Senate Mortgage Plan: Forced Investment?

Published July 8, 2008

The Senate’s plan to address the mortgage crisis takes a few steps forward and a giant leap backwards. The goal of the new plan is to create a more active role for the government in private lending agreements, spending billions of dollars to prop up a market that is currently highly unstable and risky (“$600 Million Baby,” July 8).

Using taxpayer money to support an ailing system is both fiscally and morally irresponsible. Consumer groups have tried to portray these bailouts as a rescue for homeowners, but they are in fact more harmful than helpful, ignoring the root causes of the crisis.

In times of crisis the government often needs to make tough decisions that may lead to difficulties in the short term. The best course of action for the government today is to stop manipulating interest rates and allow the markets to run their course. Let individual lenders and borrowers work out loan arrangements. Where fraud and mismanagement exist, the market will purge the rot out of the lending system, only if left alone.

Far too many solutions from the government today simply involve throwing taxpayers’ money at a problem. This wrongheaded macroeconomic “leadership” is bad public policy and harmful to the economy. Moving government tax revenue into an already-bloated housing market will prolong the housing bubble that emerged as a result of previous government mismanagement of interest rates.

Matthew Glans ([email protected]) is a legislative specialist for The Heartland Institute.