Friday, August 31, 2007


President Bush intends to outline a plan to assist those who will soon suffer hardship by their choice to live beyond their means.

Here is the email I sent to my senators and representative in Congress on this issue:

If he hasn't already, President Bush plans to urge Congress to pass legislation to provide assistance to subprime mortgage holders. This message is to urge you to VOTE AGAINST ANY SUCH LEGISLATION.

As a homeowner and standard mortgage holder I have made conscious, responsible choices regarding my finances. Like most people I have at times overextended myself in the past, but I have NEVER expected anyone else to pay my bills or bear the cost for my mistakes. President Bush's proposal will do just that. It will lay the cost of others' mistakes at the feet of responsible individuals like myself and the millions of other Americans who have worked hard to keep their finances in order, live within their means, and have good credit as a result.

You may be inclined to blame banks or "predatory lending practices" for this problem, but this would be placing undue blame on those institutions that merely operate at the whim of the Federal Reserve (FED). By guaranteeing every loan, no matter how risky or unsound, the FED has encouraged irresponsible lending and created the very "crisis" we now face. Spending the money earned by taxpayers to assist those who face hardship as a result of this policy will make us all victims of the FED. Bailing out those who have made poor choices will only encourage more poor choices, and it will render meaningless the hard work put in by the rest of us. By mitigating the consequences of irresponsible behavior, further and more egregious irresponsible behavior will be encouraged.

DO NOT use my tax dollars to support this effort.


Ron Jennings
Truly, this does suck for the people who have entered into these high-risk mortgages, but I believe that in any transaction there is equal responsibility on both sides. This means that the borrower has a responsibility to understand what he/she/they are getting into and what the consequences of insolvency may be. Some believe that subprime mortgage holders have been duped into overextending themselves, and it is certainly possible that the lender used some fancy language or persuasive arguments to close the deal on a risky loan. But how is this any different than say, buying a used car? Though smarmy and slimy, used car salesman can be awfully persuasive...but you still don't buy the car without driving it, and if you do there's no one to blame but yourself. Until fairly recently (perhaps 10-15 years) a prospective borrower hired a lawyer to at least review the mortgage paperwork, much like a prospective used car buyer might hire a mechanic to check out a car they were thinking about buying. That practice has fallen out of favor somewhat as mortgage companies have started "cutting out the middleman" and providing their own closing agents. Again, it is the responsibility of the borrower to ensure that he/she/they are protected. To do otherwise opens oneself to undue risk.

On the other side of the transaction...while I certainly don't hold smarmy lenders harmless in this instance, the lending of funds to sub-prime borrowers holds a great deal of risk. This risk is mitigated to a great extent by the Federal Reserve's backing of every loan. The FED creates credit (money out of thin air) for banks to lend in an effort to stimulate consumption. This brings with it a great deal of hidden cost, in addition to inflation. In a free banking environment (absent the Federal Reserve) banks would be much more risk averse, as the cost of a defaulted loan would depend on the bank's ability to liquidate the asset tied to the loan. Banks wouldn't put themselves at risk of losing millions of dollars loaned to unsound borrowers. The elimination of the FED and a return to free banking would do much to stabilize the mortgage market and prevent "crises" such as these.

Friday, August 17, 2007

The "Threat" of Wal-Mart

All over America, communities are fighting the blight of the ubiquitous Wal-Mart Super Store. These heroic Wal-Mart fighters are champions of the little guy, protectors of the Mom and Pop business, and defenders of historical integrity...or so they believe. While many of them may mean well, there is nevertheless a great deal of contradiction in the beliefs held by those who oppose Wal-Mart and other "big box retailers". Viewed from a distance, their efforts may seem noble, but close inspection reveals a more insidious line of reasoning.

People love to hate Wal-Mart for a variety of reasons, but there are a few standards that come out nearly every time a Wal-Mart "threatens" a geographical area with its presence. Many decry Wal-Mart's low wages and lack of employee benefits. Others hate that Wal-Mart drives smaller, less competitive businesses out of the market. Some dislike the fact that a Wal-Mart often attracts numerous other businesses to its locations, thereby contributing to "sprawl". On an emotional level these things all certainly seem deplorable, but when considered rationally these arguments all break down. One simple question puts them all into perspective: How many people, in a given geographical area, are harmed when a Wal-Mart opens up, and how many people in that area benefit from it.

The people who may be harmed tend to be obvious. Local businesses who face competition from Wal-Mart may indeed be forced to close their doors as consumers exercise their preference for lower prices and greater convenience by shopping at Wal-Mart. This does, indeed, bring temporary hardship to the owners and employees of those businesses. Some may argue that all the members of a community are harmed when a local business closes, but I fail to see how that could be true. Some may bemoan the loss of a local establishment, and friends and families of the affected business owners may feel some grief, but again this is a temporary condition, and it shouldn't render anyone incapable of ever obtaining another job or finding some other productive means of making a living.

Others who may be "harmed" are those who prefer to (and can afford to) shop at local businesses rather than at big box stores. This is not so much harm as inconvenience, and the fact remains that if there are enough people who refuse to shop at big box stores then boutique shops should have no fear of losing revenue.

The number of people harmed when local businesses close due to competition from Wal-Mart may number in the tens or possibly even 100s. These are the "victims" that Wal-Mart haters claim to be protecting. What is rarely considered, however, are the thousands who benefit when a Wal-Mart comes to their town. Poor families benefit greatly from reduced grocery bills, clothing costs, and household item costs. In addition, Wal-Mart brings valuable jobs to any area in which it's located. But often this fact is turned completely on its head and used as an argument against the store, as outsiders claim that the wages paid and benefits provided are too low. It must be kept in mind, though, that the people who apply for and accept jobs at Wal-Mart don't quit higher-paying jobs with benefits in order to take a lower-paying job with no benefits. They work at Wal-Mart because it offers a better alternative than what they would have otherwise had.

In the end, those who oppose Wal-Mart are simply attempting to impose their own preferences on others, without consideration for the costs of doing so. They attach inflated importance to "historical preservation" or apply some arbitrary standard of what wages and benefits Wal-Mart should offer their employees, with no regard to poor families who must bear the costs for those preferences by being forced to pay higher prices. Competition is the nature of Capitalism. It is what causes quality to constantly improve and prices to continue to fall. It raises the standard of living for everyone, and in absolute terms the poor benefit the most. To stand against it under the pretense of protecting a few people from temporary hardship isn't noble or heroic, but harmful and elitist.