Separating the Needy from the Greedy

Congress is mulling over a bailout for Americans who were caught up in the sub-prime mortgage implosion.  The major argument appears to be that many people were the targets of predatory loan practices and didn’t know what they were getting into.  I would like to speak with those people, because I have a bridge in Brooklyn I’ve been trying to sell, and a friend living in Nigeria that could use help liquidating some assets.  I would also like to tell Congress that discussion of this topic shouldn’t even see the light of day.

Whatever happened to accepting personal responsibility for living beyond one’s means? Or taking one’s lumps when investing in a high-risk venture?

I normally advocate our government coming to the aid of the oppressed, but I draw a line when there is no clear separation between the needy and greedy.  Bailout has become a chic catch-all ever since the Savings & Loan disaster of the late 1980’s.  Congress has mulled over numerous bailouts since then, including an extremely controversial move to shift $1.5 Billion to the Washington, DC metro system.  Boston’s Big Dig was also similarly bailed out, albeit over a much longer period of time.  The flood insurance industry, the airlines, and farms across the country have all begged Congress for appropriations to cover their own mismanagement and in some cases, outright fraud.  All of these were justified with a variation of the phrase “to help the little guy”.

These bailouts and many more like them are the result of trying to shore up the revenue side of the ledger for institutions that – through any rationale possible – seek to justify the value of their institution to the average citizen, even when that value is suspect.

What’s the value of sub-prime mortgages?  They are high-risk, junk bond quality investments and a ferocious destabilizing influence on the housing market; so get rid of them.  But won’t that lock millions of potential homeowners out of the market?  To which I say

  • Yep.

If you really want to help homeowner-wannabes, then legislate a cap on the rate at which housing prices can escalate from sale to sale, to maintain some semblance of affordability.  Rapid increases in home values are just as destabilizing as sub-prime mortgages, and it is likely that one would not exist without the other.

If Congress is to do anything, it needs to consider putting rules in place that reduce the greed factor.  Maybe then the truly needy will get served for reasons other than someone else’s desire to make a quick buck.

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