Posted on February 19, 2009
All truth in the long run is common-sense clarified, the philosopher once said.
And what the Obama Administration is doing on mortgages defies common-sense
Rick Santelli, the CNBC commentator, expressed the frustration of many Americans who pay their mortgages on time today when he said to applause on MERC trading floor today: “The government is promoting bad behavior... do we really want to subsidize the losers' mortgages... This is America! How many of you people want to pay for your neighbor's mortgage? President Obama are you listening? How about we all stop paying our mortgage! It's a moral hazard.”
In the early seventies, Richard Nixon imposed wage and price controls in order to calm down inflation. It was an abject failure which made the situation worse. As Wikipedia puts it, “Although they have been resorted to often, economists usually agree that price controls don't accomplish what they are intended to do and are generally to be avoided.”
Usually a government uses prices controls in order to keep prices from going up. But Obama is using prices controls to keep prices from going down. But that is just postponing the inevitable. The marketplace is the marketplace and if prices are set artificially high, buyers will be scarce.
The Obama Administration has already sparked a populist revolt in world outside DC. A spontaneous protest erupted in Phoenix, ground zero in the mortgage meltdown, to protest his housing proposals.
The fact of the matter is that people who pay their mortgages on time (which is about 90 percent of the country) don’t want to be forced – through their tax dollars –to subsidize people who were irresponsible in the personal finances.
The American people have seen their fair share of irresponsibility come from their government, and they are tired of it. They saw a huge TARP program passed which bailed out banks behaving badly, but contained no transparency and no accountability. They saw a huge spending bill passed under the guise of a stimulus, with no transparency, no accountability and no review. And now, they see a new proposal from the Obama Administration that will reward bad behavior and punish those who play by the rules.
Government price controls don’t work. They didn’t work during the French Revolution, they didn’t work during the Nixon Administration, and they won’t work today. They don’t work to keep prices high and they don’t work to keep prices low.
That is just common-sense clarified.