Mortgage-Relief Reaction

Left-leaning economic populists will deride President Bush’s Mortgage-Relief plan as not going far enough to “right” the mortgage crises. Free-market supply-siders will react to the relief plan as a bailout for the financially reckless. How this will play out during the election year is already quite clear, good versus evil. Democrats will undoubtedly say that the plan illustrates republican greed, by being too restrictive on helping those in need. Meanwhile, Republicans will comeback with arguments of fiscal responsibility against poor risk decisions.

However, I feel the real point, the theory and end-result of economic fallout will be ignored. The free-market system (when left alone) will correct itself as it has here and that in-and-of itself is fundamental to the success of free-market economies. The price of risk leads to prudence and calculated investments. If bailouts become the norm (as in socialist-leaning Europe) the economy and investment market becomes unstable as Smith’s Invisible Hand is replaced by State intervention.

Its not an argument of teaching lessons to risk takers, but rather allowing the market to evolve without regulation and intervention by short-term economic policies.