A column in Monday’s Wall Street Journal on the bailout crisis said, “It’s now clear that the data that banks used were distorted by years of government initiatives to promote homeownership.”
For those of us who believe in the superiority of free markets over government regulation, it was quite clear before the fact that government intervention would distort the markets. And that’s the problem today. Government intervention to force the “process of discovering the full losses” will only further distort the markets and make a bigger mess. Just like government intervention caused this mess in the first place.
Another example: In Texas a few years back, the government tried to help consumers by forcing insurance companies to use a common form for offering homeowners’ insurance. The common form was designed to be easy to understand, force companies to offer certain coverages, etc. All good and fine until a court decided that the form didn’t really mean what its clear language said. So companies had to offer mold coverage. Suddenly, Texas had a mold crisis, with everyone discovering life-threatening mold in their homes. Claims rose so fast that premiums skyrocketed.
A few years later, companies were finally allowed to use their own forms, and the mold crisis was over. But not before Texas consumers had been socked for a $900 million increase in homeowners’ insurance premiums to pay for mold remediation efforts that dried up once mold was no longer covered by insurance policies. Seems as if mold wasn’t a health problem after all, but folks just got all stirred up by the news coverage and easy access to insurance dollars. The whole exercise simply transferred wealth from one set of consumers to pay for the remodeling of their homes.
Government intervention just doesn’t work, no matter how well intentioned or intelligent the interveners are. Unfortunately, too many folks won’t acknowledge this until after the mess has been made and consumers have to pay the cleanup costs – no matter how many messes the government makes.
– Bill Peacock