Your humble blogger can’t comment on the macro-picture of the mortgage bailout, which may have good reasons behind it that I don’t quite grasp; but I can say that it looks like just the latest instance of supporting bad choices.
Nicole Gelinas writes:
“The whole idea is disastrous – and not simply because it is massive government interference in the private markets. The problems are almost too painful to describe:
“It’s a mass-scale payment from city and state taxpayers to banks and big investors – institutions that should have known they risked a huge loss from lending on such an unsustainable basis….
“When the bank forecloses, though, and finds it can only sell the home for a fraction of its last purchase price, it’s the investors in the mortgages who take the loss. But if state and city money lets homeowners pay back that mortgage, it saves those investors from that loss – while you, the taxpayer, wind up paying for someone else’s investment mistake. (Sure, maybe local governments would negotiate with banks and mortgage investors to share the pain – but the government is often a bad negotiator.)
“By encouraging people to stay in homes they can’t afford, the plan keeps the housing market artificially high. When a bank forecloses on a home, conversely, someone else can buy it at a much cheaper price.”
An excellent Washington Post story reports on the response of those who made better choices that the folks we will now bail out at great expense:
“It seems almost like you are rewarded for being less responsible,” said the management consultant, 33. “There are a lot of downsides for people who didn’t buy into a lot of the frenzy.”
Groups such as Acorn are dismayed that the package doesn’t cover every bad decision that was ever made.