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President Bush’s land reform: Using inflation to vaporize consequences of overlending

July 31, 2008

When President Bush signed mortgage relief into law, converting pending foreclosures into affordable FHA-insured mortgages, hundreds of thousands of Americans who had overindulged in an uninformed dream breathed a little more easily.

This was all accomplished without inserting a single siphon into a single savings account belonging to any other American. It was kinder, gentler, abstract, and subtle.

If you are an indebted homeowner, you now have some hope of equity, if the value of your home ever catches up to the amount of your debt. If you own your home free and clear and have some savings, you haven’t exactly been robbed to help your mortgaged fellow. Check your savings balance: your dollars are all still there. (Well, unless the Fed has taken over your bank, in which case you’ll get a check from the FDIC–hang in there.) The siphon was inserted not into the account valve itself, but into the very value of your dollars.

While there’s ink, there can be more money.  Inflation, taxation, and outright expropriation are all means of redistributing wealth.  You won’t be able to buy as much, or live as comfortably for as long, but the government will, because it has the power to raise taxes to cover its lost value. You don’t. Your savings rates will fall as government tries to fight inflation. You’ll have no way to recover except through more work, more savings, more of however your capital was acquired in the first place.

Americans who drank perhaps too deeply of the American dream of home ownership had drinking buddies in the various Rights movements. This all began to conflate in the American mind as the right of home ownership–and the right of nice, expensive homes was understood.

Mortgage lenders may have been greedy, and some were unequivocally fraudulent, but there is such a thing as calculated risk in their industry. There used to be such a thing as consequences following actions, but not anymore. That’s too hard-line. Bail-outs are necessary to cushion the fall. And let’s face it, the government wanted people to be happy, and did little to quelch their euphoria. Americans cannot be made to succumb to disillusionment; if they did, they might not believe this is all for their own good.

Those with capital are seeing its value diminish so others can avoid loss. Inflation is borne by all of us, and the burden extends to future participants in the American economy as well. Foreclosure is more personal. With inflation, we all feel the pain by spreading it around.

So President Bush has implemented a kinder, gentler sort of land reform: redistribution by inflation, rather than outright expropriation, or, quite yet, higher taxation. This isn’t, after all, Zimbabwe. But we should be aware that land reform in America is an established fact.

The government entered the housing business during the first Great Depression, creating the FHA in 1934. The FHA is not a lender; it is a loan insurer.  During a period of high foreclosure and default rates, insurers pay off loans.  Every taxpayer stands to participate in paying off ill-acquired mortgages belonging to other people.

Mugabe has pillaged his country with inflation; the percent of inflation in Zimbabwe is in the millions. Ours is in the single or double digits, depending on the commodity. We have more control, but we operate along the same principle: the government spends what it decides it needs to spend and the people pay the cost in present and future security and quality of life.

Inflation sucks the life energy out of everyone. Everyone is not burdened equally, but everyone is burdened. In one way or another, we all stare into the specter of the same soup line.

A sense of community is inevitable, and that makes politicians ever so happy. “We’re all in this together” is the tribal war whoop of communitarian liberals and their polyglot allies, like President Bush. Jonah Goldberg writes, “The yearning for community is deep and human and decent. But these yearnings are often misplaced when channeled through the federal government and imposed across a diverse nation with a republican constitution.” (Liberal Fascism, Doubleday, p. 159)

We’re all in the mortgage meltdown together. Again, government likes things this way. Government grows big and strong on crisis. Recall the National Recovery Administration, and World War II.  These were grand times for consolidation of government power.  Jonah Goldberg traces the lineage of crisis, bigness, militarization, and war in clear prose. And I appreciate his optimism: America will fare better than Europe did in troubled times; we are not as rigidly tribal, not as rigidly classist.  We will likely remain kinder, gentler, abstract, and subtle.

The mortgage crisis is a demographic melting pot.  But saving 400,000 people from foreclosure by guaranteeing new mortgages they might still be unable to pay is like putting duct tape on the San Andreas fault.

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