups like NACA and ACORN mobilized activists to disrupt daily business of banks and lenders who chose to lend money to only those who demonstrated the financial ability to pay it back over the time the loan was for. They found support in the liberal and socialist side of our political spectrum, who then enacted legislation (the Community Reinvestment Act is but one example) requiring banks and lenders to provide funding for low or no income loans if they wanted to expand their business into new markets or even continue doing business in the markets they already were in.

It got so bad that the financial institutions gave into the legalized extortion and started handing over funding to these groups allowing them to make the decision who would get the loans. To cover their interests the financial institutions would then sell the loans made with those funds to other financial institutions such as Fannie and Freddie.

Banks should take the actions that you mentioned, but government needs to repeal legislation such as the Community Reinvestment Act which mandated lenders to make loans they would otherwise not have made. The only way government will repeal such legislation is to remove from office those who enacted it and replace them with politicians who understand the problem well enough not to repeat the mistakes again.
Flag as Offensive
Sign Up to Post Your CommentsSign Up to Post Your Comments
If you are already registered, click here to login. Otherwise, please take a few seconds to register with Townhall.com. Once you sign up, you’ll be able to post your comments immediately, use the action center, get podcasts, and more!
Note: Fields marked with a red asterisk (*) are required.
Salutation:
First Name:
*
Last Name:
*
Email:
*
Nickname:
*
Note: Nick name will be shown when you post comments.
Address 1:
*
Address 2:
City:
 *
State:
 *
Zip:
 *
Phone:
       
Your daily must-read of conservative columns, cartoons and news. Coulter, Sowell, Krauthammer and more.
(Bi-Weekly) We highlight the best opportunities from our partners for surveys, action items and more.