The Truth About Cash For Clunkers

The Truth About Cash For Clunkers
By Matthew Q. Llewellyn, Founder
The American Libertarian Movement

Do you folks remember the whole Frannie/Freddie mess? You should since it's still going on. But do you remember how this whole mess started? Let me help those that do not and then, I will explain why Cash For Clunkers is another failed government program.

The democrats, always ready to "save" the "less fortunate", forced banks to give home loans to people who could not afford them. Why? Because this brings them votes. People remember those who give them free stuff. I'm sure someone will find a way to turn this into a racist comment, but, it's a good comparison... remember this one "Don't feed the stray dog because then the stray knows its home."

So... Banks were not easily grabbing onto this whole idea because they knew what would happen. Big government came in and offered them Frannie and Freddie. If someone defaulted on their loan, Fran and Fred would purchase the loan from the bank and carry it themselves. And so began a "no-threat" lending policy for banks. They could now give loans to anyone, regardless of their ability to pay, because they knew the government would pay them when the person started to default.

Of course we all know how this story ended... almost everyone who received a home loan from the program defaulted, Fran and Fred went broke, the government saw it coming, realized they were in over their heads, did nothing and successfully collapsed and changed (for the worse) our entire financial infrastructure.

And now we have Part II of this unintelligent loaning policy.

We... excuse me... big government is, for the first time, giving people the ability to trade in their old cars for new ones by offering up to $4,500.00 for their "clunker".

Okay... I'm going to try to explain this as easily and clearly as I can.

People who could get a home loan before the program are the people who could afford them.

People who could get a home loan after the program were the people who couldn't afford it.

Clue... if you can't afford it before, unless your financial situation greatly increased, you still can't afford it.

Same thing with the cars folks...

If you could afford a car before the "clunker" program, then you can still afford one.

But...

If you couldn't afford a car before it, then you can't afford one now... but... you'll have one.

These people no doubt will find a way to make their payments for the first month or two... of that I have no doubt. But after that, folks, I guarantee you 90+% of the people are going to default on those loans and have their cars repossessed... I guarantee it.

Before the clunkers program, these people had no financial capability of making a monthly car payment... but... they had a car. Sure, it may not have been great, but it was a car, it worked and it required no monthly payments.

Now they are driving around... for now... in their brand new little car... which... being a new car, also requires full coverage insurance, unlike their old "clunker" which I'm sure they only carried liability insurance on.

So...

We took a bunch of people who were doing okay with their old car, making no monthly payments, paying a low liability insurance and we created a government (tax-payer) supported program to level the playing field a little. Now these people have a car payment, a much higher insurance payment... and... let's not forget tag/title/taxes... all required within 30 days of purchase.

Do you people really think big government is just running out of money for this program and wanting to end it soon for those reasons? Big government wastes trillions of dollars on these sugar coated social programs. The real truth is, these guys want to cut and run before the s*** hits the fan. Why? Because it's going to get serious pretty soon. Mark my word.

People will default their loans because they either:

a) can't afford the loan, causing the lender to repo the car.

or

b) can't afford the insurance and let it lapse, causing insurance companies to turn them in and causing the lender to repo the car.

or

c) can't afford the tag/title/taxes and start racking up tickets they can't pay until warrants are issued for their arrest, landing them in a real financial and legal pickle.

Then what happens?

Well... let's see.

A majority of these people, within a fairly short time, will be completely without a car. No new car, no clunker car.

Banks and private lenders will be stuck with hundreds of thousands of cars. They will auction them and recover around 30% of what they need to make back.

People will come crying to big government .... banks and private lenders will come crying to big government ... all of them will be crying for help... and guess what? They will get it.

And so will begin yet another government rescue/bailout plan.

It never ends folks... it never... never... ends.

I bid you good day.