Guarantees

When you purchase any product, it is comforting to know there is a guarantee. Of course if the product was of such high quality, the guarantee really doesn't come into play except on rare occasions.

Now let us say you purchase a product with a fancy guarantee but it doesn't perform as expected and you want a refund? No problem right? Well not exactly. If the manufacturer of that product doesn't have the capacity to back up the guarantee, you are out of luck. But you say wait a minute, I can sue the manufacturer. Now while that is most certainly true if the company doesn't file for bankruptcy and you have the resources to hire a lawyer, but if they do file for bankruptcy then what? How are you going to recoup your investment? This brings to light the real value of guarantees.

This assumption of a guarantee being valid led many of our private lending institutions to find themselves in the same situation as the individual in our previous example. Many of the banks that lent money to homeowners operated under this assumption when encouraged by Fannie Mae and Freddie Mac to lower lending requirements to prospective home buyers becuase they would be guaranteed by the government.

As in the previous example of the manufacturer defaulting on their guarantee of the product you purchased, the government guarantee against default of risky mortgages has produced a similar outcome with the exception that every taxpayer is on the hook for this guarantee. In fact, individuals and prospective homeowners took out loans that only under rare circumstances were given IE; individuals that didn't have a regular monthly stream of income because that income was in the form of commissions, and these ARM's were being issued like peanuts to an elephant.

The government guarantee to the banks issuing these ARM's were of little value, because the guise under which these loans were given used unsound lending requirements. The government's instance on lowering lending standards to advance the politically expedient pandering and exploitation of it's citizens in order to enhance their own re-elections, is every bit as reprehensible as a manufacturer making an inferior product and not backing up their guarantee.

Many in government come into office with high ideals and often overestimate their own importance. With this mindset they then rationalize that if they don't pander to the broadest part of the electorate they won't be re-elected to continue delivering more and more preposterous legislation.

This is a great argument for the imposition of the same rigorous standards that apply to a product's safety and the legal ramifications that follow with private industry to our elected government officials.

The insistent meddling in our economy by elected officials that have questionable experience to do so under the guise that they know better than the established, tried and true, sound business practices is absurd. Is there a place for government regulation? Of course there is, as improprieties will occur if business amasses to much power, but remember this. Those with deep pockets are always going to have the where-with-all to influence our elected officials and the more tax dollars that the government controls, the bigger the prize lobbyists have to go after.

If a business operates in an inefficient manner, they go out of business unless they can influence politicians. Big business and big labor can often do this, but what about the small businessman and the average Joe lunch pale? Sorry, no soup for you the little guy. Reduce the size and scope of government and you reduce the influence by the powerful on it's elected officials.

We have laws on the books and a court system to interpret them to handle those that break the law. The problem lies when the elected officials that create the laws, can be influenced by the same people they are meant to safeguard it's citizens from.