Today, I attended a lunch sponsored by the Illinois Chamber of Commerce with current HUD Secretary Steve Preston. Preston is a native of Chicago and so this lunch, downtown, was a sort of homecoming.
During Preston's remarks, he first mentioned that he believes in limited government. He then proceeded to rattle off a laundry list of things that HUD has done both in the community and to help struggling homeowners. He mentioned that HUD has backed about 400,000 loans for borrowers currently struggling to repay their mortgages. He mentioned that HUD helps in providing loan modifications. At one point, he even mentioned that about 90% of all new mortgages are currently being backed by the federal government. This, I read, he thought was a good thing. His conclusion was then that the government was a force for stabilization in real estate. I found his supposition that he is a small government to run counter to the body of his speech. That prompted me to ask this rather provocative question. (I will relay it as close to word for word as I can remember)
I have been in mortgages since 2002. For about three years, mortgages were given to just about anyone with a heartbeat. Now, all those folks are in a position where they can no longer pay them back. You say that you are in favor of smaller government but you also say that government backs 90% of all mortgages. I don't think that's a good thing. That socializes mortgages. There's a mechanism for people that can't pay their mortgage back and its foreclosures. Why are mass foreclosures worse than the government intervention you are proposing?
Now, I felt that Secretary Preston danced around the question a bit. His basic point is not a new one. He said that without the massive government intervention we have seen our economy would really be in free fall. This is the standard answer that any normally small government conservative gives when they are asked to defend the massive government intervention they now back, like the bailout. It's one of those things that is impossible to prove one way or the other. First, I haven't seen the data that I assume he has. Second, we'll never know what would have happened without the bailout. I continue to be skeptical of such an answer. I understand that banks are holding onto much of the money, making acquisitions with much more, and some of it is winding up overseas.
When I first started blogging I talked about folks I called fair weather capitalists. That's how I would classify Secretary Preston. I'm sure he would say that he is a pragmatist. That said, I believe in free markets always. It's not enough to believe in free markets when things are going great. It's exactly when things begin to fall apart that real free market believers believe in free markets. I believe the free market is always the best arbitrator of moving our economy. Secretary Preston would say that this crisis was far too reaching to allow the free market to decide.
For me, free markets always guide us out of the wilderness. Secretary Preston talked about many large corporations that would have failed had we not stepped in. I would say it isn't the government's job to save them. For every corporate failure there is a corporate shark to step in to grab a great merger and/or acquisition deal. That's what the likes of Bank of America have done with many failed banks. When the government props up failure, it also effectively allows the weak to survive when they should be removed.
This debate that I created with my question is one of the central debates in our economy. What is the role of the government in the current crisis? Folks like me can be found on Wall Street, Main Street, and in many business media, but they are scant in the places that matter, within our government. As such, while I made Secretary Preston a bit uncomfortable with the question, ultimately, it is a debate my side will lose.
I also found that Secretary Preston is an example of how it is much easier to be a real small government person when you are given power. Had Preston governed over HUD as a small government conservative, his speech would have been full of examples of how he shrank HUD and made it more efficient. Instead, it was full of the things that HUD did for people. Once in power, small government principles are difficult to implement because it also means weakening your own power and reach.
Finally, I felt as though at the end of his answer to me Secretary Preston did a little pandering. After explaining that we need massive intervention to stop the massive collapse that would have happened without it, he also told me that soon we need to develop the private markets so they can function independently. Where I differ from Secretary Preston is in the idea that we can achieve free market bliss through massive government intervention. I would say such measures are counter productive.
Please check out my new books, "Bullied to Death: Chris Mackney's Kafkaesque Divorce and Sandra Grazzini-Rucki and the World's Last Custody Trial"