Just when you thought it couldn't get worse....

This article in the WSJ is today's reason that I am fast tracking my plans to become a pirate.  Here is the opening sentence:

"The U.S. government will likely continue to play a role in guaranteeing mortgages, but policy makers must figure out how to design a system that doesn't lead to a rerun of the collapse of mortgage-finance giants Fannie Mae and Freddie Mac, Treasury Secretary Timothy Geithner told attendees at a housing summit convened on Tuesday."

Arggh.  My immediate irritation is with the word "design".  The government couldn't design an exit strategy from a wet paper sack yet they can design a system to prevent financial ruin?  No, they cant and the fallacy that you can design a system to control a spontaneous order like our market economy is mortifying and dangerous.  I was even more disturbed to find out that two economists I greatly respect  seem to be throwing support to Geithner on their blog.

The argument pervasive at the moment is that without government backing there will be no private capital in the mortgage markets and this will lead to a further decline in housing prices, more underwater homeowners, and more stress to the economy.  Currently, the government is involved in backing 90 percent of mortgages whether implicitly or explicitly.  As far as I can tell the idea is to wean the government out of its involvement in the business of housing by temporarily increasing its role, an idea that is so profoundly crazy I cannot believe it is being taken seriously by smart people.

I agree with the ultimate goal that the government (read taxpayers) will not be intimately involved in every loan made for housing.  The problem lies in the fact that once the government is involved, it changes the expectations of the private players and becomes the new rule of the game.  The incentives will not be there for the private sector to take a role because the expectation will be that the government will continue to prop up the market.  Private capital will flow into areas other than mortgages and the taxpayer will end up with the flaming crap bag on their steps.  Temporary government intervention typically turns into permanent government intervention because it distorts market signals and diverts investment to alternative sectors.


I don't know about you but if I hear the phrase, "Mortgage Rates are at historic lows," one more time I am going to exercise my second amendment rights and blow up my television.  Mortgage rates have been too low for too long, another part of the problem.  The Treasury officials are arguing that without a government guarantee on mortgages, mortgage rates will soar.  Fantastic!  Let them soar, they have been distorting the real cost of lending and altering borrowers decision making calculus for too long.  Interest rates are prices and as such, they should reflect the risk associated with lending and the cost of doing business.  Let interest rates rise and more private investors will enter the mortgage markets.  Keep interest rates below the actual market rate and the government will be the only entity dumb enough to jump in.

I am so tired of government stimulus that I think I need a Valium to cope with my over-stimulation.