This is the schizophrenia of Big Government

OK, so tomorrow there will come the official announcement that President Bush has worked out an agreement with the banking industry to freeze those adjustable-rate sub-prime mortgage rates for five years.

This exercise exmplifies--on all sides--what is wrong with the pattern of Big Government intervention in the economy.

Let me count the ways.

1) People who took out loans they could not afford have been bailed out of the consequences of their actions, by money from those of us who acted responsibly. My family is currently paying fixed mortgages on three pieces of property that are at least 1-1 1/2 percentage points above those of people who took out 5-year ARMs. We, and millions of others like us who maintained good credit and did our research have now been penalized millions if not billions of dollars.

2) Many of the people who will be "rescued" by this deal are not struggling middle-class homeowners but real estate speculators attemtping to quickly "flip" houses for a profit. Exactly why they should be given retroactive venture capitalism insurance I'm not sure.

3) Lenders who continued to offer teaser rates and impossible sub-prime mortgages to people with poor or over-extended credit have now been rewarded. They won't make the huge percentage rate interest jumps, but most of them never expected to. What they deserved was have those loans go bad, go into foreclosure, and to lose all the profits. If they went out of business due to poor business practices, too damn bad for them.

4) The US government chose to ignore this whole issue for years until it blew up in everyone's face. Now there were two choices available to the government with regard to this issue. An interventionist government could have attacked the problem several years ago by changing the rules to make this sort of blatant real estate speculation more difficult or at least better regulated. Or the government could have followed a laissez faire approach of allowing the whole travesty to play out, including the shake-out in the economy after the fact. The problem: our leaders did neither, or, more correctly they attempt to have the best of both worlds. They played non-intervention during the bubble and paternalist during the burst.

5) Both improvident people and irresponsible businesses now have another example of how Papa Washington will bail them out of bad decisions at the expense of the rest of us, which--instead of allowing them to learn from their behavior--encourages them to do it again.

A Libertarian perspective (at least mine) would suggest that the government's primary obligation was to make reasonable rules for market-based transactions ahead of time, provide information on risks and consequences to all parties, and then--if everyone was intent upon a trainwreck, trust market forces to settle it out. That settlement is often painful, but we're frankly overdue. We never paid the overt price for the savings and loan debacle, the airline collapse, or a variety of other fiascos in which the government stepped in to bail out the guilty and the guileless. Like constantly oversteering an automobile on ice, these little over-corrections mount up and eventually lead us closer and closer to real collapse.

Meanwhile, during the five year grace period, guess how many investors from China, Japan, and Dubai will be buying up American real estate at bargain prices.