Freedom Means Responsibility

There is an excellent article in the WSJ from an unlikely source, George McGovern. In it, he covers the topics of the sub prime mortgage crisis, health insurance, and even pay day loans. His thoughts are clear: with personal freedom comes responsibility, government should do everything to extend choices not limit them, and most government regulations throw out the baby with the bathwater.

The first point that he makes is that despite all the talk of crisis the overwhelming majority of sub prime borrowers are making their payments on time. While there are far too many defaults and lates, they continue to be an overwhelming minority of the market.

With liberalized credit rules, many people with limited income could access a mortgage and choose, for the first time, if they wanted to own a home. And most of those who chose to do so are hanging on to their mortgages. According to the national delinquency survey released yesterday, the vast majority of subprime, adjustable-rate mortgages are in good condition,their holders neither delinquent nor in default.

There's no question, however, that delinquency and default rates are far too high. But some of this is due to bad investment decisions by real-estate speculators. These losses are not unlike the risks taken every day in the stock market.

McGovern is absolutely correct, and as I have pointed out, the market has long ago fixed whatever excesses there were. Too much government regulation will only limit choices that borrowers sometimes desperately need and always should be allowed to have.

On the issue of health insurance, he makes this intuitive observation...

Health-care paternalism creates another problem that's rarely mentioned: Many people can't afford the gold-plated health plans that are the only options available in their states.Buying health insurance on the Internet and across state lines, where less expensive plans may be available, is prohibited by many state insurance commissions.

Despite being able to buy car or home insurance with a mouse click, some state governments require their approved plans for purchase or none at all. It's as if states dictated that you had to buy a Mercedes or no car at all.

This is an interesting point, and I favor anything that expands choices for consumers.

Finally, on the issue of pay day loans he makes this observation...

With payday lending, people in need of immediate money can borrow against their future paychecks, allowing emergency purchases or bill payments they could not otherwise make. The service comes at the cost of a significant fee -- usually $15 for every $100 borrowed for two weeks. But the cost seems reasonable when all your other options, such as bounced checks or skipped credit-card payments, are obviously more expensive and play havoc with your credit rating.

Anguished at the fact that payday lending isn't perfect, some people would outlaw the service entirely, or cap fees at such low levels that no lender will provide the service. Anyone who's familiar with the law of unintended consequences should be able to guess what happens next.

McGovern's point is that the options beside pay day loans are even higher fees and even worse sometimes, bankruptcy. I personally have no use for pay day loans, however I have even less use for government regulators that try and eliminate things that the market would eliminate if they were truly worthless. The desperate, weak, and powerless are the ones that more than anyone need as many choices as possible. I do believe there are plenty of legitimate reasons to use pay day loans. Government regulators trying to limit them with artificial ceilings is just another way that paternalistic governments take away responsibility and limit choice.