The Washington Post has a great article about Canada’s Conservative mortgage system and how it differs from the United States. While I highly recommend you read it let me summarize: In Canada the main criteria for lending is that you can actually afford to pay the loan back. No, really, sounds crazy but that is it!
Compare that to the U.S. where earlier this week Fannie Mae instituted some new policies that sent liberal Democrats in the U.S. into a tailspin. Top on the list is a penalty for homeowners who abandon their mortgages. Their new punishment is a denial of a new mortgage for seven years. If anything, I think that is way too short a time period but Democrats are going nuts that there is any penalty at all!
The heart of our mortgage meltdown is still a very simple but hard truth, people bought houses they couldn’t (or now cannot) afford and lenders are on the hook for that money. Every Democrat prescription for that problem has focused on keeping people in the homes they cannot afford while forcing lenders to delay their ability to take ownership of their assets (the property they own now because the borrowers cannot afford to make payments). Our other prescription has been to just give money away so people can stay in the homes they cannot afford or so new homeowners can get into the broken system. See the problem?
Now back to the Canadian system. By the new American socialist definition, the Canadian system isn’t “fair” and it won’t create “social justice.” The lenders in Canada are not forced to consider the cultural heritage of the borrower or judge how deserving a family is based on their heard luck story or color of their skin or gender. They have one imperative “can I get this money back plus interest?” It is one of the few truly capitalist enterprises in Canada (guns, strip clubs and hockey seem to be the others) and shocker, true capitalism works amazingly well (as it does for guns, strip clubs and hockey in Canada).
Yes the financial institutions who lend are under heavy regulation, but it is the true regulation that works, the kind that is meant to stabilize the value of the marketplace and actually protect consumers by forcing them to be responsible. Socialists would have you believe we conservatives want people to fail while the heartless succeed, quite the opposite. Capitalism only works when we all play by the same rules. Yes we hate government rules but not because we hate rules, just dumb unnecessary ones. We love simple, principled and thoughtful rules in general. Rules that uphold value and actually protect the spirit of capitalism and carry with them strict enforced penalties for those who don’t follow regardless of who they are and blind to race, gender, color or creed.
Our system of forcing lenders to embrace terrible practices to fulfill a political agenda is not capitalism. The lenders perverting the system they were forced into by lying to borrowers and creating obscure and inaccurate math to fool stockholders, also not capitalism. They are examples of corruption and are perversion of our political and economic structures and that is as anti-American and anti-capitalist as it gets.
Canada has it right here and we once did. Buy what you can afford and lend to those who can pay you back handsomely. Anything else, no matter how hard we try, won’t work for most of the people, most of the time.
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