Lew Uhler, President and Founder of the National Tax Limitation Committee (http://www.limittaxes.org/), is urging President Bush not to freeze interest rates for certain classes of borrowers, which he announced today.
Sacramento, CA (PRWEB) December 6, 2007 -- Lew Uhler, President and Founder of the National Tax Limitation Committee (http://www.limittaxes.org/), is urging President Bush not to freeze interest rates for certain classes of borrowers, which he announced today.
Freezing rates arbitrarily is a form of government price controls," said Uhler. Price controls have been tried by governments for centuries and have never worked. They distort the market, prolong the problem and are unfair. They are tantamount to government trying to repeal the laws of gravity. No action of government can make apples fall up, but it can wreck the orchard."
In response to the subprime crisis", President Bush is poised to be the first President to mandate price controls since President Nixon imposed them on domestic oil producers in the early 1970s, only now the target is on the housing industry. The Presidents action to help with the subprime management problem, though admirable and well-motivated, is likely to make matters worse rather than solve the problem.
Loan servicing agencies are already working with troubled borrowers on a case-by-case basis, as they should, because each borrowers situation is unique. As usual governments timing and response to a crisis" occurs after the problem is en route to being solved. To try a government imposed one size fits all" solution will simply distort the market, drive investors into hiding, increase interest rates and make it harder for all borrowers to obtain loans in the future," said Uhler.
The President and Congress should practice the Hippocratic Oath (the vow of new medical doctors): First, do no harm," and let the market, borrowers and lenders work together to solve the problem.
Uhler noted U.S. dollar will be further weakened as a result of an artificial rate freeze. With the dollar already at the weakest point in years, implementing new policies that further weaken the dollar are bad for the overall economy and will lead to greater risk of inflation and recession.
Price controls will create shortages of credit and financial resources for would be buyers to enter the housing market.
First time homebuyers will be locked out of the opportunity to buy a home. The housing market, much like the stock market is cyclical in nature. The market is already starting to work through these issues. Government intervention with price controls will inhibit this process, not help it," said Uhler.
Everyone is for free markets when times are good — borrowers, lenders, builders, investors, manufacturers, retailers. As long as they are making money, they want the government to stay out of their affairs. Cut regulation and taxes, and they are happy. But the moment someone goes bust, money gets tight, or the economy slows, people start screaming for a bailout."
It has been reported that some victims" of the subprime crisis knowingly made risky investments, hoping to collected healthy profits until things went south.
Chrysler squeezed a loan guarantee out of Congress. Washington provided a massive bailout of the savings and loans. The big banks ran to Washington when their deadbeat Third World borrowers couldnt pay. Uhler notes, now a gaggle of homeowners, mortgage lenders, and investors are marching, their hands eagerly outstretched.
The once robust subprime mortgage market has collapsed. As long as housing prices were rising, home loans seemed like a sure thing. A poor credit risk? No problem. Some lender would find a creative" way to finance your house. Get into financial trouble? Just sell or refinance. Everyone still came out ahead.
Investors – from big name hedge funds to common mutual funds – started buying subprime loans. With money to be made, no one seemed to worry much about the risk they were running. Then home sales cooled, prices fell, and foreclosures rose. Suddenly homeowners cant pay their mortgages, lenders are stuck with hard-to-sell houses, and investors are taking a bath.
Once upon a time Americans would have accepted responsibility for their mistakes, taken the painful financial hit, and moved on, wounded but wiser. No longer. If money wasnt made, it must be someone elses fault. Thus, those at risk are telling elected officials: If Im losing money, theres a crisis, so do something! Unfortunately, politicians are listening," said Uhler.
With the stock market taking a hit from the burst of the subprime market bubble, bailout advocates are now making a run on Washington . Some want to turn the nonpartisan Federal Reserve into the housing industrys political piggy bank.
Citigroup is shamelessly pushing this artificial rate freeze as a result of a foreign nation bailing them out. It is should be a national security concern for all Americans that a foreign nation would have so much control over economic policy in the U.S.," said Uhler.
Just one in 20 loans are creative," and only some of them are going bad. A decline in housing prices reduces Americans paper wealth, not their living standard, since their home doesnt change. And those who would reap the gains from a rising market cannot complain when prices fall.
A consortium of hand wringing CEOs from big banks and mortgage lending companies paint the subprime lending mess as a crisis, but thats not true," said Uhler. Although no one likes to lose their invested billions, the U.S. economy is $13 trillion and growing. One of the advantages of living in a wealthy society is that one can better weather economic storms. America is not Bangladesh. We will thrive even if housing prices stall. Perhaps the worst consequence of a freeze" is to set the stage for others in the future."
Uhler notes, America s capitalist system is the envy of the world. But the U.S. economy works so well only so long as the government lets the market adjust, no matter how painful the process is for some people.
Participants in the subprime market took their profits when prices were rising. They should accept their losses now that the market has gone bust. If Joe taxpayer has to play by the rules, so do those who profited handsomely from the mortgage business who now have their hand out asking to be rescued.
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