Lawson for Congress

A few months ago we discussed the “bubble script” that inevitably follows the painful economic blowups associated with fractional reserve banking and our fiat monetary system. To review, the steps are as follows:

1. Ignore the real problem, and find a suitable scapegoat;
2. Attempt to bail out those affected (at least symbolically), always at taxpayer expense;
3. Prosecute a few high-profile criminal cases to wave the flag of “justice”; and
4. Respond with new regulations and bureaucratic oversight the completely ignores the underlying problem, raises costs, and further distorts the market

As we’ve seen, these steps have been playing out nicely. We identified scapegoats in scurrilous, predatory lenders and bond rating organizations. I’m sure the prosecutions are waiting in the wings, and the bailout train is already barreling down the tracks.

Yesterday the New York Times reported on the new regulations that will “protect” us from these problems in the future. To quote briefly:

The Federal Reserve moved Tuesday to impose new restrictions intended to curb unfair and deceptive home-lending practices and prevent a recurrence of this year’s meltdown in subprime mortgages.

By a 5-to-0 vote, the Fed approved a plan that would tighten provisions meant to protect borrowers and apply them to a far larger share of home loans — whether from banks, mortgage companies or other lenders — than under current regulations.

In general, the rules are meant to deter unscrupulous lenders from persuading people that they can afford loans that ought to be out of their reach. By extension, the rules are also intended to keep would-be buyers from deceiving themselves about the debt burdens they can shoulder.

The plan includes provisions that would require more extensive disclosures, restrict advertising and make it harder to lend to borrowers with little or no documentation and a questionable ability to repay. It would also allow borrowers, in some circumstances, to sue lenders who violate the rules.

How much are all these “extensive disclosures” going to cost me, the customer? You don’t expect the mortgage industry to lose money on these costs, do you? These costs will be wrapped into their cost of doing business, and passed right along to you. Why do I need anyone’s permission to sue a lender? How is the federal government, or Federal Reserve, going to get into the underwriting business and evaluate my ability to repay? How is the federal government, or Federal Reserve, going to create rules to prevent me from “deceiving myself”? If I’m deceiving myself, it seems like I am the problem.

Look, I’m not saying that there’s an easy answer here. There’s not. Predatory lenders will always be with us, and you can’t regulate greed out of existence. But we can educate, and look out for our neighbors. The cure for this madness is twofold: stop making “easy money” even easier with an inflationary fiat currency and banking system, and let’s start talking with each other, and watching each others’ backs. It’s a rough world out there — the solution is education and helping our neighbors, not regulation.

Do you know someone who needs help? Want to know where to get started? Meet Dave Ramsey.

Oh, and when will people realize that fixing a problem first requires correctly identifying the problem?

This entry was posted on Wednesday, December 19th, 2007 at 9:59 am and is filed under banking, debt, monetary reform. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.