Busted: Bankers and The Global Economy

May 10, 2008

Bailout or Not to Bailout?

Americans remain split on whether homeowners about to default on their mortgages should receive special treatment to help them keep their houses. Opposition to bailing out homebuyers is growing. The problem has been facing the government and the Federal Reserve for quite some time and they have been quite poetic about it as they waited for banks to react. Reaction time of the banks has been slow to non-existent. Banks have taken two approaches. Either banks have elected to allow homeowners to stay homes during an extended foreclosure process or the banks have reacted in the traditional way by foreclosing in the traditional way knowing that the government will bail them out.

Some say that the Bush administration intends to fix the subprime credit mess by keeping people who weren’t creditworthy in debt longer and rendering signed contracts meaningless. This theme operates on the presumption that all contracts were realistic, unpredatory in nature or that homeowners deserve to get what they signed for.

Others see most homeowners as innocents that were conned and coerced into signing contracts that were not only predatory, but immoral and even stacked against the homebuyer.

Jon Markman says, “It’s as if the Federal Reserve and U.S. Treasury believe the best way to treat heroin addicts is through long-term, government-supplied crack.” As a critic of bailing out homeowners with subprime mortgages, he must know that his statement cuts both ways very cleanly for both bankers and homeowners.

Let’s get honest. Why should anyone bail out any part of a for profit money-making system? The government thinks that it adds up to confidence and security along with belief in the system. The government has already moved to cover the sins of the banking system. Should it move to do any less for bilked homeowners?

The other question that nobody is asking is whether the bailouts are expected to prolong the economic recession or to shorten it or whether bailing out bankers is good for business in other than the most short-term scenario. In fact, the Federal Reserve doesn’t openly recognize the problem that bankers have created through their own greed. Instead, they choose to blame the problem on the “lack of financial literacy”. The problem is that with all the financial literacy in the world, nobody really knows the answer. Economic theory has diverse and varied opinions even within the Federal Reserve and the global bankers.

Of course, the real problem is that many Americans don’t want “irresponsible homebuyers” to get anything they won’t get. Without question, at least a few homebuyers were less than honest when they signed the documents for their new home. The government is not suggesting that these people get a handout or a helping hand. Many of them have already lost their homes and some are out on the street as you read this text.

The government has been taking the approach that they are willing to help responsible homebuyers that are creditworthy. Creditworthiness is the determining factor. Otherwise, it’s out the door Buck! Considering that dumping otherwise honest homebuyers that actually can afford to buy a home is the wrong thing to do for the nation’s health, helping homeowners to stay in their homes due to predatory and unsound contracts is a sound idea.

Whether you choose to bail out everyone, the bankers, the hapless homebuyers or nobody at all isn’t even academic. Nobody is knowledgeable enough to figure it all out with 100% accuracy. The variables are immense if they are truly considered. Since financial literacy and people being who they are is the problem, the problem boils down to emotion, the idea of good business and making the “customers” happy.

So what does this writer think? I’m retired and nobody is asking. I do have a few more thoughts though.

Fact 1: Jealousy is a terrible problem in America all the way around.
Fact 2: There is always a price to pay.
Fact 3: Crooked bankers haven’t paid their price yet. (a reminder)

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