About ten years ago I attended a spring time regulatory conference for the National Association of Mortgage Brokers. During these conferences, which were held in Washington DC and which always concluded with a grassroots lobby day on Capitol Hill, we heard various invited speakers. During this particular conference, one of the speakers who had been invited to meet with our group was a consumer advocate attorney who decried the fact that some borrowers paid higher interest rates for credit than did others.
The attorney began by lecturing us softly, "Wouldn't it be great if everyone could have a 7% interest rate?" At the time that this conference took place, the optimal rates for borrowers with good credit were probably between 5.8 and 6.5% so the consumer advocate assumed that she had padded the prime market interest rates enough to make them attainable to all.
Immediately, some of the men in our group stood up and took turns at the microphone which had been provided to facilitate audience interaction so that they could explain why it was not possible for everyone to have a 7% interest rate. Interest rates are based on both credit history (demonstrated history of paying one's bills) and credit depth (length of time accounts have been opened, number of accounts, type of accounts, etc.) as well as ability to prove income, employment, consistency of employment, length of employment, debt ratios and other factors which make loans more or less risky. Riskier loans have higher interest rates and less risky loans have lower interest rates. (At the time this conference was held there were a lot of loan products on the market, including stated income and no income loans).
After listening to reasons that her proposal was ridiculous and unworkable, the attorney responded, "Okay, okay. What if it were a 15% interest rate? It doesn't matter what the interest rate is, so long as it is the same for everyone."
The consumer advocate attorney was blissfully unaware that inherent in the "unfairness" of higher rates for some borrowers and lower rates for others is a system of built in rewards for desired behavior. If her suggestion were to be implemented and everyone got the same rate regardless of their credit profile or work history or savings history, responsible borrowers would no longer see any benefit to carefully managing their finances and irresponsible consumers would have no incentive to improve their credit rating, or to try to hang on that job longer in order to get a better work history, or to save some money for a rainy day. If everyone gets the same reward regardless of their level of effort or initiative, no one gets much of anything and no one has any motivation to try to improve their situation.
I was reminded of this today as I saw Elizabeth Warren's comments made last week in front a Senate Committee on Health, Education, Labor and Pension began circulating through conservative news sites and the Internet. During the course of the hearing, Senator Warren wondered allowed why minimum wage isn't $22.00 an hour, adding that it would be if it had kept pace with the growth of the economy since 1960.
Since the State of the Union when President Obama called for raising the minimum wage to $9.00 an hour, I have read numerous commentaries about the problems that will be caused by increasing minimum wage. Many of these have been well written and researched, and they make valid points that higher minimum wage cuts jobs for entry level workers, does nothing to substantially help those in poverty--many of whom actually do not work at all--and ultimately hurts the business that create jobs and provide the economic growth in this country. Beyond these arguments, however, I believe that the push to increase minimum wage to higher and higher levels belies another huge issue that I have not heard anyone discuss--the desire for the government to determine and regulate how much everyone can make.
For that reason, I found it particularly interesting that Elizabeth Warren would propose that minimum wage should be $22.00 an hour. Remember that before Warren was a freshman Senator from Massachusetts, she was the interim director for the Consumer Financial Protection Bureau, the massive new government agency created by Dodd Frank. She was also one of the architects behind Dodd Frank, which created extensive new regulations for financial services and the mortgage industry, including regulating the maximum amount of compensation that mortgage loan originators can earn. Over the past two years, experienced originators have left the mortgage industry as the government has limited compensation more and more. Those restrictions began as regulations saying that originators cannot be paid by both the borrower and the lender, making it illegal for brokers to negotiate individual fees with borrowers. Next year, in 2014, the provisions of the Dodd Frank bill that mandate a set cap on fees and points will be implemented. As a result of these rules, many experienced originators have left and are continuing to leave the mortgage industry, leaving newer and less experienced originators in the marketplace.
The problem with setting maximum compensation for a profession is that it accomplishes very much the same effect as saying that every person should get the same interest rate. A free market system contains built in incentives for hard work, education, additional training, personal growth and long hours. Professionals who are willing to apply themselves, to get the additional training they need and to work the additional hours do so in the hopes of reaping financial rewards for that extra labor. But to liberals like Elizabeth Warren, being able to command higher fees for a greater level of expertise is not good business--it is cheating. To Warren, a loan originator with 20 years experience, numerous certifications and a track record of closing thousands of loans is no more valuable to the consumer than a newly licensed originator working on her first loan. They are the same and they should receive the same compensation.
Over the past three years that I have been writing this blog I have warned several times that the mortgage and real estate industries were a proving ground for policies that liberals plan to implement in industries across the board. Now that Warren is a Senator, she can advocate for $22.00 an hour minimum wage just as she advocated for capping our compensation at levels so low that experienced originators cannot keep our doors open as independent business people. By arguing that entry level employees should be making over $45,000 a year to flip hamburgers or answer the telephone, she is really saying that experience, hard work and education do not have any compensatory value.
To the socialist mindset, this argument makes perfect sense. To have a system where harder working, better educated, more competent people make more money than those who are less skilled or less well educated or less ambitious is inherently discriminatory. (And when I speak of education here, I am not only referring to formal education through degrees--I am also referring to industry specific training which is often expensive to obtain.) The solution to this discrimination is to raise the minimum wage and lower the maximum compensation--both through higher taxes and through regulations which set caps on compensation. By narrowing the wage gap between the entry level and the experienced professional, liberals remove any incentive to work harder or to become better trained. But, then again, to liberals the issue is not really how much anyone makes, so long as everyone makes the same amount.
Alexandra Swann is the author of No Regrets: How Homeschooling Earned me a Master's Degree at Age Sixteen and several other books. Her novel, The Planner, about an out of control, environmentally-driven federal government implementing Agenda 21, is available on Kindle and in paperback. For more information, visit her website at http://www.frontier2000.net.
No comments:
Post a Comment