Friday, August 28, 2009

Dave Ramsey on "Cash for Clunkers"

With all the buzz about Cash for Clunkers, it’s easy to think that it was a great way for people to get a better set of wheels. But was it really? No way! Cash for Clunkers was simply a way for broke people to buy cars that they really couldn't afford. It was a bad idea on multiple levels. But before digging into that, let’s take a little history lesson.
About a decade ago, a fair housing program was started, called a sub-prime lending market. The idea behind it was that everyone “needed” to own a home—including broke people. The government decided to start a program to reinvest in communities, which allowed pretty much anyone to borrow money to buy a house. Lending companies charged high interest rates, causing already struggling families to go even further into debt.
Basically, this was a program designed to encourage broke people to buy houses. Most people didn’t even know it existed until it unraveled and became the number-one cause of our recent recession. The government took those stupid loans back and securitized them, which created the financial mess last fall. Helping broke people buy houses didn’t turn out to be a great government program. Guess what? Helping broke people buy brand-new cars—and now home appliances—will turn out just as bad.
The Cash for Clunkers program was designed exactly for people who should not take advantage of the program. You trade your $2,000 clunker in for a brand-new, shiny $20,000 car, and the only way you can afford it is with a high-interest payment. That just means you really couldn’t afford it to begin with. Doesn’t this sound like the sub-prime mortgage problem all over again?
When you drive that new car off the lot, you’re immediately going to lose $4,500. The worst car accidents happen on the showroom floor. New cars go down in value like a rock. The government thinks it’s going to save the American auto industry by putting broke people into cars they can’t pay for. It’s going to come back to bite them—and the rest of us—in the form of taxes galore.
Another bad thing about this program is that we, the taxpayers, are paying for the new cars! It’s morally wrong of the government to take money away from us—against our will—in the form of taxes and give that money to someone else to buy a stupid car they can’t afford in the first place! This is theft, plain and simple.
Cash for Clunkers is a program that redistributes wealth in the name of the environment, and it’s going to be a curse on the car dealer and the manufacturer that carries the paper. It’s going to hurt the broke person who bought a car he couldn’t afford. And it’s already a problem for our country, because it’s adding dollars to the national debt.
There’s always a twist with government programs like this. They try to think of creative ways to help people, but the situation usually ends up worse than it did before they “helped.” In the end, I should decide what to do with my own money. If I want to buy you a car, I will! And if you can’t buy a car without actually paying for the whole thing, then you’re better off keeping your “clunker.”
So good riddance to a really bad program that has done more damage than good.

Source: http://www.daveramsey.com/etc/newsletters/company/082809.cfm?ectid=cnl0909.1_05#1

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