Sub-Priming It Up

This may seem like old news by now, but I am constantly suprised by how many people are unaware of many factors in this discussion of the “sub-prime loan banking crisis.”

Either you are of the mindset that the government created the sub-prime mortgage crisis, that excessive regulation of the banks starting with the Community Reinvestment Act signed by Jimmy Carter and perpetuating with the folly of the Clinton Administration and Congress through Fanny Mae and Freddie Mac in the early nineties led to the collapse of the banking industry through a massive wave of defaulted mortgages (here is a piece on IBD that summarizes this view very well), or you are of the mindset that greedy bank executives created it, or perhaps even some combination of the two. Whatever the cause, the practice of issuing risky loans to unqualified home buyers has proven to be unproductive and foolhardy. Given this knowledge, the debate over whether or not to use federal tax dollars to bail these banks out is mute, as you will only be funding the current business practices.

To solve this problem, we again see two diverging mindsets: One, that government regulation, having caused the problem in the first place, should be drastically reduced, giving the free market room to correct itself. A second, that new, heavy government regulation of the banks should be employed to protect unqualified home buyers, and by setting business conditions for receiving federal bailout money, defeat the schemes of evil bank executives, seems to have been commonly vocalized in Washington for the past few months.

This second mindset should be a warning sign to all. It is the chant of a leftist demagogue, and holds no basis in our society, nor any place in public policy. First of all, why on Earth should the money of federal taxpayers be used to buy up all the “toxic assets” the banks currently hold? They’re toxic for a reason, and to shift the burden created by the unwise actions of unqualified home buyers to the entire responsible and productive sector of the economy is idiotic. To the holder of this mindset, I must ask “Where in the Constitution is the power to run private entities delegated to any branch of the United States Government?” It is obvious that because the powers of Congress are even enumerated in Article 1 Section 8 that Congress was not meant to have unlimited power. This is again exemplified by Amendment 10 in the Bill of Rights, reserving unenumerated powers to the States and the people. If you dismiss the boundaries specified by the Constitution, where then do you draw the line of governmental prerogative? Without the Constitution, there is no rule of law. There is only the free acquisition of power by governing bodies, and no remaining safeguards against tyranny.

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