Monday, September 29, 2008

Making Sense Out of Nonsense

So, the bailout bombed.

That it bombed is surprising. Surprising in that, on the surface and through the pinprick investigating I've done, having it bomb makes sense. I've tried reading what I can about the bailout, pro and con. I even tried reading the bill that the House pooped on, but honestly, I have no idea how anyone reads those bills, becasue in part they imply complete familiarity with other bills and such being amended by this bill. No one in their right mind has time to do that kind of reconciliation.

What a Harvard economics lecturer, Jeffrey Miron, says today in a piece on makes sense. Here's a quote:

The current mess would never have occurred in the absence of ill-conceived federal policies. The federal government chartered Fannie Mae in 1938 and Freddie Mac in 1970; these two mortgage lending institutions are at the center of the crisis. The government implicitly promised these institutions that it would make good on their debts, so Fannie and Freddie took on huge amounts of excessive risk.

Worse, beginning in 1977 and even more in the 1990s and the early part of this century, Congress pushed mortgage lenders and Fannie/Freddie to expand subprime lending. The industry was happy to oblige, given the implicit promise of federal backing, and subprime lending soared.

This subprime lending was more than a minor relaxation of existing credit guidelines. This lending was a wholesale abandonment of reasonable lending practices in which borrowers with poor credit characteristics got mortgages they were ill-equipped to handle.

He goes on to say this: The problem started with bad government. Adding more government isn't going to fix the problem.

I don't like the idea that what I pay in taxes should go to bail out someone who
took on a debt they didn't quite understand, using tools (sub-prime mortgages)
that are essentially geared to bite homeowners in the rear. My wife and I deliberately chose a home well inside our price range, in an area where the cost of living is low compared to other areas in the region, and, frankly, chose a house that's rather in need of a bit of service. We'd looked into building a new house, but such adds on tremendously to the cost of housing -- in our case, at least an additional $50,000 -- that we didn't feel was justified by having that new house smell. We've put money into the house, fixing it up, and I've done most of the labor, from electric to shingles to window and door replacements, myself. The only thing we contracted out was $1,000 worth of plumbing for the downstairs bathroom. Sure, parts of the house look like a homeowner committed a handyman project against it, but most of it does not. The roof, especailly, draws compliments, and that includes compliments from the contractor across the street.

So why, I ask, should I bail out people who didn't make the same prudent decisions? I know not everyone can live here in Idaho where the cost of living is low. I'l also lucky to be in the job I've got now -- it certainly could be a lot worse. But if it were worse, I would not be looking to the government, hat in hand, hand out, for money because my dumb mistakes led to my downfall.

Having the bailout fail hurts us financially. We'll take a drubbing in our retirement investments. That can't be helped. But I guess what I'm saying is that I don't feel that selfish -- approve of an idea just because it might help the status quo. When something's broke, you fix it. You don't slap a patch on it so it can continue along its merry way.

You could, however, climb the Cliffs of Insanity, and, perhaps, find salvation there. Or the Man in Black. Either way, you're covered.

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