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Roh Moo-hyun has been called "a bad president," and there is a "bad government" as well. Where a bad president proposes a constitutional amendment at an inappropriate time, a bad government enforces a policy at an inappropriate time. Milton Friedman, the economist who died last year, likened a bad government to a fool in the shower. As the fool keeps turning the hot water faucet up when the water gets cold and the cold water faucet when the water gets hot, he said, so a bad government accelerates economic unrest by switching between hot and cold showers.
That¡¯s our financial policy. No sooner do people discuss the failure of the real estate policy than Cheong Wa Dae defines the financial policy as the "axis of evil" and makes it a scapegoat. It is too late, and any attempt to remedy a string of failures in one fell swoop is bound to inspire no confidence.
It has long been suggested to reduce liquidity to prevent a real estate bubble. After wasting years, the government is belatedly firing restriction ¡°bombshells¡± at financial institutions. The government on Thursday announced a formula restricting housing loans to one per person. It follows the logic that no one householder needs to own more than one house. But the formula is likely to have considerable side effects. For example, who would buy property to let in the future if you can only own one house? Where would the landlords come from?
The formula also calls for restricting mortgages by lowering the debt-to-income ratio as of February. It attaches more weight to borrowers' income level than to collateral. The need is fully admitted. But the problem lies, experts note, in that we are introducing it as a government restriction in a bid to bring spiraling housing prices under control, while in developed countries it is being autonomously enforced by banks. The Bank of Korea, too, a while ago began to tighten the money flow by raising required bank reserves for loans.
A string of real estate restriction measures including those of Nov. 15 are already in effect, and market caution against housing prices has heightened, giving rise to expectations that they will have a positive effect. There is naturally a time lag between a government policy and its effects. Excessive restrictions now could cool down not only the real estate market but the entire economy.
We need to recall the lesson of Japan's "lost decade." Japan committed the folly of turning off economic vitality itself by enforcing extraordinarily stringent measures --abruptly raising interest rates and restricting the total quantity of real estate loans extended by banks in an effort to control the real estate bubble.
We also had the bitter experience several years ago of the fallout from excessive issuance of credit cards. Measures against the consumption bubble caused by excessive credit card debt were urgently needed. But the steps, when they came, were too late and too strict. In the end, unprepared consumers turned into credit delinquents and some credit card firms went belly-up.
Our experienced bureaucrats should be well aware of such problems. They nonetheless abruptly turn the cold faucet on. Why? A retired public official says, "What can the bureaucrats do when the president claims that the government falls short nowhere but in real estate policy. They have to follow his lead." But if the government takes unreasonable steps, the public suffer the consequences. The administration must avoid becoming a ¡°bad government."
The column was contributed by Lee Jee-hoon from the Chosun Ilbo's Business Desk.
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