The end is not near (except for some government officials)
July 26, 2010 · Updated 12:05 PM
Before we start jumping out of windows or forming bread lines over the current “down” economic news, it might be better to spend some time understanding how we got here and what fixes are available. To find the source of the problem, rather than the obvious symptoms, we need to work backwards.
The apparent “symptom” is fiscal overextension of financial institutions that made risky real estate loans and are now holding worthless paper because the borrowers are unable to meet mortgage payments. That the original mortgages have been bought and sold many times does not alter the underlying issue that people who could not hope to meet the fiscal requirements to honor a loan were granted the loan anyway. Bad choices have bad outcomes. But is it that simple?
Recent studies performed by non-partisan entities across the nation have spotlighted government regulation as a principle cause for the rapid escalation of home prices over the past 15 years. Because the studies compared pricing among the most heavily regulated and the least regulated areas, the results carry the necessary validity. Government land use regulation has caused a significant rise in home prices. A University of Washington study places the regulation cost for Seattle at about $200,000 per home. The estimate for Kitsap is about $130,000 per home because of regulation alone. Those who would argue that low cost or sub-prime mortgages are the actual cause fail to understand the time line. First, regulation drove home prices beyond the reach of many Americans and then, in the mid 1990s, our federal government responded by effectively forcing lending institutions to offer more risky loans to those unable to meet normal lending criteria. Those who could have prevented the disaster were required to be active participants. The regulatory process also allowed some unscrupulous individuals to take advantage of an opportunity for major gain at low risk. The stage was set for financial disaster.
While government was regulating land use and driving housing prices beyond the reach of many young or first-time home buyers, the schools that same government operates stopped concentrating on core skills in math, civics and economics in favor of more politically correct concentrations on self-awareness and absolute equality for all. Unfortunately that created a population of potential home buyers who could not understand the economic risks of “zero down” or “sub-prime” loans or understand the implications of adjustable rate mortgages. While those borrowers caught up in the current mortgage crisis must bear their share of the responsibility, our government also let them down and must carry the biggest part of that burden.
While government was setting the stage for the eventual meltdown in the housing market, our elected officials spent more time diverting our attention to other “more pressing” issues. We have managed to save the habitat for spotted owls at the cost of a timber industry. We have spent millions to save salmon, which we feast on weekly, at the cost of limiting land available for development. We have devoted countless hours and dollars to other “save the environment” programs while the most vulnerable among us were allowed to fall into distress and ruin. We have “saved” something else while preventing the responsible development of the natural energy resources vital to our economic growth and stability. Apparently the issues related to environment and the broader goals of saving the world are more important to our elected officials than the more direct responsibility to preserve our society and quality of life for our children. Apparently the answer from our elected officials to the question “What kind of world will we leave for our children?” is one of massive personal debt, higher taxes, low paying jobs, failed economic policies and a standard of living lower than that of our grandparents.
All is not lost however. Yes, we are going to have to “buy” our way out of the current problem. In part, investors who were happy to watch their portfolios grow at the expense of others will have to accept the “adjustment.” Some financial corporations will pay for their fool-hardy policies with extinction. However, the debts can be paid and the shortfalls overcome by sound economics-based policies. The private sector, given some incentive from the same government that caused the problem, can go a long way to resolve the problem. If Warren Buffett and Steve Forbes see an opportunity for investment, there is good reason to see light at the end of the tunnel and to follow their advice.
A more important step, however, is to put an end to the regulatory lunacy that got us here in the first place. Failed policies do not become “good policy” by covering them with another layer of regulation. The proper response to failed policies is to eliminate them. That can only happen when we have elected officials who have the ability and the courage to act. Over the past 10 years only a very few of our local, state and national representatives have demonstrated that courage to act. Only Jan Angel, Tim Sheldon and Bob Oke consistently acted to challenge the lunacy of land use policies in our state and county. If we really want to solve the current problem, we must first remove the source of the problem by electing people who really understand the role of government in our lives. Other than Tim Sheldon and Jan Angel, I cannot identify another incumbent who believes protecting our individual rights and interests is their primary concern or responsibility. Perhaps those incumbents need to find another line of work.