Two wrongs don’t make a right

 

The following excerpt is from Euro Pacific Capital’s website and is authored by Peter Schiff.

Peter is one of the few CEO’s and respected businessmen in the financial spectrum who correctly called the housing collapse and testified on a Senate subcommittee regarding additional loan guarantees provided by the FHA for multifamily housing. The following can also be found as a video clip on Youtube.

“I was invited to testify about the Federal Housing Administration's (FHA) policy in the apartment lending market. Although this was a fairly narrow issue, I told the congressmen the same thing I did last year when I was invited by a different subcommittee to testify about job creation: government programs don't solve problems, they just create new ones. While I thank the Committee for inviting me, I believe the congressmen may have gotten more than they bargained for. […]

The subcommittee was considering whether to expand the activity of the FHA to insure loans for multi-family (apartment) buildings. The mechanism to achieve this was to extend FHA guarantees to pools of collateralized mortgages backed by multi-family residential housing units.

I have absolutely no objection to the idea that a healthy rental housing market is needed. However, I believe that market forces are sufficient by themselves to create it. The average American family now only has $7,000 worth of savings, which would not be nearly enough to afford a 20% down payment on the average American house. This means that most Americans should be renters and not owners. […]

Normally, these simple facts would attract investment capital to build affordable rental properties. However, these forces have been blunted by Federal tax and housing policies that have exaggerated the economic benefits of home ownership and have drawn excessive amounts of investment capital into that sector. To correct the distortions, the Subcommittee was considering, you guessed it, more distortive regulations. It never occurred to them to simply scale back the original regulations that are the root of the problem.”

Government officials liken the idea that whenever there is a problem that cannot be serviced immediately by the free market, they have to jump in and make a utter and complete mess regarding the “apparent” problem at hand.