Monday, October 27, 2008

Don't Know Much about History

By Sean Radomski

As a sophomore at Fordham University, I am required to take a semester of philosophical ethics. Among other things, the class teaches the two major worldviews of Kantian Ethics (deontology) and Utilitarian Ethics. Kant would have us believe that results are not important in determining whether an action was just or not; for him, only the motive matters. In other words, if we try to start a fire in order to keep a homeless person warm but in doing so we accidentally burn down the adjacent building, thus killing all the inhabitants, our action is still moral.

On the other hand Utilitarians, such as John Stuart Mill, believe that actions should be judged by results, not intentions or motives. Today, as our economy is burning, Democratic Senators Schumer, Reed, and Menendez would have us believe that this is ok because their intentions and those of Congress have been just.

The 1977 Community Reinvestment Act, pushed through Congress by a Democratic super majority and signed by a Democratic President, had a “noble” intention. The act sought to increase homeownership among minorities and low-income families by setting lending requirements for banks. However, as anyone who takes the time to look at the causes of the current financial crisis will admit, this act has had disastrous consequences despite its intentions. Although history clearly shows that government involvement in bank lending is a bad idea, the trio of Democrats is about to repeat this mistake.

Because all three currently serve on the Senate Banking Committee, they surely understand typical banking operations, right? Wrong. On Wednesday, they called on the Treasury to set “lending goals” for banks receiving capital injections under Paulson’s rescue plan. They fear that the banks will hoard the cash as opposed to increasing lending and unfreezing the credit markets. Perhaps these career attorneys should be enrolled in Finance 101, in which they would surely learn that it is unnecessary to force banks to lend since this is the principle way that they make money.

Banks, run by finance and economics professionals, know how to loan money to ensure that borrowers will be able to pay it back. The recent call from the Senate for “lending goals” is particularly frightening because I believe it mirrors the same uncalled for policies of the Community Reinvestment Act. With (as I fear will be the case in 3 months) Democrats in control of both Congress and the White House, who knows what these “lending goals” will require. If they require loans to low-income families with no chance of paying the loan back, it will be “all just a little bit of history repeating”. As the economy burns, I fear the American people are about to send arsonists to fight the fire.

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