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February 26, 2008

Mortgage Bailout Plans a Very, Very Bad Idea

All three remaining major Presidential candidates, the President, and members of both parties in Congress are tripping over themselves in trying to produce a government bailout for those people who are now facing foreclosure in the so-called "sub-prime crisis". They seem to believe that the public is clamoring for such relief, even though about 95% of outstanding mortgages remain paid up and in good shape. This is a potential government intrusion of the worst sort - we (the taxpayers) can't be made to pay for other peoples' stupidity. Buying a home and signing a mortgage is one of the most important decisions an individual or family will ever make.  Buyers and borrowers should take the time to decide for themselves if the property that they are purchasing and financing is overpriced or not, and they shouldn't sign any documents without getting legal advice and understanding clearly what they are getting into.

If a buyer or borrower is tricked into buying or signing something in an illegal fashion, there are already laws on the books that protect them - they have legal recourse, and should take full advantage of it. Anything else is their own problem, not ours, and the government should be doing nothing to make it ours. Remember, it's not the governments money - it's the taxpayers money.

The media, in highlighting the supposedly sorry plights of those suddenly facing foreclosure, is not helping the situation. The public is not worried that someone suddenly cannot (or even worse, could never) afford their $300k home, nor do they care about someone who, because of his or her bills, can no longer lease a BMW. They don't care if someone willingly bought an overpriced house, or signed a loan agreement without first understanding it. They feel that people should live within their means, just like everyone else.

Before the reader thinks that this is just the opinion of a heartless conservative (aka Me), let's look at the responses to such 'hard-luck' stories in the liberal paper of record, the New York Times. Nicole Gelinas of the Manhattan Institute's City Journal, does exactly that, and reports back her findings in her article The Bailout Society? - Not so fast, Americans are saying. The results, from readers whom we can safely assume are overwhelmingly liberal (and prime sympathetic targets for such bailout ideas), are almost universally negative:

But Times readers aren’t biting. More than 400 online responses to the article ran 20 to one against any taxpayer rescue, citing principles of fairness and basic economics. Some readers pointed out that able-minded people are responsible for their own financial decisions, or that a bailout would punish people who behaved rationally during the housing boom. “I’ll be darned if my tax dollars have to go save some folks who couldn’t understand what ‘variable rate’ meant, or who bought beyond their means,” wrote one. “I have excellent credit and did not overextend myself. Any one who studies history could see the pattern and should not have gotten caught up with this recent cycle,” wrote another. “The changing housing market meant that I, a lifelong renter, would finally have a chance to purchase a home now that prices are being lowered,” noted a third.

A bailout will also encourage reckless behavior down the road, argued one correspondent: “Any so-called government ‘rescue’ will simply serve to encourage such irresponsible actions sometime again in the future.” And though disguised as compassion, a bailout would benefit a powerful special interest at the expense of the taxpayer: “Why should government reduce exposures these banks have?” another response asked. “They lent these dollars.”

The objections go on and on. Indeed, in a follow-up piece today, the paper reported that state and local governments’ mini-bailouts have met with “resistance from people who consider the assistance undeserved and adamantly oppose anything that resembles a taxpayer bailout.” A few things are clear from this overwhelming reaction. First, if President Bush proposes a taxpayer bailout for homeowners, as the Times thinks he may, his approval rating will plummet so low that he may end up owing us approval.

Second, all three presidential candidates are overestimating the public demand for a rescue package. Though Senator Hillary Clinton’s plan is farther-reaching than Senator Barack Obama’s—she would impose a “moratorium” on foreclosures and freeze interest rates on adjustable-rate mortgages for five years—both Democratic presidential candidates have proposed spending taxpayer dollars to save some homeowners from foreclosure. Republican Senator John McCain has also said that he’d help “responsible” homeowners in trouble.

All of us, when it comes to this issue, should look at the responses in the New York Times as sort of a "trail balloon" or "focus group". Not only do free-marketeers think that bailout ideas are terrible, so do 95% of Americans - including liberals. Proceed at your own risk, politicians, and be prepared for a very severe blow-back this November from the voters if you force them to pay for other people's stupidity.


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If you have fixed rate mortgages, your payments and interest rate will stay the same throughout the life of the loan. If your monthly payment is $1500, that's what you will pay every single month for 15 or 30 year.

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