The Unintended Consequences of Cash for Clunkers

So far the federal government has allocated $560 million for the cash for clunkers program. Taxpayer money from me and you to people driving older vehicles for one year or more that are not fuel efficient. The $4,500 dollar rebate is a good down payment for people who might not otherwise be able to or want to buy a new car. Where have I hear this before?

Oh President Bush, Barney Frank, Nancy Pelosi, Maxine Waters, Tim Rains and the Fannie Mae and Freddie Mac crowd that pushed home ownership to people who were unable to afford the payments. And what will the end result of this cash for clunkers program be? A lot of defaulted car loans. And how will congress act? Some will be happy people are not driving and some will want to bail out the poor car owners that were taken advantage of.

If one asked in 2000 why do some people prefer to rent or are unable to buy a house? The strait answer would be because they couldn’t afford the house payment or were unable to discipline themselves to save up for a down payment. In either case for the individuals and society it was better for them to rent. But Barney Frank and the Fannie crowd had a better idea. The end result was the colossal financial melt down we experienced in 2008.

So why does anyone think clash for clunkers will be any different? People forget it was less than 5% of housing loans that caused the collapse. Now I am not saying the coming car loan defaults will be anywhere near the severity of the housing bubble but don’t be surprised in a couple of years to hear about this again.

The best solution for increasing car sales would be for the federal government to balance its budget and limit the size and scope of its powers. Period.