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7/30/2008
Lasee: Will government care for me if MY business fails?
“Would the government take care of me and my employees if my business fails? Will the government bail me out when I make poor decisions?"
Over the weekend, a small business owner posed that question to me.
Congress has passed a bill spending $300 billion we don’t have (well, we can print it or borrow it from the Chinese) to bail out people on both sides of the mortgage market (lenders and borrowers). Some are people who thought housing prices would always go up (unwise decision). Some are people who have gamed the system in hopes of high profits. Let’s not mention the fact that many foreclosures are an unfortunate result of divorce.
It is wrong for our tax dollars to be used to bail out people who have, unfortunately, made poor decisions. This government bailout is the socialization of risk. This encourages and causes more risky behavior in the future. This in turn, requires more socialization (taxpayer money) of risk in the future. It is kind of like FEMA paying for homes to be rebuilt in a flood zone after a flood. You know we are going to pay again and again. The flooded homeowner says, “Why not, it’s someone else’s money.”
The right thing to do is to let the marketplace work. Enforce regulations already in place. Let Fannie Mae and Freddy Mac (holding $6 trillion in outstanding home mortgage debt) do what they would have done without a bailout—identify loans that aren’t a good risk and sell them at a discount. Shrink their bad debt and let someone else make a profit from it after doing some heavy lifting.
There would have been some discomfort as people who had bought houses they couldn’t afford had to move. They would have moved into apartments or less costly houses. It is an unfortunate lump of experience and is something that can be overcome. Overextended individuals knew (or should have known) the risk. They took a gamble and should pay the consequences. Mortgage companies who encouraged customers to take no-money down loans (on optimistic appraisals) should take their full losses, too.
If the market is left to function, responsible actors would save some money and get a house at a good price. Letting the market work, creates opportunities for more people more quickly.
This act of congress will prolong the economic pain. This bailout by the government will encourage more future irresponsibility. This “rescue bill” has a zero money down, $7,500 tax credit for first time homebuyers provision (go figure). This is more of what caused some of the current problems. It makes me wonder what Congress is thinking. (Well, it is an election year and the economy is soft.)
Rather than rewarding cautious investors who have purchased within their means, Congress is giving away our tax money. Instead of letting the market correct itself, this bill will slow or stop the natural outcome when people bite off more than they can chew or do something crooked.
Instead of people moving from houses they can’t afford to houses or apartments they can. They will stay in place. No movers get paid. No realtor earns a commission. No mortgage provider gets paid. No new furniture and stuff for a new place is bought. No new buyer gets to buy that house. Instead taxpayers will pay to keep someone in a house they can’t afford on their own and companies will be propped up (for the short term) with taxpayer money.
Where is economic leadership?
Frank Lasee is a Republican and represents the 2nd Assembly District.
COMMENTS
Since the people occupying leadership positions seem to have a goal of destroying the American way of life as we have known it for some 230 or so years, can we have a volunteer to turn the lights out?
I never thought I'd see the day when President Bush and Representative Barney Frank jumped in bed together!
Richard Parins (Wed Jul 30 13:23:50 2008)
Sad to say, but our taxes have long been bailing out those who make poor choices, such as people who chew fentanyl patches, thus sending themselves into a narcotic-induce hypoxemic coma (funded by taxpayers).
Or people who choose to live near coastal areas known for storm damages, landslides, etc. Or welfare moms who say "We can have as many babies as we want and YOU FOLKS will have to pay for it!" (Who also have enough money for tattoos and cigarettes.)
Our taxes even go to subsidize some of the nation's wealthiest--such as Mark Rockefeller who gets "farm" subsidies.
And what about the federal reserve--a group of PRIVATE banks that the US has given the right to print our money?
EMILY MATTHEWS (Wed Jul 30 13:51:16 2008)
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