Sunday, April 12, 2009

Why the Government Shouldn't be Involved in Compassion

Ever since Pres. Bush ran as a "Compassionate Conservative", this country was in big trouble. When the Founding Fathers crafted the constitution, they specifically designed a federal government that would stay out of the people's life's except for those few (and I mean few) things that only a federal government could provide (like national defense). If people wanted their state or local governments to devolve into socialism, that was their perogative, however, since the Founding Fathers were also some of the writers of those state constitutions, I doubt they intended for that to happen either.

Rather than bore you with the history of how our Republic has slowly eroded the foundation on which it was made (liberty for the people) to the point where we are at today (security for the people), I saw a story that perfectly illustrates why no government should be involved in compassion or charity.

Let me begin by saying that compassion and charity are good things, from a personal level. Charity is described in various religions as "pure love." All people should engage in charitable and compassionate acts. But they should never be compelled to. Government is entirely incapable of engaging in charity, because government has no resources of its own. All of its resources must first be taken from the people over which it governs, thereby compelling people to provide "charity."

The story linked above provides several examples of how a government system fails. The article talks of a government program that is designed to help poor people buy homes and put down roots. Guess what, it has failed. Here are some of the problems that the article alludes to, but doesn't discuss:

1) "The program was mandated by Congress in 1998 and has little oversight" When I engage in charity, I have a lot of oversight into how my money is spent. This is because I review over the program before I give the money. I don't give to everyone that asks for money. I believe that charitable organizations can best be able to gather money by ensuring their organization is such that the majority of funds donated are actually used for charitable work (i.e. building homes, feeding hungry, providing medical care). This may entail hiring the services of qualified business managers and accountants so that documentation can be provided to show how this is being done. If people are willing to donate time for this all the better. I donate money to organizations that are well developed and have a good history of helping others. They can have administrative costs, but if any organization has more than 25% of their donations going to administrative costs, then they are grossly innefficient and I wouldn't want to donate to them.
Frankly, government doesn't care. There is no incentive to better the program, it was probably put in to buy a vote or two anyway, and the lack of oversight indicates that Congress doesn't feel it is important enough to have more people on it. Sort of like the $2000 "gift" cards they gave out after Katrina. Nothing says fraud better than lack of oversight.

2) "A federal program designed to help poor families ... has actually been lining the pockets of investors and contractors." While some may think they live in a utopia, the fact is we do not. We never will. Not only that, the person who is in it for a profit will always find "loopholes" in any laws. The larger the profit, the more motivation to find the loopholes. Government is completely defenseless against this because they simply cannot close "loopholes" or make new laws fast enough. In a lot of cases, the loopholes were specifically written into the laws (i.e. people or businesses with money paying off their elected officials). The more laws (i.e. power) that government is given, the more corruption there is. Governments with absolute power (dictatorships) also have the most corruption. When government has little power or authority, people and businesses are stuck with matching wits against another person or business who is also trying to make money. In the end, they both have to compromise some, but will probably be much better off. When people or businesses look to government for money, the government will usually lose. Since they aren't in it for the money, there is no real incentive for them. They are there to hand out the money according to the rules. If someone meets the rules, they get the money, it doesn't matter if the rules are fair or stupid. In this case, it appears some enterprising people decided to read the law and regulations, and found out a way they could get some cheap houses. The articles doesn't say that the people did anything illegal.

3) "
The program allows local governments to buy homes for $1 to fix and resell them at a discount to poor families." $1 for a home means you are getting a crappy home. The land alone for most homes is several thousands of dollars. The actual money for these homes is coming from somewhere (We the People). So the federal government is buying homes from banks and selling them to local governments for $1, thereby taking a loss on the property. Let's pretend your in charge of this program and you have $1 million. You want more money for your program the next year, so you need to show Congress that you have actually done something. Which makes more sense buying 5 $200,000 homes, and being able to say you helped out 5 families, or buying 20 $50,000 homes and saying that you helped 20 families?
So the homes are cheap to begin with, probably in disrepair from foreclosure, perhaps with vagrants living in them, maybe some code issues. Now, you are handing them over to a local government to fix up and repair. What do they know? They enforce the code. They don't necessarily know what is looks good for the neighborhood. Not only that, since they bought the homes for $1, they don't have a lot of money sunk into the cost of the home so they really don't need to pay attention to the repair prices (i.e. contractors doing the repairs may cost more). Then they sell the homes to "needy" families. Or contractors or investors that found a loophole. These people in turn sell the homes at two or three times their cost, or the actual market value. If people are paying actual market value in San Bernadino, CA, then you don't have any poor people living there.

4) And finally, we get to the apex of the story: "
Jerry and Carol Ptacek told the Times that they bounced from one cramped apartment to another most of their adult lives before they bought a $63,000 home in San Bernardino through the program. But they say the home needed so many repairs, and between choosing bad loans and gambling losses, they ended up as renters again." This part is very informative in so many ways. To begin, I will assume that the Ptacek's bought their house from the local government (not some evil contractor selling at fair market value).
"they bounced from one cramped apartment to another" This is a sign of someone who doesn't have a stable job (moving all around), doesn't pay their bills (evicted), causes problems for the landlord (not following rules), and has too much stuff for their income (living on credit).
"they say the home needed so many repairs" Two things you can take away from this, a) the city did a horrible job of "fixing" up the place, or the more likely scenario based on the issue above b) the Ptacek's didn't realize that there is no landlord to call to fix the clogged drain. Here is a clue to all new homeowners. Things break. Your responsible. Some people decide they don't want to be and that is why they rent. If you decide to own your home, you get the mortgage deduction and the broken water heater.
"between choosing bad loans and gambling losses" OK, now we get to the crux of their problems. They are poor (because that is what this program is suppose to help), and their gambling losses are significant enough to affect their house payments. Newsflash: Poor people shouldn't gamble. Actually, only stupid people gamble, but if you have the money to lose, go for it (after all, the money is for education), that is one less tax I have to pay. Choosing bad loans is your own fault. If you don't understand the paperwork you are signing, then don't sign it. Perpetually poor people are so because they make bad decisions with money. No amount of government (or private) assisstance will change that. Most everyone starts out poor, then they move up as their job skills and experience improve. One of the reasons why banks (before the housing bubble) required a significant down payment was a) to show that you were serious about saving up that money, and b) so you had a stake in the game that you weren't just going to walk away from. Poor people buying houses with no down payment shows neither. So are we suprised that they then can't afford the payment later?

5) The last thing that remains untold in this is that local governments are putting "poor" people into homes that should be selling for 2 to 3 times as much. So we will take the Ptacek's as an example. They bought the home from the government (presumably) for $63000. Which means it was probably worth $125000 to $180000. We'll just assume $125,000. Do we really think that putting someone who can afford $63000 in a neighborhood of $125000 is a good idea. They already have a track record of making bad financial decisions. Now they see that the Jones' next door just bought a new Jetski. So, they need to keep up. And the Smith's across the street have much nicer furniture, so that needs to be updated. Only problem is, the Ptacek's don't have the money. So all of it is bought on credit, until it comes crashing down and they lose the house (which might be bought again by the city for another $1). I don't know if that is exactly what happened, but if you are trying to live above your means, its going to happen.

So let's not have the government try to sell houses to poor people. They don't know what they are doing, and the poor people can't afford it anyway. While we are at it, if we could just get rid of all of the compassion in the government, we might not have to complain about high taxes and overspending.

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