I feel sorry for people who lose money gambling. But they pulled the levers, and played the hands, knowing that the odds were against them. I don't feel any obligation to refund their losses. The government doesn't either.I feel sorry for people who drink heavily, and suffer for it. I hope they learn to control their urges, and understand the harm they cause. But I don't feel any obligation to undo their wrong. The government doesn't either.
I feel sorry for people who ride motorcycles without helmets, and are seriously injured. But, in many states, there are no laws to protect them from their own poor decisions. I don't feel any obligation to pay their medical bills. The government does-n't either.
I feel sorry for people who play the lottery, or the stock market (sometimes they seem like the same thing), and end up with big losses. But they got involved because of the lure of easy money. It doesn't always work out. I don't feel any obligation to refill their pockets. The government doesn't either.
And I feel sorry for people who gladly, and blindly, took out subprime mortgages, thinking that they were getting a great deal, without understanding the possible consequences. People who made the largest economic transaction of their lives without proper legal and financial advice. People who just ignored the black-and-white documents that clearly stated the rules of the game, and then threw up their hands when those rules were enforced. Many are very nice people, but I don't feel any obligation to pay their debts. The government shouldn't either. Nor should you.
Ancient wisdom: If it seems too good to be true, it is. But how often do we choose to ignore what we know when we think that we are getting a real steal? We believe what we want to believe, and overlook the details. Nutin kin goe worng. Millions of Americans saw sub-prime loans as an opportunity to reduce their mortgage payments, or to purchase a house that had previously been out of their reach. Wow, is that all it will cost me per month???! And they jumped in with both feet. Maybe the lender properly explained the pitfalls. Maybe he didn't. But, either way, shame on the borrower for blindly trusting the salesman who was collecting the fees.
It is your obligation to know how to manage your own possessions, and your house is probably the biggest investment you will ever make. It is the one thing that you can't risk, unless your family is prepared to sleep on the street. Yet how many people endangered their homes, and their families, with a mortgage that they did not fully understand? Or even worse, with a mortgage that they did understand, refusing to believe that the worst could actually happen? If you are signing a legal document, it is your responsibility to be sure you can bear the potential consequences.
OK, so months, or years, after these naÃ¯ve people jump at the cheap money, it isn't cheap anymore. There is a clause that says the rate will increase, and it does. The homeowners can't make their payments. Who is going to? You - the folks who made the proper decisions. The folks who didn't bite on the quick-fixes, and paid a bit more for the security of conventional financing. You will be bashed with the higher taxes, higher borrowing costs, an increased deficit, and program cuts that will result from someone else's poor judgment.
There isn't much that can be done to punish lenders who made the toxic loans to so many high-risk customers, in exchange for those up-front fees. More of them go in the toilet every day. Unfortunately, our government has chosen a short-term political solution rather than a long-term economic one.
The bailouts of investment bank Bear Stearns, Fanny Mae, Freddy Mac, and insurance giant AIG may have temporarily propped up the stock market, but will not solve the underlying problems: the housing crisis, and the poorly-regulated business practices of dozens of financial institutions. Despite their greed, they will be rescued, using hundreds of billions of tax dollars of every American who didn't risk their homes.
Sub prime borrowers will also get a political quick-fix, at everyone else's expense. Early one July morning, out of the public view, President Bush quietly signed a bill he had previously threatened to veto. Our government, which is so generously rescuing the big boys, will do the same with the folks who put their families at risk. Altogether, this monstrosity could cost us over $800 billion, more than $2000 from every man, woman, and child. But why? These sub primers are not the unfortunate victims of a natural disaster, or war, or anything beyond their control. The sad but true fact is that they simply brought this on themselves. Meanwhile, who is bailing you out???
Russell Roberts, a professor at George Mason University and a research fellow at Stanford University's Hoover Institution, said on National Public Radio "Where does the government stop in protecting people from irresponsibility? In a world where people who make bad decisions are spared the full consequences, only one thing is certain. We've encouraged more people to make more bad decisions in the future. The real price to be paid isn't the dollar costs of any bail out, but the encouragement of recklessness and irresponsibility. That will make all of us poorer down the road."
Many top economists agree. Three former Federal Reserve officials, including the former director of the monetary affairs division, openly criticized the government's intervention. The former vice-president of the Dallas Fed said "If we don't stop now, there will be no end". A group of 100 Republican law-makers issued a public letter asking the Fed to "refrain from conducting any additional government-financed bailout."
When faced with disasters of Biblical proportions like 9/11, Enron, and Katrina, our embarrassed leaders have typically responded with poorly-planned, knee-jerk reactions. This ill-conceived giveaway could well go down in history with The Patriot Act, meaningless paper reforms, and bungled relief efforts.
Richard Woldow is a resident of Ivyland, Bucks County, and owner of the Quakertown Farmer's Market. He is a former investigator for CBS television with degrees in law and journalism. He is a freelance journalist who contributes regular columns to The Free Press and operates a website at www.woldow.com.