NationRight

It seems the federal government is taking over mortgage giants Freddie Mac and Fannie Mae, publicly-held companies formed years ago as Government Sponsored Enterprises (GSE) to purchase and/or guarantee mortgage loans.  They now own or guaranatee about half the mortgage loans currently held in the nation, and, more alarmingly, about 75% of new loans made in the last year.  Most economists believe this takeover is essential to prevent a collapse of the mortgage industry and, perhaps, the entire financial backbone of the nation.

That doesn’t mean I have to like it.  Obviously, this is entirely too much involvement by the federal government in the free market for my taste, but I have two other problems with this move:

1. By bailing out the mortgage industry, we are just setting ourselves up for the next five bailouts.  The problem with the mortgage industry (and the financial industry as a whole) is that people took too much risk.  From the CEOs to the local loan officers to the homebuyers themselves, they gambled and they lost.  Risk taking is part of what makes our economy tick, but so are the consequences associated with those risks; the consequences temper the amount of risk people and companies take.  By bailing out those who have taken on too much risk, we are taking away the bulk of the consequences associated with the risks.  So, if the biggest downside of taking risk in the marketplace is that the government will bail you out when you start to suffer, people will just start taking on more and larger risks, which will lead to more and larger crises, and, if precedent holds true, more and larger government buyouts.
2. Its not my fault.  When my wife and I went to buy our house (in the heyday of subprime loans, by the way), we decided how much we could afford with a conventional 30-year fixed-rate loan, then, after taking an appropriate safety factor, bought what we could afford.  And guess what?  We have never been late on a single payment and still have no trouble making our payments.  So, why should I have to fund this bailout of people who were too greedy, too impatient, or too stupid to apply for, make, sell, and service reasonable loans?

So, let’s see… What do you call it when the government controls entire industries and redistributes wealth from those who take care of themselves to those who chose not too?  I think they call that Socialism.