February 20, 2009
By Al Kresta
President Obama announced on Wednesday his plan to prevent home foreclosures, saying he wanted to be “very clear about what this plan will not do. It will not rescue the unscrupulous or irresponsible by throwing good taxpayer money after bad loans…” This is obviously false and he knows it.
This crisis began in the sub-prime mortgage industry and the bail-out is precisely a case of being forced to throw “good money after bad loans.” Obama’s remedy does target important legal distinctions between primary and secondary residences, between owner-occupied homes and investment properties. Government programs, however, have never been known for making fine moral distinctions between the responsible and the irresponsible. They are more like the rain falling indiscriminately on both the just and the unjust. The President wants to console us that he’s insuring the moral order and that common sense will prevail. While his words may have emotional impact they are untrue.
The President further strained our goodwill: “And [my plan] will not reward folks who bought homes they knew from the beginning they would never be able to afford.” A moment’s reflection will discover that this can’t possibly be a true statement. The President simply has no way of ascertaining who obtained mortgages knowing they would never be able to afford them. Neither he nor his Treasury Secretary nor local bankruptcy judges can discern the intentions of the human heart. I understand that he wants us to believe that justice will prevail. That fools won’t be rewarded nor the prudent punished. But here he’s out of his professional competence. You might even say that reading the human heart is “above [his] pay grade.” Why do the righteous suffer and the wicked prosper? Ultimately only God knows. In the meantime, we work to correct these errors where we can. He should not kid the American people, however, that he possesses either the analytic tools or the moral authority to right the scales of justice in this chaos. This economic meltdown is more like Chernobyl than Three Mile Island. The fallout has no regard for predatory lenders, envious borrowers or thrifty neighbors. Everyone lives in the toxic radiation of this financial disaster. He can’t change that by some magic utterance.
Something very important has been destroyed over the recent months of this economic meltdown. The President’s false reassurances further erode this foundational social element. It is an asset crucial to production, even if it is not made of bricks and mortar. According to Nobel laureate Kenneth Arrow – the absence of this asset causes much of the world’s economic backwardness. This asset is TRUST. “Every commercial transaction has within itself an element of trust.”
The President’s demagoguery eats away at the very social adhesive required to hold this economy together. We face a crisis of faith in our neighbor, our nation and its financial institutions. “I think what we’ve got to do is re-instill confidence in the American consumer and the investor and business in this country…” says Dennis Hoffman, professor of economics at Arizona State University’s W.P .Carey School of Business. He’s right and not alone.
In their paper, “The Trust Crisis”, Northwestern University’s Paolo Sapienza and University of Chicago’s Luigi Zingales argue that without trust, cooperation breaks down, financing dries up and investment stops. “One can bomb a country back to the Stone Age, destroy much of its human capital, and eliminate its political institutions. But, if trust persists, the country may be able to right itself in just a few years, as in Germany and Japan after World War II.”
The opposite is also true. A nation may be brimming with natural resources and technological wizardry but, if there is no trust, there is no progress. “Trust is our expectation that another person (or institution) will perform actions that are beneficial or at least not detrimental to us, regardless of our capacity to monitor those actions.”
During this period of confusion, where many of us are rethinking our 401ks and college funds, our sense of history and the basis for our national pride, we need clarity and honesty. President Obama’s explanations of our present woes and prescriptions for our future recovery reek like a hog farm in August and will only suffocate our remaining sense of confidence. Deception turns the audacity of hope into the brazenness of flimflam. Investors sense this. As I write, two days after the President’s announcement, the Dow has dropped to a new six year low.
Time will tell if lenders will modify mortgages and borrowers escape foreclosure in fulfillment of the President’s plan. But if he can’t refrain from trading falsehoods for applause he will surely sabotage his own best efforts at guiding us through this crisis.
If the first law of prosperity is trustworthy transaction, then the first rule of leadership must be to respect the first law of prosperity and avoid offering false promises. He cannot destroy my trust on Monday and expect me to resurrect my trading on Tuesday. Too late will he learn that the American people look to truth for authority, not authority for truth. Please Mr. President, just tell the truth.
May you “know how one ought to behave in the household of God, which is the church of the living God, the pillar and bulwark of the truth” (1 Tim 3:15).
Al Kresta is President and CEO of Ave Maria Communications.
His afternoon radio program is heard on over 200 stations as well as Sirius satellite radio.