Why should I, a struggling blogger, bail out rich people with mortgages?
I know the government isn’t kicking in money, but it is interfering with the free market and the inefficient allocation that results from that hurts all of us. If people make bad loan decisions, or bad romance decisions, etc, why should the government bail ’em out?
From NationalPost.com, Dec. 10, 2007:
Capital markets without losses is like religion without hell.
Leave it to the Cato Institute to come up with an appropriate quote to bring the Bush housing bailout into perspective.
"Talk about moral hazard," says Dan Mitchell, senior fellow at the Washington-based libertarian think tank. "This is moral hazard with capital letters."
The plan announced last week by President George W. Bush is a three-pronged program to ameliorate the U.S. housing slump. Struggling borrowers will be able to refinance existing mortgages at a lower rate, refinance into a mortgage guaranteed by the Federal Housing Administration or freeze the loan’s rate at the introductory rate for five years.
It would apply to borrowers who took out mortgages between Jan. 1, 2005, and July 31, 2007, and those that would face a payment increase of 10% or more on their first reset. The administration estimates 1.2-million homeowners could be eligible for the assistance.
It is hard to believe a plan like this could come out of what is supposed to be the world’s powerhouse free-markets economy. There are many things wrong with it starting with the very clear problem of moral hazard.
Simply put, if you bail them out today, they’ll engage in risky behaviour tomorrow.
"We have a lot of borrowers and lenders with burnt fingers who probably don’t want to get their fingers burnt again," Mr. Mitchell said. Make the pain go away and that lesson is lost.
Secondly, borrowers weren’t forced at gunpoint to take out loans they couldn’t afford and lenders weren’t obliged to lend to borrowers they knew couldn’t afford it.
Why should investors, future homeowners and potentially taxpayers pay for the sheer unadulterated greed on both sides, through higher costs and interest rates?
Here are 57 cool videos on mortgage refinance:
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