There’s a new site called Stop the Mortgage Bailout that aims to draw attention to the anti-bailout cause and educate people about what a bailout would really mean.
From the site:
A bailout is morally irresponsible because it encourages irresponsible and irrational behavior. Here is a short list of the many “moral hazards” that a bailout enables:
- A bailout sends the a wrong message about personal responsibility.
- A bailout tells responsible Americans that they are suckers.
- A bailout allows banks, mortgage brokers, speculators, and refinancers to benefit from their abuse of the system.
- A bailout will force Americans who acted responsibly to pay for those who did not.
A bailout is also fiscally irresponsible:
- A bailout props up over-inflated housing prices.
- A bailout creates perverse incentives.
- A bailout shifts the risks of falling market prices from financially secure banks to the American taxpayer.
- A bailout is contrary to the free market principles upon which our economy is based.
The primary purpose of the site appears to simply be to raise awareness, but they also strongly encourage readers to take action by contacting your Representatives and Senators. I’ve made it clear before how I feel about government bailouts, so I definitely support what they’re trying to do here.
Go check it out, and encourage those you know to read it and realize just how irresponsible a bailout would be.
[Update:] How timely. Here are a couple bailout stories from the Associated Press that popped up just today in my inbox:
Bill helps business more than borrowers
A measure billed as boosting the slumping housing market showers money-losing businesses with $25 billion in tax relief in the next few years but offers just $3 billion to homeowners.
The estimates released Thursday by the Joint Tax Committee, which explores for lawmakers the effects on the Treasury of tax legislation, lend credence to accusations that the measure helps businesses like home builders while doing little to help millions of families threatened with foreclosure.
Again, for the record, I’m equally opposed to bailing out businesses or individual borrowers. Neither one is acceptable.
Oregon, Washington could get millions in mortgage help
A bill in the U.S. Senate could send $122 million to Oregon and $210 to Washington state to boost demand for housing and help homeowners avoid foreclosure.
The money is part of a $10 billion mortgage revenue bond program for state and local housing agencies.
Yes that’s just what we need to do, artificially boost demand. Yikes. Give me a break. It’s not immediately clear to me whether these two stories are referring to the same or different bills.
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42 responses so far ↓
1
Happy Renter
// Apr 3, 2008 at 2:31 pm
I hope it works.
2
Jason H.
// Apr 3, 2008 at 2:59 pm
I am not sure this is the right message… what about the government bail out of the Savings and Loan Crisis? What about Bear Sterns? The government is there to protect it’s people… and this is one of those things that it can help with. I am not in favor of helping the banks, but I am in favor of helping the individuals.
Does it prop up values? No… it prevents us from going further into a recession.
3
The Tim
// Apr 3, 2008 at 3:05 pm
Here’s a question for you Jason H., is a recession really something we can or should necessarily avoid? It seems to me that it’s the natural, necessary, and healthy consequence of the “irrational exuberance” that we’ve had over the last 5-10 years. The short-term pain sets us up on a more solid foundation in the long run.
4
Ira Sacharoff
// Apr 3, 2008 at 3:17 pm
Recessions might be natural, necessary, and healthy, but if you lose your job as a result of a recession, and through no actions on your own part other than having a job at a place that is affected by a recession, then it’s not a good thing.
Hurricanes are also natural and maybe ultimately healthy, but tell that to the folks who’ve lost everything in one.
5
Ubersalad
// Apr 3, 2008 at 3:20 pm
Real estate depreciate and economic recession? That is blasphemy!
6
Chris
// Apr 3, 2008 at 3:24 pm
Since there’s been irrational exuberance, we can surmise that there will also be some irrational fear in the fallout that is happening. The outright bankruptcy of Bear likely would have swirled into irrational fear at the same level of the irrational exuberance at the peak of the bubble.
There was an excellent WSJ opinion piece about the Fed-orchestrated buyout of Bear that argued nationalizing Bear may have been the best option. Nationalize it, clean it up, sell it off. By nationalizing Bear, all of the schnanigans and shady, convoluted wackyness would have become full disclosure. Giving JPM a nice Manhattan building for the price of a headache allows much of the foolishness to get burried alongside Jimmy Hoffa.
Don’t get me wrong, I unequivically oppose full-on election year, taxpayer-subsidized bailouts, but some government intervention to overhaul financial market regulation will be necessary. I hope it will be worked out in the Fed and not Congress, because if the later starts playing with it during the election year.
7
The Tim
// Apr 3, 2008 at 3:25 pm
Oh, I agree Ira, they suck for a lot of people. Much better would be to avoid the unsupported run-up and the recessionary consequences.
I’m just saying that given the fact that we have already experienced the run-up, if the choice is between propping the economy up with increasingly shaky and expensive proposals or letting the downturn play out, I’d prefer the latter.
I think a lesson we can learn from Japan is that you can’t avoid paying the economic consequences of an idiotic run-up. Your choices are either to let it play out naturally over a few years, or to intervene and slow down the unwinding, resulting in decades of downturn.
But of course I’m no economist, so what do I know, really.
8
Happy Renter
// Apr 3, 2008 at 3:25 pm
Ira’s right, and Tim is right… recessions and the like will hurt a lot of people and in general I’m against the individuals suffering - even if they are stupid, cannot or refuse to plan, etc. Its not for me to judge.
BUT the amount of good from a recession and housing bubble pop will most likely outweight the bad in the long run…
And yeah, someday I’d like to not be “priced out”, so I have an interest in seeing the bubble pop too.
9
Chris
// Apr 3, 2008 at 3:27 pm
Let me edit that last paragraph:
Don’t get me wrong, I unequivically oppose full-on, taxpayer-subsidized bailouts, but some government intervention to overhaul financial market regulation will be necessary. I hope it will be worked out in the Fed and not Congress, because if the later starts playing with it during the election year we’ll probably end up with the 21st century version of social security.
10
B&W Nikes
// Apr 3, 2008 at 3:29 pm
The Houses, Fed, and Treasury have displayed that they are gunning solely for preservation of the status quo by nationalizing risk while privatizing the benefits. They are impervious to logic and fraternally motivated, they may even succeed in preventing pain now so that it can be experienced later by someone else.
11
Matthew
// Apr 3, 2008 at 3:38 pm
We can either let this thing correct on its own, sharp and quick, or we can let the government interfere and drag this thing out for a decade. I’m voting for sharp and quick.
12
Mike626
// Apr 3, 2008 at 3:43 pm
I cringe at the prospect of rewarding irresponsible behavior, or in the case of the lenders, criminal behavior. However, certain stimulus schemes have proven to be very successful at reducing or reversing the effects of what might otherwise be a long downturn.
Specifically, I am thinking of the New Deal investment in infrastructure and creation of a safety net, or LBJ’s Great Society reforms. To a lesser extent, even the Bush’s earlier stimulus proved to be successful in reducing the impact of the recession of 2000-2002.
What concerns me the most about this particular financial crisis, is how directly its impact might destabilize families by ousting them from their homes. In the best cases they may find apartments they can afford, in other cases family or friends might temporarily take them in. Surely, still others will find themselves in situations much less desirable, and perhaps altogether devastating.
Worse still, I can’t help but think that, as a nation, bearing the full brunt of the current housing finance crisis will trigger a broader consumer debt crisis, which would make the current bubble seem irrelevant in comparison.
13
Ubersalad
// Apr 3, 2008 at 3:44 pm
This is election year, perfect timing for candidate to use this “crisis” to make political statement.
14
Ira Sacharoff
// Apr 3, 2008 at 3:45 pm
So given the nature of the economy, how do we avoid the unsupported runup?
Is it the nature of people to buy into the hysteria and act like sheep?
15
Ubersalad
// Apr 3, 2008 at 3:46 pm
“To a lesser extent, even the Bush’s earlier stimulus proved to be successful in reducing the impact of the recession of 2000-2002.”
Umm…HELL NO! One can argue that is one of the causes for our current crisis.
16
budbrad
// Apr 3, 2008 at 3:49 pm
How about the latest…… the HOMEBUILDERS are lobbying for a bailout from Congress to help bring stability to the economy.
Irony much?
17
Slumlord
// Apr 3, 2008 at 5:10 pm
I agree that a bailout encourages reckless behavior.
The role of government should be to cushion against future downturns. This recession is unavoidable and, in my opinion, overdue. Housing is too expensive. As much as my ego wants to buy more property, I cannot find anything that makes financial sense. Let the downturn happen. The bubble needs to deflate.
Higher government spending may be necessary to keep the economy going. I say this because we are in for a very rough ride. However, additional spending should be on mitigating the next problem. We are hurtling toward an oil crisis. I expect that it will make today’s gas prices seem like nothing. Therefore, government spending to stimulate the economy should focus on efficiency, expanding renewable energy, and mass transit. Wasting money on housing bailouts simply makes it harder to prepare for the future.
18
Ira Sacharoff
// Apr 3, 2008 at 5:21 pm
Let me play devil’s advocate for a minute here: If the government does nothing to help the people who are in real danger of being foreclosed on, what will happen to those people, and what will happen to the homes they live in?
I’m not suggesting that people ought to be rewarded for their stupidity, but we know what happens when there are blocks and blocks of foreclosed empty houses, and it’s not pretty.
I don’t know what the answer is. Government does have this tendency to screw up almost everything it touches, but doing nothing about increasing homelessness and deteriorating neighborhoods doesn’t seem very compassionate.
19
geon
// Apr 3, 2008 at 5:41 pm
Ira,
They go back to renting like most of us. Most have taken money out of their homes already. They don’t own the home, they’ve been renting from the bank. The home get sold of at what they are worth.
20
b
// Apr 3, 2008 at 6:04 pm
I would rather they bail out the economy by creating new infrastructure projects like during the depression. That way at least we taxpayers get a direct benefit from pork spending to prop up the economy. Its too bad our government (R+D) is so god"golly" corrupt that the money will go to direct subsidies for failed business models instead.
21
b
// Apr 3, 2008 at 6:11 pm
Ira -
They will rent, just like most of us. I really don’t see why foreclosure is so terrible for these people. They get 3-12 months of free living (I would like free rent) and a bad mark on their credit for 3-7 years (as it should be). There are no more tax penalties, lenders are not suing them unless its fraud, so what is the big deal? They don’t get to paint their walls anymore?
22
Rhonda Porter
// Apr 3, 2008 at 6:22 pm
“If the government does nothing to help the people who are in real danger of being foreclosed on, what will happen to those people, and what will happen to the homes they live in?”
People who overstated their incomes to buy what they could not afford in the first place will return to renting.
People who did not correct their subprime habits and have subprime mortgages will return to renting.
People who are having difficulty with their ARM adjusting may be able to refi IF THEY TAKE ACTION…if they do nothing…they may return to renting as well.
It’s a correction. An ugly one at that.
I don’t think banks should forgive any mortgage balances…if they do any sort of modifications to the balance, they should record a second mortgage for that amount.
Bailouts are unfair to those who have done everything right…paid their rent or their mortgage on time and were responsible with their home purchase and finances. With that said, if you’re living in a neighborhood full of foreclosed homes…that won’t be a pretty site either.
I feel bad for those facing difficult times…I get calls from across the country with some sad stories. I especially have compassion for those who had health, employment, etc. issues create financial hardships.
23
george
// Apr 3, 2008 at 7:30 pm
Some may not deserve to be bailed out, but a lot of renters who didn’t benefit from the bubble run-up are about to be hurt twice: by a nasty recession.
The government that contributed to that problem now has a responsibility to do what it can to prevent it from happening.
24
mikemcc
// Apr 3, 2008 at 7:42 pm
This kind of redistribution of wealth never works for the lower tiers very nicely.
Ira has some good points.
25
Eastside Eric
// Apr 3, 2008 at 8:36 pm
It’s tempting to take the moral high ground and push the mantra of ‘personal responsibility’ by supporting tigher bankruptcy laws to promote fairness. The bankruptcy legislation passed a few years ago may have cut down on bankruptcy filings by individuals, but ironically, may end up hurting us all in the long run.
James Surowiecki, author of the book ‘Wisdom of Crowds’, argues in a New Yorker piece that the increased restrictions on bankruptcies make those who feel that personal responsibility is a moral issue (e.g. libertarians, fiscal conservatives) perhaps sleep better, but that credit card companies have been the biggest winners. Moreover, those forced into Chapter 13 lose incentive to produce, since a larger chunk of their earnings go as a tax to the credit card companies.
Liberal bankruptcy also encourages small business and entrepeneurship, which help the economy fight back in recessionary times. Here’s the article: http://www.newyorker.com/talk/financial/2008/04/07/080407ta_talk_surowiecki
Who wins when the little guy loses? The investment banks and their high paid constituency. Money talks. Politics distract people from focusing on where the real damage is being done. In a story published on Salon.com, Andrew Leonard places a large part of current credit crisis on Wall Street:
“That last point to underline is that the hands-off-Wall Street, deregulatory impulses unleashed by Ronald Reagan and expanded by all his White House successors have directly contributed to the precarious state of today’s average American. The housing crisis offers a terrific example. Yes, speculation by housing flippers played a role in fueling the boom, and so did fraud on the part of both lenders and borrowers. But Wall Street’s hunger for high-yielding complex financial instruments, that alphabet soup of CDOs and CMOs and countless other inscrutable derivatives, created the fundamental incentive that encouraged lenders to provide credit without restraint. The voracious demand for the junk encouraged the creation of more junk. And nobody asked any tough questions, all the way down the line. Worst of all, the hedge funds and investment banks that bought and sold these derivatives did not operate under the same levels of government scrutiny that traditional banks must face. Quite the opposite — the more complicated the financial innovation, the less likely it was to fall under any government oversight. And that was no accident — that was done on purpose. During both the Bill Clinton and the George W. Bush administrations, Wall Street got exactly what it asked for — a light hand on the reins, but with the tacit assurance that if the "chocolate" really hit the fan, the government would bail it out, because, of course, the awful consequences of systemic collapse would be too devastating to risk. ”
Moreover, Leonard posits that this lack of oversight, combined with an absence of a social safety net and concentrated wealth are the same factors that led to the Great Depression of the 30s. This is clearly written from a moderately liberal point of view, but interesting nonetheless.
You can read the whole piece at http://www.salon.com/opinion/feature/2008/04/02/depression/
26
Matthew
// Apr 3, 2008 at 9:05 pm
Sorry if I don’t buy the “privatize the profits, socialize the losses” mantra coming from the last two posts.
Where was government intervention during the massive run up? Nonexistent. Now that people are going to take a hit people want the government to spend tax payer dollars so that people who should have never been in homes in the first place can stay in them? Sorry if that sounds like an absurd idea to me. They can send the keys back to the bank and rent!
What does a ton of foreclosures do to the housing market?? It drops the price of houses until they become cheaper for more first time buyers sitting on the sidelines, waiting for this to play out. The bottom line is that housing prices must become more affordable before the current situation becomes manageable.
End of story.
27
Matthew
// Apr 3, 2008 at 9:08 pm
Maybe everyone that made massive amounts of equity on their homes can just send an equity refund check back to the government. That sounds ridiculous? Well guess what, so does spending my tax payer dollars on irresponsible owners, builders, and lenders that profited on the way up.
28
Matthew
// Apr 3, 2008 at 9:16 pm
People on this message board are talking about an oncoming recession as if it is the end of the world. We haven’t even had a quarter of negative GDP growth yet and everyone on here is talking about government bailouts and raining money from helicopters.
A recession is a necessary cycle in our economy. It’s not going to be the end of the world, take your medicine and move along. Has anyone learned anything from this? The last time we meddled with trying to avoid a recession (Greenspan .com blowout) we got an even larger bubble as a result of interference. Ups and downs, expansions and recessions, are a necessary part of our economy.
You can prolong the pain and drag this thing out for over a decade, or have a sharp and quick necessary correction and move along. I for one, do not want a Japanese style 10+ year deflationary spiral to encompass our nation.
29
JimN
// Apr 3, 2008 at 9:43 pm
What worries me most about this talk is when the politicians get involved. Many agree that a correction in prices will ultimately be what stabilizes the housing market. No one likes to see people have to move, but throwing money at borrowers that should have never bought to keep them in their houses is misguided. As Rhonda points out, many will and should go back to renting. This is like trying to bail out never profitable dot-coms firms after the dot-com bust.
In fact, if prices continue to slide (or for that matter don’t appreciate), it doesn’t matter how great the mortgage, people with no equity will still be better off walking away. Perhaps the efforts should be helping the foreclosed get rentals and start over, while at the same time allowing the necessary price correction.
30
Buceri
// Apr 4, 2008 at 4:09 am
I am a sucker….I do not own an LCD HDTV, nor a plasma TV, and drive a 1998 Mazda 626. My mortgage is less than most people’s rent. I run my household so that we can survive with one income. My children are never hungry, cold nor hot; and they have very nice b-day parties. Every year we spend 2 weeks in Seattle for vacation……. But I am called cheap and that “I don’t enjoy life”.
Now I have to pay for someone who was too good to settle for a 1200 sq.ft. condo; cheapos like me can live on those crap boxes.
Bail out the irresponsible ones; so that the responsible one will never be able to buy.
My position is always very clear EDUCATION AND HEALTHCARE MUST BE HUMANS RIGHTS, NOT PRIVILEGES; specially in an industrialized country . But if you go for the Lexus instead of the Civic; or the 5 bedroom beauty instead of the condo, THEN YOU ARE ON YOUR OWN!!!!!
31
Buceri
// Apr 4, 2008 at 4:17 am
SORRY, one more thing.
Please e-mail your local house representative and both senators. Tell them home prices need to come down so that the responsible citizens can own a home. Nobody stop the madness (pyramid scheme) on its way up!!
32
Buceri
// Apr 4, 2008 at 4:19 am
I am sorry for the misspelling and grammar errors; I am too angry!!
33
Mikal
// Apr 4, 2008 at 10:50 am
Matthew, There were and maybe still are over 35 attorney generals of states that filed a lawsuit against the Bush administration to force lenders to follow the law. The Bush administration has claimed executive privelege allowing lenders loan whatever they wanted with lax oversight. There was government oversight (undersight). These attorney generals saw this coming. I don’t know where the case has gone, but not surprising that Bush had his hand in another mess.
34
Slumlord
// Apr 4, 2008 at 11:35 am
I agree with Ira’s point that compassion is in order. The deflating housing bubble is crushing many peoples’ dreams and wrecking what they thought was a secure financial future. It is ugly. It is going to get worse.
My concern is that housing is only the beginning of larger problems. The system relies on leveraging capital. Right now, this county is so far in debt that we no longer have any capital. The best metaphor I can think of is a friend who filed for bankruptcy a while back after a period of unemployment. He knew it was coming, so did he try to get his financial house in order first? No, he took out cash advances on all of his credit cards first. The bankruptcy cleaned out most of his assets. What it didn’t do is catch the 10’s of thousands he had stashed in cash. Most of us would have taken the money, bought a new suit, and started looking for a job. My friend drove to Vegas. You can probably guess the rest. I expect bailouts to will be no more successful.
Government spending on infrastructure, B’s point, is the equivalent of buying a new suit and looking for a job. It doesn’t have an immediate effect, but over the long haul, there is no doubt that working and investing is the best approach. Unfortunately, we were all spending a too much time at the casino. For my friend, the casino was in Vegas. For many – including myself – it was the property casino. For the banksters, their casino is the foreign capital that finances our insolvent government. Remember, the house always wins. Building wealth, or a strong economy, requires having a job or investing in infrastructure. Without doing these things, all that compassion can do is lead to more broken dreams.
35
EconE
// Apr 4, 2008 at 11:49 am
Should we have compassion for condo flippers?
No?
Good.
36
FreedomLover
// Apr 4, 2008 at 12:33 pm
Ever hear of the concept of “cleansing flood”? It’s always worked wonders going back to Noah’s time.
37
FreedomLover
// Apr 4, 2008 at 12:56 pm
Ira Sacharoff // Apr 3, 2008 at 5:21 pm
Let me play devil’s advocate for a minute here: If the government does nothing to help the people who are in real danger of being foreclosed on, what will happen to those people, and what will happen to the homes they live in?
I’m not suggesting that people ought to be rewarded for their stupidity, but we know what happens when there are blocks and blocks of foreclosed empty houses, and it’s not pretty.
Except you are suggesting that people be bailed out of their stupidity. You can’t have it both ways. Have the courage of conviction to say it one way.
38
FreedomLover
// Apr 4, 2008 at 12:59 pm
Slumlord:
You seem to be agitating for huge new transit projects, but you are aware of the boondoggle of the light-rail attempt in Seattle? Why should it cost $100 million/mile? Do you even question such things, or spending INFINITE funds is A-Ok if it’s on “holy mass transit”?
39
The Dude Abides
// Apr 6, 2008 at 6:10 am
Ira asked ‘what will happen to those people’.
They will rent …same as it ever was.
40
Ira Sacharoff
// Apr 6, 2008 at 9:29 am
A lot of landlords check credit, and if you’ve been foreclosed on, it damages credit, and if a lot more people are forced to become renters, it makes renting more competetive.
Freedom Lover, it’s not a matter of courage of conviction, it’s more like I’m not sure what the right thing to do is. I don’t support bailing out lenders or homeowners who should have never qualified for loans, but it just seems heartless to say “let ‘em rent”,
which is easy to say when you already rent or own. it’s got to be incredibly traumatic to lose one’s house.
41
Deran
// Apr 6, 2008 at 9:13 pm
Hmmm, “government meddling”? Would that be crazy mad dash to “dereultaion” (that sinking ship “neo-classical liberal ponzie scheme, er, economics.
I have no interest in bailing out Near Stearns; it would seem more suitable to add the failed finaincial insitutions into a new national back perhaps? Rather them simply giv’em our tax monies.
I think the “bailout” things goes two ways. The capitalist financial institutions created, or mutate, in the wake of neo-reaganomics, should see no money. They are the ones that have profited from this deregulatory frenzy of the last 28 years. On the other hand, I am perfectly comfortable tax monies going to homeowners that were lead into traps.
As I understand the “American Dream” includes the wealth stability of homeownership (of course, again, the neo-liberalism policies, have shifted homeownership has become a new for of credit card).
I sometimes here speak of the shanges in government policy in two tones from the “free marketeers”. 1) when social policy deregulates and eprmits the corporations to do what they want to maximize short-term profit, and these deregulatory actions have terrible negative “blowback” — it’s the mysteries/or science of the “Markets”. When social policy is toward the regulatory side, the “free marketeers” insist these are unnatural act.
42
Rita
// Apr 6, 2008 at 11:27 pm
I think their should be a bailout for homeowners in trouble. The Bush administration didn’t do its consumer protection job in terms of stopping predatory lending.
I write a blog for boomer consumers called The Survive and Thrive Boomer Guide at http://boomersurvive-thriveguide.typepad.com.
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