Sunday, July 20, 2008

They didn't understand

The great housing crash is rolling on and lately there's a lot of talk about what happens next, the bailouts. There is a strong contingent of support for bailing out homeowners based on the fact that the government has already held no hesitation towards bailing out Wall Street players. So the argument goes, if they can be bailed out, why can't homeowners? A better question might be, why should anyone involved be bailed out?

Gretchen Morgenson at the New York Times was writing about the bailout controversy over the weekend and brought up that point above about Wall Streeters enjoying bailouts while homeowners have not (so far):

Borrowers who are in trouble on their mortgages have seen their government move slowly — or not all — to help them. But banks and the executives who ran them are quickly deemed worthy of taxpayer bailouts.
The message in this disconnect couldn’t be clearer. Borrowers should shoulder the consequences of signing loan documents they didn’t understand, but with punishing terms that quickly made the loans unaffordable.

This is a common premise coming from the pro-bailout crowd, roughly, that borrowers didn't understand their loans. As the basis for an invasive, socialist, taxpayer funded bailout, it is inadequate. Many homeowners clearly did understand their loans, yet they chose to take a gamble on a home purchase with the idea that their home's value would increase and net them a reward.

So how is it that such gambles should be subsidized by the hard-earned money of others who had no involvement whatsoever?

Freedom to make bad decisions is inherent in the freedom to make good ones. If we are only free to make good decisions, we are not really free.

- Ron Paul