Don’t Bailout the Homeowners

Say you’re a hard worker, making $75,00 dollars a year. You don’t drink, you don’t smoke, you’re a good guy. You buy a house for $109,000. The payments had been set for $829 a month, but suddenly they jumped to $1300 a month. Suddenly you can’t pay. You “didn’t understand” the adjustable rate mortgage because you “didn’t read the fine print.” Of course, with your 75K salary this shouldn’t mean too much, but there’s a catch… you’re spending $15,000 a year on the lottery, among other ridiculous expenditures. Now, you’re on the verge of foreclosure. Who’s fault is this? The greedy predatory loaners?  The evil lottery advertisers who make winning seem so easy? Or could it be…yours? You’re Marvel Collins Jr. of Bedford, Ohio and the answer is of course not. It’s not your fault. You didn’t read the fine print.

Should the government bail you out, Mr. Collins? Well, sorry to disregard you’re horrific sob story, but no. The United States government shouldn’t bailout anyone, from CEO’s to aging cripples. Here’s why.

First of all the government can’t afford it, second it’s a counter incentive of ridiculous proportions, and third it’s just not fair.

According to this article from the BBC, the US Debt Clock got too big for its britches last night, running out of digits to keep up with the growing national debt, now approximately 10.2 trillion dollars, excluding debts to Social Security. If you were to include money that the government owed to programs like Social Security, Medicaid and Medicare, the debt skyrockets to over 50 trillion dollars (Anderson Cooper). This is bad. Much of this debt is owned by China, making the US China’s new lead toy. Probably the worst part of this, aside from the US being at China’s mercy, is the fact that the government is okay with the yearly deficit. If you were to ask the government, right now, how much they’re going to spend this year, they would say, “Well, more than we make, that’s for sure.” The planned fiscal deficit for this year is written proudly on the budget. It’s 244 billion dollars, as I’ve said before. The largest ever planned deficit was approximately .5 trillion dollars, and that was in 2004, according to USA Today. These are the planned deficits, the actual losses can get even higher. It makes no sense to increase the budget for the bailouts of idiots, when things like children’s health care, are being cut. Last year, the budget for children’s care was cut 15.8%, according to The Guardian, February 2008. When a country is cutting money from the innocents due to lack of funding, it is no time to spend more on those who messed up their own lives. It provides a counter incentive; those who did nothing suffer for those who made mistakes.

In order to better explain the counter incentive, I’m going to back track for a second, to the mid 90’s. Life was good, loans were easy to get, and people were buying houses. In fact, the home owner’s rate rose from 64% to 69%. Now, keep in mind that on average, the rate is supposed to hover around 64%. Even in colonial times the rate didn’t get much above that. There is a percentage of the population that just can’t afford houses, and letting them get extensive loans to get them started the mess we’re in now. That extra 5% of the population owning homes started to realize that their houses were worth less than the money they owed on them. And so, they walked out. In some East Coast areas, people weren’t even bothered; they’d put no money down. By early 2006, 17% of them had defaulted on their payments. The number has since doubled.

What does this mean? Well, it means that if the government goes ahead and bails everyone out, many of the people won’t deserve the bailout they’re getting. People who honestly didn’t understand their mortgages are in the minority. On the other hand, there are plenty of people who wanted a nice home for free. The counter incentive is therefore really simple: those who did nothing to try to pay for their houses get a free house, and those who were wise with their money have to pay for those houses. The same applies to the CEO’s: running your business into the ground should mean closing its doors, not opening them back up with a bunch of free money. Stupid investments should produce consequences for stupid people, not multi-hundred thousand dollar spa trips.

In the case of the bailout, the government promises to hold people accountable, promising that only those who made honest mistakes will get to keep there houses. As if. Let me give you an example of government based accountability…

Take the unemployment benefits. The Wealthfare Reforms of the 90’s were supposed to stop people from living off wealthfare and unemployment money. Fast forward to today. According to Brookings, April 17 2008, the amount of jobs available is decreasing. Fair enough. However, the amount of people looking for work is also decreasing. This means that many people are dropping out of the labor market entirely. At the same time, government funded unemployment is on the rise. So people not even looking for jobs are getting US Government money to live on.

*Snort* Yeah, government, you’re holding them reeeal accountable.

This brings us to fairness. Is it fair that people are living off the government, and that the people who aren’t are paying for it? No. Why should the country pay for the mistakes of individuals? Why are people who did nothing wrong suffering for those who did?  I’ve discussed this more here, but it still boggles my mind to see how much people think they deserve from their neighbors. At a townhall meeting, would these people stand up and ask that someone in the room to pay for their problems? Do they not realizing that by wanting the government to bail them out, this is exactly what they’re doing??

A bail out of homeowners would be the greatest American slap in the face to capitalism of all time. It’s an obvious counter incentive, going against the entire point of capitalism itself, and edging the system along its path to ruin. In less than a decade from now, people are going to be denouncing capitalism as a failed system. They are going to point to the Great Depression, and today’s crisis, and other times when ‘capitalism failed’ and say that they’ve tried capitalism, and that it didn’t work. What no one will be saying is that the times capitalism failed are the times when it wasn’t capitalism

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2 Responses to Don’t Bailout the Homeowners

  1. elwoodin says:

    It is true as you said that in the years to come people are going to talk about Capitalism as a “failed concept” unless, and this is a big one here, unless we the people speak up and let it be known that the only reason that Capitalism is failing or having troubles now is because the Government cannot keep their grubby hands out of the pie. Systems fail, and always will…but capitalism hasn’t failed…..it is just going to a phase that was brought on it by bad business practices of the people in Washington who are supposed to be representing us, when in fact they are only representing themselves, and an economy they want to fail.

    -Robert-

  2. […] my judge pointedly informed me that his home was in foreclosure. I posted that speech there https://marinalee.wordpress.com/2008/10/10/dont-bailout-the-homeowners/ Believe it or not, however, I can actually give moderate […]

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