An Evil Bailout

"Housing Bill Hammers Taxpayers"

"About the Next Crisis"

Is it right for the federal government to make it easier for people of low income to buy their own homes?

If left to itself, no one in their right mind would loan someone with a low income enough money to buy a house, at least not at a low rate of interest. The reason for this is obvious: there is a strong likelihood that a person with a low income will not be able to repay the loan.

That, unfortunately, is where the federal government comes in. After deciding that it would be a good idea to help people with low incomes buy their own homes, the federal government made sure that loans would be available at low rates of interest to such people. I am not sure exactly how this works, but presumably it involves the federal government paying part of the interest for the buyer (as in the case of student loans) as well as promising to repay the creditor if the borrower should default.

Lately the federal government has promised to do the latter of these in the case of Fannie Mae and Freddie Mac, in order to make sure that investors do not withdraw their capital from these corporations. This is the last step in a series of irresponsible actions.

In the first place, people bought houses they could not afford. Then, Fannie bought these risky mortgages and investors bought stock in this risky corporation. When the people defaulted on their mortgages and investors were in danger of losing the money the invested, the federal government stepped in (with our money) to pay for any unpaid loans.

This is the most obvious way in which the federal government is taking money from those of us who live responsibly and giving it to those who are living irresponsibly. I am convinced that a society that rewards those who are irresponsible and punishes those who live responsibly cannot long survive.

The very existence of this program, however, even without a bailout, is unjust. Whenever the federal government gives people money to buy things they could not otherwise afford, it drives up the price on those items for the rest of us. This is true in the case of secondary education and medical care and it is also presumably the case in the housing market as well.

I wish the federal government would just get out of the business of helping people buy their houses. Let them work, make sacrifices for their children, teach their children to live responsibly, and they or their children or their children's children will eventually own their own home. In this way they will have earned it and not received the rewards of virtue without the exercise of virtue--and without receiving by the hand of government what rightfully belongs to someone else.

(See Hans F. Sennholz’s “Why is Medical Care so Expensive?” for a discussion of how the federal government drives up the cost of medical care.)