Promoting DependenceINVESTOR'S BUSINESS DAILY
Posted 6/24/2008 Moral Hazard: Congress has moved closer to passing legislation to bail out homeowners who are in trouble with their mortgages.
Yet again, the taxpayers will be forced to pay for other people's mistakes.Should it become law, the Dodd-Shelby bill, similar to one already passed in the House, would authorize the Federal Housing Administration to back $300 billion in refinancing loans for homeowners in danger of defaulting on their mortgages and who would be considered financial risks for other loans.
It passed a test vote 83-9 Tuesday and might be voted on for final passage as early as Wednesday.
We're used to Congress eagerly giving away other people's money. But it's been a while since we've heard a defense of a bill as twisted as the one offered by Sen. Chris Dodd, the Connecticut Democrat who chairs the Banking Committee from which the Senate legislation originated.
"What better gift on independence (sic) could we give the American people than a sense that this, their Congress of the United States, can come together, despite political differences, and craft legislation to make a difference for our country," he said.
Independence?
Does Dodd not know that what he and the rest of Congress are doing will make those who don't get the bailout cash financially responsible for those who are? There's no independence when one class of people are made beholden to others through public policy. Rather than a gift of independence,
it's a curse of dependence that will be perpetuated.Dodd probably understands this. It would be hard for him to have reached his station in life without understanding something so basic.
But in his haste to look compassionate to voters in an election year,
he doesn't care. It's the same intellectual and ethical indifference on which he and most of his Capitol Hill colleagues operate.
They aren't concerned about the moral hazard they create by legislating taxpayer-backed bailouts, because they
don't have to live with the consequences. They've likely turned off the parts of their brains that would alert them to the dangers of bailing out "victims."
Yet the risks remain. When people are reasonably certain that foolish behavior ? such as buying a house that is clearly unaffordable ? won't be punished by reality, and indeed will be rewarded by someone in authority,
they are likely to engage in that behavior without conscience.
The homeowner bailout is only the most recent chapter in Congress' black book of moral-hazard legislation.
Lawmakers have provided incentives for Americans to live in flood plains, hurricane alleys and earthquake zones, or to make shaky investments (recall the savings and loan failure) then go running to government for help when they have been exposed to a disaster or failure for which they were not prepared.
As lawmakers rushed the bill through, a related matter made headlines Tuesday. The Case-Shiller home price index, which monitors sales in 20 cities, fell by 15.3% in April compared with April 2007.
It is the steepest rate decline in the eight years the data have been collected, a precipitous fall that the Dodd-Shelby bill could reverse by providing incentives for homeowners to keep their houses through cheaper home loans rather than put them on the market.
The assumption in Washington is that there's something wrong with declining home prices. Yes, the value of U.S. housing stock has fallen, and with it some personal wealth.
But Congress wouldn't consider propping up high prices for food or gasoline ? though it's doing so inadvertently by refusing to drill for new supplies ? or even umbrellas.
Why should it make homes less affordable?
In what rational world do lawmakers actively deny homeownership to hardworking Americans by artificially increasing the cost of housing?President Bush has said he'll veto a bailout bill if Congress sends him one. He should. Many Americans need to unlearn their belief that government is a nanny to catch them when they fall, and learn to define the phrase "moral hazard."
Moral Hazard
