One problem with politicians is that when problems they create come to a head, they typically feel this irresistible urge to DO something, rather than to UN-do something, or to simply back off to avoid exacerbating the situation.

Too often, that which they end up doing has very little connection to the cause of the crisis, but plays well in the press and superficially makes everyone feel better.  Bills that are rushed through Congress under duress are never studied enough, providing too tempting an opportunity to quietly slip in unrelated provisions that erode freedoms in ways that would never pass as a stand-alone bill.

We famously saw this with the PATRIOT Act, but Washington learned nothing from that.

The current housing crisis and the corresponding big government fix are another prime example.  First of all, the so-called solution will actually make the problem worse.  The problem stems from easy credit and a rush to flood the housing and mortgage markets with money. Relaxed or non-existent lending standards led many into mortgages and houses they could not afford.  As more foreclosures hit, the lending institutions will continue collapsing like dominoes under the weight of all the bad paper they underwrote.  Some are reacting and reintroducing lending standards.

Thus the number of buyers in the market for homes is beginning to shrink back to its natural size, and hyper-inflated prices are falling back down to earth.  In these ways, the market is trying to correct itself in the wake of the mistakes government intervention encouraged them to make through easy credit.

However, this correction is causing pain, especially to Wall Street investors and those who bought homes at the top of the market bubble, never expecting it to crash, always assuming they would easily be able to refinance.

Some mistakenly identify the falling home prices as the disease instead of merely a symptom – which they plan to fix with more easy credit and more liquidity to push more unqualified buyers back into the market for homes they still cannot afford.

This is akin to the drug addict identifying withdrawal symptoms as his problem and searching for another fix as his solution.  The cycle continues and the problems compound themselves.  The addiction deepens.

Addicts are told the first step to recovery is to admit their problem.  To cure this addiction to intervention we have to honestly admit the problem and once and for all, kick the habit.  That will involve some pain, without a doubt.  There is no easy, painless solution to the mess the disastrous economic interventions of the past have wrought.

The question is – do we allow some lending institutions to collapse, or do we allow the dollar to collapse?  To extend the metaphor, do we endure the temporary discomfort of withdrawal, or do we continue on until there is a fatal overdose?  We can delay the agony, but only for a little while, and then we will all end up paying the price for the mistakes of a few.

With the final passage of the Housing Bailout Bill quietly on a Saturday in the Senate, and the President’s signature, our government has unfortunately chosen the latter…

Ron Paul is a republican member of Congress from Texas.

The House passed two bills attempting to rehabilitate the housing and mortgage market this week.  There doesn’t seem to be any shortage of criticism and blame for the bad decisions, and rightly so.

Lenders and banks do share much of the blame for the overheated market.  Lending standards were relaxed, or even abandoned altogether, creating an exaggerated pool of homebuyers that led to ballooning home prices that many, especially real estate investors, expected to continue forever.  Now that the bubble has burst, the losses are staggering.

However, many in Washington fail to realize it was government intervention that brought on the current economic malaise in the first place.  The Federal Reserve’s artificially low interest rates created the loose, easy credit that ignited a voracious appetite in the banks for borrowers.  People made these lending and buying decisions based on market conditions that were wildly manipulated by government.

But part of sound financial management should be recognizing untenable or falsified economic conditions and adjusting risk accordingly.  Many banks failed to do that and are now looking to taxpayers to pick up the pieces.  This is wrong-headed and unfair, but Congress is attempting to do it anyway.

These housing bills address the crisis in exactly the wrong way, by seeking to hide the problem with more disastrous government bail-outs and interventions.  One measure, HR 5830 the Federal Housing Administration (FHA) Housing Stabilization and Homeowner Retention Act would allow the FHA to guarantee as much as $300 billion worth of refinanced home loans for those facing threat of foreclosure.

HR 5818 the Neighborhood Stabilization Act, would provide $15 billion in loans and grants to localities to purchase and renovate foreclosed homes with the object of then selling or renting out those homes.  Thankfully, President Bush has vowed to veto both of these bills.  It is neither morally right nor fiscally wise to socialize private losses in this way.

The solution is for government to stop micromanaging the economy and let the market adjust, as painful as that will be for some.  We should not force taxpayers, including renters and more frugal homeowners, to switch places with the speculators and take on those same risks that bankrupted them.  It is a terrible idea to spread the financial crisis any wider or deeper than it already is, and to prolong the agony years into the future.

Socializing the losses now will only create more unintended consequences that will give new excuses for further government interventions in the future. This is how government grows – by claiming to correct the mistakes it earlier created, all the while constantly shaking down the taxpayer.  The market needs a chance to correct itself, and Congress needs to avoid making the situation worse by pretending to ride to the rescue.