President Obama’s mortgage relief plan and other bailout and stimulus proposals provide the most compelling evidence that this administration not only seeks to undermine capitalism, but that it is dead set on destroying its very foundation. 

Obama’s plan, for instance, targets some 9 million homeowners facing foreclosure or struggling to make their mortgage payments.  Under the plan, 4 million to 5 million families whose home values have dropped can refinance into new mortgages, and 3 million to 4 million homeowners with adjustable-rate mortgages can temporarily have their loans modified to a lower interest rate.

“In the end,” said Obama, “all of us are paying a price for this home mortgage crisis.”  He may as well have used the future tense in that statement because we all, indeed, are going to pay a price for this crisis . . . just not in the way we expect.  The true cost of this crisis is the sacrifice of capitalism-the system upon which American prosperity is based.

This sacrifice may not be so evident right now.  Indeed, Obama isn’t ushering in full-fledged socialism via executive order.  But he doesn’t have to.  Rather, his economic policies-the stimulus package, the mortgage relief plan, bank nationalizations and auto bailouts-are transforming our capitalist system by removing the glue that holds it together. 

That glue is risk, and capitalism is almost entirely dependant on it.  A capitalist economy involves voluntary exchanges of value between individuals.  One person gives value (money) in return for value (a good or service), and people typically invest whatever excess value they have (money left over after expenses, spare time) to produce, create, or obtain more value (home addition, pursuing a hobby, starting a business).  This is wealth creation at its core, and its inevitable result is the prosperity Americans have enjoyed for decades. 

This prosperity, however, requires the creation of new value, and such a process can only thrive with risk as its engine.  Value creation is premised on endangering the value you currently have.  A person invests money, assets, skills, time, or effort (all forms of value) in order to achieve an expected or corresponding return (an increase in value).  Normally, the greater the risk, the greater the return one expects.

These principles are universal.  An entrepreneur who starts a business invests money, time, and effort in order to create a successful, income-producing business.  A scientist invests knowledge, time, and hard work to achieve a similar return (a new theory or invention that will earn worldwide recognition and/or monetary benefits).

The downside to risk, of course, is that the value invested in any of these ventures can be lost with no return to show for it.  The stock investor can lose his shirt, the scientist can waste his time, and . . . a homeowner’s property can lose value in a bad market. 

Obama’s mortgage plan (and every similar bailout before it) seeks to remove this downside from the system.  Whereas before, homeowners who bought houses they could not afford were forced to deal with the consequence of losing their homes, now they can rest easy that the government will come to their rescue.  The risk of taking on a loan one could not afford no longer exists.  Obama is slowly removing risk from the system. 

This move will destroy the fundamentals upon which capitalism is based.  Without risk, a stock investor will make poor buy and sell decisions because he doesn’t fear losing his money.  A business will make bad deals because a government bailout will cushion its fall.  And a bank will close its purse strings because borrowers can look to the government to rewrite the loans they could not afford. 

Without risk, there are no consequences for bad behavior, and the entire system crumbles.  A no-risk society breeds reckless decisions and removes the necessary incentives for hard work, innovation, and creativity.  In short, the foundation for America’s success evaporates, and what remains is something far different . . . and quite socialist.

This administration must understand the link between risk and reward, their function in capitalism, and the role capitalism plays in a free society.  The government must allow people to spend their money however they see fit and to suffer (and learn from) the consequences of spending their money, whether they profit from it or lose it all.  Businesses must be allowed to fail.  Choices must be left alone.         

If not, capitalism is dead.         

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