There are a lot of folks who have jumped on the “capitalism has failed” bandwagon and are confident that more government interference in business and personal affairs is the answer to our faltering economy.
I take exception to the distortion of blatant truths that suggest capitalism has failed. In fact, I would argue that we are seeing capitalism at it’s finest.
Americans, in recent years, have been living well beyond their means. People purchased homes they could never afford with the flawed thinking that real estate prices would rise indefinitely. Homeowners refinanced their loans, took out risky first and second mortgages and wasted the proceeds on a new master bedroom suite or a brand new boat or car. Other people just kept charging and charging until there was no credit left and nothing to pay it back with. Flat screens, iphones, and remodeled kitchens…all great, but all UNnecessary…and all purchased with money people didn’t have and didn’t have a reasonable expectation of ever earning.
Now that home prices are declining to their true value and the credit crunch is beginning to evidence itself America’s hapless citizens are crying foul. After all, aren’t we all entitled to own a home we cannot afford and credit we are not worthy of? The president seems to think so and millions of others agree.
The president along with his “victim” followers and sympathizers argue that greedy banks and their unscrupulous, private-jet-flying, new-curtain-hanging CEOs are to blame for this economic downturn. It is those in the “unregulated” private sector who are responsible for getting us into this mess, they maintain. There are innocent “victims” out there losing their homes everyday and its all YOUR FAULT!
Unfortunately it was NOT capitalism that put unworthy purchasers into homes and allowed an excess of credit and thus debt to ravage our economy and ultimately force people from their homes. In fact it was government interference through the Community Reinvestment Act, with the intention of making homes affordable to more people, that has reeked this havoc.
As I wrote in October the artificial demand for housing was caused directly by the CRA which forced banks to give credit and eventually mortgages to people who did not have the financial credentials to be extended various loans. After 1994 there was an influx of new “qualified” home buyers seeking to purchase homes. Basic economics dictates that as the demand increases so does the price. That is precisely what ensued. More and more people qualified for home mortgages and prices subsequently skyrocketed. The government had intended to make home purchasing affordable, but when they interfered with the free market, the Law of Unintended Consequences took over and home prices soared, making home ownership LESS affordable. Unfortunately for all the “victims,” the government through CRA was still insisting banks loan money to unqualified borrowers. So, while homes were becoming more expensive and less affordable, the government still demanded banks ease their lending requirements, and the “victims” were given mortgages for amounts well above the real value of their home. The resulting balloon-pop and piper-paying was inevitable.
To sum up, it was the government’s practice of social justice that put these “victims” into their homes. It was the government that forced banks to give loans to people who were not credit worthy. Therefore, it is not illogical to connect the dots and suggest that it is government interference that is forcing these “victims” from their homes, not capitalism.
Capitalism, prior to government interference, kept people in affordable housing (read: houses people could afford). Capitalism, prior to government interference, allowed only the financially well-equipped to spend themselves into debt. Capitalism, prior to government interference, was the influence that forced most Americans to live within their means.
In the end it was government who allowed encouraged the “victims” to live well beyond their boundaries. Fortunately it is capitalism that is here to bring fiscal responsibility back into fashion again.
Let’s be clear, capitalism never pretended to be a game that produced only winners. Capitalism does guarantee opportunity but will never guarantee results. Success AND failure are expected outcomes of capitalism. Capitalism seeks to find the value of goods through the basic forces of economics free of undue influence and interference. If left to its own devices, capitalism is the most efficient and effective manner in which to manage an economy.
And its funny, but I don’t recall anyone complaining about the “perils and pitfalls” of capitalism when the value of real estate was doubling every 2 years. No one said “boo” while they were hanging their new 52″ plasma flatscreen. Government interference resulted in a true sense of entitlement among many in the population. Thankfully, capitalism is there to knock sense into people and force them to take responsibility for their own actions.
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