The law of unintended consequences surely isn’t universal. Government often seeks to destroy things and truly does succeed in doing just that (alternative medicine, unlicensed professionals, and the like). What it taxes in order to punish, it truly does punish (cigarettes, alcohol, imports that compete with powerful domestic industries). What it regulates to ban, it does often succeed in eventually banning (large-bowl toilets, insecticides that work, effective medicines that the FDA judges too dangerous).
But sometimes, the law of unintended consequences (with results opposite of what is intended) really does apply and obviously so. A case in point is the effort to force mortgage companies to cover ever more losses on non-performing loans. The New York Times, for example, says that
Within the Senate, some discussion now focuses on pursuing legislation that would create a national foreclosure prevention program modeled on one started last year in Philadelphia. That program forces mortgage companies to submit to court-supervised mediation with delinquent borrowers aimed at striking an equitable resolution before they are allowed to proceed with the sale of foreclosed homes.
Now, you have to ask yourself what such laws are likely to do to the mortgage market. Does it make lenders more or less willing to take on more risk in lending? Surely these sorts of approaches end up putting a tighter freeze on the credit markets, in the same ways that artificially low interest rates are discouraging lending because banks can’t make it pay any more. The result seems like exactly the opposite of what the government actually intends. It results in fewer, not more, loans and therefore less and less credit availability for would-be borrowers. Are lawmakers really too stupid to see this?
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It’s not about money.
Money has not been a relevant issue since the government decided it could create however much it wanted out of thin air via the printing press. The driving force behind this kind of legislation is control! Let us remember the powers that be get more control the more victims are created to come whining to them for “help”.
And that, is a very intended consequence!
I predict that mortgage terms are going to become a lot less-friendly in the future to those considering one. If they’re prevented from dealing with those who are delinquent, they’ll have to take extra steps to avoid ever having delinquents, or spread the extra cost of them to others, which will make it worse for everyone else.
This kind of “unexpected” consequence just seems natural. If you don’t have enough resources to do as much of something, being forced to act as if you do will just result in even poorer results. If for example you have 100 people to feed but only enough food to feed 50 well, you can either feed all 100 less-well, or if forced to act as if you have plenty of food, feed the first 50 well and then have to turn away the rest.
I think we all know where this new legislation is headed. Those mortgage companies that are barely breaking even now will be forced to eat those additional losses arrived at through mediation. This will lead to those mortgage companies either going under, cutting staff which will lead to higher unemployment rates across the board, spreading the risk to other areas while penalizing further those borrowers who are keeping up on their payments.
The mortgage companies that do retain some cushion of current lending ability will also eat those losses and will become even more strict in their furture lending practices. They will avoid any and all risk and that is if they to can even remain solvent at all.
Those lawmakers think this will save some borrowers from foreclosing when in reality it will just take the entire market down.
During the credit-induced housing boom of the mid-2000s, Florida mandated that new residential developments set aside some percentage of its units to what it called “affordable housing.” For the first 10-12 years after the first sale, the price for any subsequent sale of these units could not rise more than a few percentage points per year. The idea being they would force these units to be more “affordable” than the rest of the market.
The actual result was that (a) these units would almost never be sold, since the owners decided to wait out the 12-year time limit, not wanting to be screwed out of the massive price gains that every other non-capped property was experiencing; and (b) for those few that were sold, there was a thriving black market for selling at the maximum capped price, plus a hefty “you also have to buy my furniture” requirement, and that extra premium just happened to bring the total sale price up to the market level.
Of course, the buyer never actually got the “furniture” for the extra cash he had to pay above the mandated sale price. It was just an under-the-table bribe he had to give to the seller for the privilege of buying the property.
Naturally, in typical government fashion, it dealt with this inevitable black market by imposing insane, draconian penalties for the crime of selling above the capped price, like voiding the sale, revoking your drivers and professional licenses, and huge fines.
The black market buying method of buying a house was completely unavailable to anyone except those that had a large reserve of cash. You couldn’t get a mortgage to pay an under-the-table bribe.
The price-fixing also inhibited sales, which meant that there were even fewer units on the market than there otherwise would be, which meant that prices on non-capped units were higher than they otherwise would be.
The end result was that under the Affordable Housing Program, housing was much less affordable.
Perhaps the intended consequences were that the legislators could boast that they “did something” to provide for affordable housing when it came time for reelection and these consequences materialized as planned. That the affordable housing itself never came about is politically irrelevant, perhaps.
“are lawmakers really too stupid to see this?”.
My answer: no one thinks they are stupid, least of all fame-seekers like elected officials. Logical conclusions are pre-determined by the tenets on which the string of logic is based, and they base their logic on different tenets than Mises would. I believe that those other base starting points that they use are flawed. They believe that they are fine.
Yes
No
Irrelevant (The inability to understand cause and effect, or anything for that matter, lies wholly outside the scope of governance by the political method, as the measure of their success is determined by a passionate display of ‘good intentions.’
Remember, it’s for the children.)
Undoing Socialism
National Foreclosure Prevention Program Stinks Like Socialism.
Since the ones in control (the czars appointed to do the bidding of the unConstitutional coup) cannot fathom a market solution (they are mostly socialists but wholly ego-driven interventionists) they look around for political solutions. They see an initiative that they like for whatever reason – it could be that the negative consequences have not yet reared its ugly head, or it could be internal corruption from lobbying by political kingpins, or it could be some other fascist or socialist slant – and then they try to apply it at a grander scale.
In other words there are definitely unintended consequences but these are also consequences not even of primary importance to the grand scheme of power-grabbing. Are any of these czars affected personally since they are appointed not elected and since they can hide in the cancerous bureaucracy?
As long as the unConstitutional coup lives so too will all the consequences of its economic terrrorism!
The actions discussed are not based on economics but on religion.
Please see Eric Hoffer, The True believer.
This is actually much more frightening than poor judgement.
RRS,
You’re right on the money. It’s not that these people are stupid, it’s that there are certain thoughts and conclusions that are forbidden to them by their ideology. After all, if they think that banks should base their loans on sound financial bases instead of on the needs of the borrowers, or if they think that global climate change is not caused by humans, or if they think that sometimes terrorists commit acts of terrorism not because of their socio-economic condition but because their religion tells them to, then that would make them bad people. They are good people, so they are not allowed to even entertain such notions.
“Are lawmakers really too stupid to see this?”
Not really. It gives the appearance that the politicians are helping the underdogs (i.e., the voters), and gets them reelected. You can fool most of the people all of the time, and most is good enough.
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