The Sky's Not Falling: The Mortgage Truth

"Mortgage Crisis," shouts The New York Times. The Times has used the term "subprime crisis" at least 11 times. Not in opinion columns -- in news stories.

The columns are worse. Paul Krugman writes: "A lot of the financial system looks like it's going to shrivel up and have to be rebuilt."

The "financial crisis," says Fortune's senior editor, "is threatening to bring down the entire system, with dire consequences."

When the current troubles aren't a "crisis," they're a "disaster" . That's what John McCain calls them, while Hillary Clinton prefers "crisis," saying, "This market is clearly broken, and, if we don't fix it, it could threaten our entire housing market."

Wait a second.

Where is this "credit crisis"? Did the supermarket reject your Visa card? I still see Ditech commercials offering fixed-rate mortgages at around 5.5 percent.

Sure, some lenders are skittish while things play out. Some investment banks and brokerage houses are sitting on shaky, mortgage-backed securities. But why call that a "crisis"?

Do we have 25 percent unemployment, as we did during the Depression? Do we even have 7.5 percent unemployment, 12 percent inflation and 20 percent interest rates, as we did during Jimmy Carter's presidency?

There's been a loss of jobs in the last two months, but that comes after years of strong job creation -- 25 million net jobs in the last 15 years. At 5.1 percent, unemployment is low by historical standards.

And are we really experiencing a mortgage-default "crisis"? No. The Mortgage Bankers Association's 2007 fourth-quarter survey reports that foreclosures came to 2.04 percent of all mortgages. Many of those were speculators seeking flip profits rather than homeowners losing a dream house.

During the quarter, only 0.83 percent of homes entered the foreclosure process. It may get worse -- in March, "foreclosure filings, default notices, auction sale notices and bank repossessions rose 5 percent," Reuters reports. But let's keep things in perspective: Ninety-eight percent of borrowers are not in foreclosure. Only a small percentage of them are even late in payments.

Politicians love a "crisis." McCain, Clinton and Barack Obama think that the government should bail out homeowners who can't pay their mortgages. When they say the government should do this, they mean the taxpayers, including those who are paying their mortgages. They also think the government should regulate the lending and investment industries further.

Why?

Because "crisis" justifies making big government bigger.

It's why we now have a global warming "crisis" and in previous years we had "crises" over avian flu, the Y2K threat to computers, imaginary cancer spikes caused by pesticides, killer bees flying up from Mexico and uncontrolled population growth leading to a "Population Bomb" that will bring "riots and mass starvation" by the year 2000.

This is not to say that lots of home buyers aren't having a hard time. But the rapid rise and fall in housing values in some parts of the country -- and the rippling consequences at each stage -- do not justify scrapping what we know about economic success and turning to government control.

Prosperity and stability come from people being free to innovate and produce -- and yes, fail. Bureaucrats, however well-intentioned, cannot know enough to manage that process. They are unqualified to give the green light to some innovations and the red light to others. Bailouts create irresponsibility.

I expect the silly people to say silly things. Here's Krugman: "[I]t's puzzling that Democrats haven't been more aggressive about making the disaster an issue for the 2008 election. They should be."

Keith Olbermann even seems to find the "crisis" exciting. "You watch, this is going to make Enron look like the failure of a lemonade stand."

But the rest of us should get a grip. The best regulator of economic activity and source of knowledge is free competition.

Of course, government inhibits that in many ways. If we want to avoid disruptions like the current one, let's undertake a wholesale examination of government intervention in the economy. Freedom, not control, is the ticket to success.

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