Don’t monkey with the market

If you’ve been following the news, the number of foreclosures in the nation has been on the increase. According to the Silver State’s own Sen. Harry Reid, D-NV, foreclosures in Washoe, Douglas, Elko and Nye counties over the past two years are up by some 300 percent.

“We can’t afford to wait until the next legislative session in February 2009,” or so sayeth Assemblywoman Sheila Leslie, D-Reno about a special legislative committee that is scheduled to meet Oct. 22 to address the problem.

“The problem has reached a crisis level in our state, with Nevada having the highest rate of foreclosures in the nation.”

At the risk of sounding like, well, me, neither of these two rocket scientists—both in office for the past two years—had a thing to say when banks were making all those “high risk” loans to people. (Why is it politicians are always fixing problems after they’ve become a crisis and never before?)

For the uninitiated, the housing market—which heretofore had been appreciating at roughly the rate of a rocket into the stratosphere—has tanked. Of course, when times were good, banks were lending money like there was no tomorrow. And the so-called “sub-prime market” (that being people with limited means and/or credit) seemed like a good place to expand the market with creative financing. After all, owning a home is part of the American dream, isn’t it?

By creative financing I mean an “ARM” or adjustable rate mortgage. That is a type of mortgage that typically has a low initial rate and adjusts (usually upwards) based on market conditions. If your knee-jerk reaction is that an ARM is a bad thing, then you don’t understand them, and it is probably best for you to avoid them. For the otherwise financially competent adult, however, they are a useful tool to have in your arsenal of financial products.

The number of foreclosures notwithstanding, it is difficult to feel sorry for anyone here. I mean, should you feel sorry for banks who loaned money to people that wouldn’t (or couldn’t) eventually repay said loans? Or should you feel sorry for grown adults who bought more house than they could afford or got into a loan that they didn’t understand? (And on that side note, if you’ve ever bought a house, you know that every transaction comes with a ream of paperwork chock full of disclosures.)

And yet here come the idiot politicians who will doubtless find some way to spend more taxpayer dollars bailing out their same like-minded, half-wit constituents, or worse, find a way to regulate banks from making these loans and thus effectively making an entire segment of otherwise responsible citizenry homeless—or at least unable to purchase a home.

This, in turn, will lead to a “crisis” of another kind: How will Joe Six Pack be able to afford to buy a home? (Probable answer: Another government program.)

The point here, lest it be lost, is that perhaps the politicians will leave the private transactions between private parties, namely homebuyers and lenders, alone?

Banks will eventually learn not to over-lend and buyers not to over-borrow. Both will learn their lessons, albeit painfully, and neither requires government intervention.