TCS Daily


Rewarding the Prudent

By Bruce Wilson - September 24, 2007 12:00 AM

One of the marvels of the American way of life is its foundation in common sense. American principles are such a universal part of the human experience that it doesn't take much in the way of communication to remind us of those principles. In fact, over the years, much of what we believe as Americans has been codified in easy to understand admonitions.

For example, in light of the recent news of many homeowners across the country falling into default on their home mortgages, admonitions like "live within your means," "buyer beware" and "what goes up must come down" come to mind.

These particular admonitions are known to most Americans and it's likely nearly every mortgage holder now in default not only heard them often but probably even thought of all three principles before blatantly ignoring them and signing up for a very risky mortgage.

Under the circumstances, it's not entirely surprising that President Bush and many members of Congress are floating possibilities of a bailout. After all, everyone makes mistakes and mortgage default is a very painful and far-reaching one for those involved.

But America would be much better off in the long run if the free market is allowed to run its course instead of circumventing it through a government bailout that would only compound the problem.

Why?

How do you think a bailout would be received by the millions of Americans who actually bought into the philosophy that they ought to live within their means—and did?

Or what would it say to those who bought into the philosophy that buyers should be wary of promises from sellers who have a tendency to gloss over or even purposely understate potential risk?

And consider the message a bailout would send to those who understood that housing markets are known to take off like a rocket before plummeting back to earth—almost always leaving many risk-taking mortgage holders with more debt than equity.

It should be clear to everyone—including President Bush and members of Congress—that a bailout would be a real slap in the face to millions of Americans who resigned themselves to staying in their current rental units or existing homes because they understood that a variable rate mortgage is often a financial time bomb waiting to blow up in the holder's face—especially when starting interest rates are lower than common sense can explain and housing prices are headed for the stratosphere faster than a space shuttle.

It's undoubtedly true that some unscrupulous lenders lied about terms and tricked borrowers into loans they would not have signed had they known the truth. And most Americans would agree that government agencies have a responsibility to prosecute lenders who have broken the law and obtain restitution to the extent possible from the assets of the lawbreakers.

But a government bailout of mortgage holders who knowingly and willingly entered into perfectly legal but obviously risky agreements would be a bitter pill to swallow for anyone who played by the rules and thereby lost out on an opportunity to substantially upgrade their circumstances through a government handout. And, to add insult to injury, taxes collected from those who actually had income to tax because they lived within their means would fund the bailout. How's that for a double whammy? It's kind of like getting slapped in the face and then kicked in the rear for doing what's right.

I hope some sanity prevails in this debate. Intervention of any type is unwarranted, but if President Bush and Congress insist on spending our tax dollars to provide subsidized housing—and perhaps buy some votes in the process—we would all be better off if they sent the subsidy as a reward to those who played by the rules and not to those who ignored them.

Bruce Wilson is a retired NBC Universal executive and the author of " Disarming the Culture War: How the Silent Majority Can Break the Stalemate." E-mail bruce.wilson@beyondbb.com.


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7 Comments

"slapped in the face and then kicked in the rear for doing what's right."
Welcome to modern America where citizens are punished and illegal aliens are rewared for breaking the law.

Well written
I feel exactly the same way. I am constantly frustrated by a system that punishes the common path to the benefit of those who are willing to live in the fringes.

Didn't your mom teach you
that no good deed goes unpunished?

Whether it's by accident or by design,
the fact is that it's all part of an insidious and so far all-too-successful attempt to turn the United States into a Socialist nation.

Perhaps our "great experiment" has failed after all. Perhaps the average human being simply is not capable of handling the personal responsibilty that comes with liberty.

She said the world isn't fair.
Liberals keep trying to make it fair by taking other's money.

Too bad they won't use their own money and a little elbow grease. They might actually generate some real self esteem.

maybe
but I don't think so.
It's just that people are gullible, and likely to be swayed by seemingly logical arguments for "redistribution of wealth".
And of course people who made a mistake that cost them dearly are not going to look too unkindly on those who promise to undo the consequences of that mistake over the backs of others.
Both are caused by the ingrained selfishness of most humans, not an incapacity to recognise personal responsibility.

The removal of personal responsibility is a tool used by leftists to grease the path (and hide it from plain sight) for their other plans to remove liberty.
Promise to remove personal responsibility but state that they have to yield a bit of that liberty to make that possible (government control over bank transactions to detect whether people are spending irresponsibly for example).
Most people aren't well enough versed in the ways of the leftist to detect such ruses through no fault of their own (the fault lies wholly with the education system which as we all know has been a leftist stronghold in most of the world for a century or more).

Responsibility
"Intervention of any type is unwarranted..."

A few years ago the FED pushed short terms interest rates to all time lows...driving down the indexes that resulted in historically attractive ajustable mortgage rates. Then, they reversed course and pushed short rates above long term rates, resulting in 4% or more in upward adjustments in many adjustable mortgage rates. The end result, the current real estate recession.

The FED has already INTERVENED...first but pushing short term rates too low, and then by pushing them too high too fast. There is no economic justification for their policies. During this whole period, global medium to long term interest rates varied only about ONE percentage point. If soaring inflation were imminent, as the FED seems to think, how come the markets see it completely differently?

The FED has intervened without cause and made a mess of things. The best they can do now is an orderly reduction in the discount rate to the 3-4% range where it has belonged in the past 7 years. Eventually, the markets will recover.

If Congress wants to "intervene" to help victims of the current real estate bust, they should resolve in the future to exericse their oversight responsibility of the policies of the FED. They too have mortgage default blood on their hands.

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