February 10, 2012
The great Austrian economist F.A. Hayek called it the “fatal conceit”: The idea that man, through the power of government, can “shape the world around him according to his wishes.” This arrogance has been the foundation of the Progressive movement for more than a century.
But by its very nature and its complete disconnect from economic reality, this world view — President Obama’s world view — can, like a parasite, only thrive by pitting a claimed benefit for one American against the life and liberty of another. The beneficiary in the relationship no doubt feels that he’s gotten a free lunch, but the victim knows otherwise as the life is slowly drained from him.
And so it is with this week’s chapter of Obama’s ongoing saga “Us versus Them” (ghost-written by David Axelrod), a plan which aims to help homeowners refinance at lower interest rates, with much of the cost covered by a new tax on banks.
One symptom of the president’s fatal conceit is his inability or unwillingness to admit any government culpability in the “problem” he’s claiming to address. Obama complains about “runaround from the banks,” but banks are simply reacting to overzealous regulators which have made them simultaneously fear making loans and not making loans.
He bemoans loans “sold” to those “who bought a house they couldn’t afford,” but doesn’t point out that it was Congress, Fannie Mae, and Freddie Mac who routinely required lower lending standards and threatened banks which didn’t make homeownership more available to “underserved communities.”
He castigates banks and lenders for “practices that helped cause this crisis in the first place,” not mentioning the inescapable fact that many people bought houses for the same reason they buy stocks late in bull markets: because they can’t stand seeing everyone but themselves making money.
And the Federal Reserve’s role in inflating the housing bubble goes unstated even as Fed Chairman Ben Bernanke repeats that devastating policy error with persistent excessively low interest rates.
But even if President Obama understood the cause of the housing crisis, that would not forgive a policy which will do more harm than good. The president calls for a “small” fee on banks, by which he means extracting as much as $10 billion as he magnanimously offers banks “a chance to repay a deficit of trust.” The result will be banks having less capital with which to make mortgage or business loans, and banks raising fees or paying lower interest rates on savings in order to make up for the higher tax bill. The truism remains true: companies don’t pay taxes, consumers do. Obama’s plan is thus nothing more than wealth redistribution from banks’ clients and investors to selected homeowners.
While it is an appealing argument that savings from refinancing will give consumers more disposable income and thereby boost the economy, this ignores the other side of the equation. Every dollar saved by a homeowner is a dollar lost by an investor, including pension and retirement funds owned by tens of millions of Americans. Since most “under water” homeowners are younger than those Americans with significant assets in retirement funds, the Obama plan is a reverse inheritance scheme, transferring wealth from those in or near retirement, and therefore with little remaining earning potential, to those with their best earning years still ahead.
We may feel more sympathy for the homeowner than for the investor, but using government power to enrich the more sympathetic of two parties to a transaction is anathema to the rule of law. Changing the rules of the game while the game is being played is old hat for this administration (just ask former Chrysler bond holders), but it is corrosive to the foundation of economic liberty on which our nation was built.
In the vast majority of cases, homeowners have what they chose to have: a home and a particular mortgage. They are not victims, and the solution to the value of their investment having dropped is not to be found in making victims of the rest of us. Government was the primary cause of the housing crisis; more government is not its solution.
Ross Kaminsky is a self-employed trader and investor and is the host of The Ross Kaminsky Show on Denver’s NewsRadio 850 KOA.