By By Tray Smith
As the previous century came to a close amidst a period of great national wealth, American financial institutions began offering mortgage options to consumers not likely to qualify for traditional loans. Now referred to as subprime, these mortgages are not named for their less than optimal interest rates, but rather the less than optimal credit rating given to those who borrow them. With the cooling housing market and slowing economy, they could also be named so for the inevitable disruptions they are creating in the market.
Indeed, several credit deprived subprime borrowers have been forced into foreclosure, which has lead several subprime lenders into bankruptcy. This phenomenon has resulted in populist "plans" for "preserving the American Dream of homeownership." Ironically, these "plans" often work against the interest of subprime lenders, who have helped make that dream a reality for a large number of American families, and always work against the interest of the greater economic good.
It is that debate over the greater economic good that is represented in the current debate around subprime mortgages. Poor credit ratings are a product of an individuals poor financial management for which he or she is ultimately responsible. By offering those persons financing options, subprime lenders are giving them a valuable service. And by qualifying millions of people who would have traditionally been denied mortgages for those options, these lenders have helped facilitate a drastic increase in our nation's homeownership rate. But because they are doing so at a greater risk to themselves than traditional lenders; it is only logical that subprime lenders also impose higher interest rates. Consumers can avoid those rates either by first, responsibly managing their money in order to maintain a high credit rating or, second, forgoing the benefits of a mortgage and homeownership. Should they, however, choose to except those rates, the financial obligations that ensue are a consequence of their own pocketbook decisions. Thus, phrases like "predatory lending" are meaningless because subprime lenders are only giving money to those who ask for it, and they are only asking for it because they feel it is in their best interest.
But economically "progressive" politicians are now clamoring for taxpayer bailouts in the interest of subprime lenders in order to both prevent them from going bankrupt and their clients from facing foreclosures. Unfortunately, those subsidies will only relieve individuals of the consequences of taking out a loan which they were not certain they could repay and benefit corporations for lending money to individuals posing an exceptionally high risk. In the process, the government will distort the market by forcing proper stewards of financial resources and conservative banks to finance the follies of those who have made less prudent monetary decisions.
Politicians promoting this program cling to the fallacy that government intervention in failing market sectors can benefit overall economic progress in spite of obvious realities. The government can only relieve financially strained industries through revenue received from financially prosperous entities. Therefore, any money diverted into failing enterprises only rewards failure at the hands of those who bear success. Regardless of how many families loose their home or how many corporations loose their business as a result of the temporary subprime "crisis," the national economy will be better when the market is allowed to correct its own flaws than when the government intervenes in the interest of engineering a better result. It is essential that this point be understood if we are ever to address the ills caused by farm subsidies and other like minded programs, which bring new meaning to Ronald Reagan's famous quote that the "government's view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it."
Yes, Senator Clinton may prefer a model of "shared responsibility" over an "own your own" system, but I would rather not share in the responsibility for the imprudent financial decisions that my fellow Americans make at the consequence of my own monetary standing. No, I would rather enjoy the fruits of my financial stewardship entirely "own my own."
That is the bottom line.
Tray Smith is the Vice President of the Escambia County High School Student Government Association, where he is also a junior. In September, he will begin serving as a page in the United States House of Representatives. He can be reached at tsmith_90@ hotmail.com.