Saturday, December 8, 2007



Sheila Bair, Chairman of the FDIC, suggested yesterday that those who are criticizing the Paulson/Bush Irresponsible Lender and Borrower Bailout Plan may have hidden financial motives. Ms. Blair said yesterday “I do worry that some of the investors have taken short positions on the ABX” and thus are criticizing the plan. Ms. Bair didn’t identify specific nefarious investors who are talking their position and admits that she has no evidence for her suspicions. It seems that Ms. Bair, in setting banking policy, is using the same approach that her boss uses for foreign policy, but I digress.

It also seems to have escaped Ms. Bair’s notice that there are legitimate reasons, other than talking one’s position, for criticizing the plan. For example, as the Pontificator has outlined on numerous occasions:

--Financially prudent and responsible homeowners and investors who have exercised restraint and common sense in their financial dealings simply will not, and should not, support a plan that bails out the financially imprudent and irresponsible. Exercising the same sober-mindedness in their approach to politics that they exhibit in their financial dealings, and perhaps mindful of Shakespeare’s admonitions regarding those who protest too much, these opponents of the plan simply don’t believe the protestations of the Bush administration that no taxpayer money will be used in this “plan” and that the scheme was not devised to bail out the Bush administration’s cheerleaders and financiers on Wall Street. On the same note, for any member of the Bush administration to criticize people for profiteering is so disingenuous as to cause one to regurgitate, but I digress…again.

--Somewhat less financially prudent homeowners who realized that they were in over their heads and took the necessary, painful ameliorative actions to get their financial houses in order are now seeing those who refused to do anything to help themselves getting help from a “voluntary” government program and thus feel betrayed. These converts to good sense, who deserve our admiration, must be thinking “What am I, some kind of chump? Had I only not taken that second job and denied myself and my kids things we really wanted, and instead, like my neighbor, said ‘to hell with it’ and bought the high def with the surround sound system, the government would have helped me out.” Such converts to financial prudence, which we used to encourage in this country, will thus have been encouraged by the “conservative” Bush administration to return to the path of financial salaciousness.

Incidentally, part of the Bush “plan” is to give “homeowners” who could not afford their mortgage payments after the (clearly spelled out and thus eminently anticipatable) step up in their mortgage rates an extension of their teaser periods for five years. The Bushocrats tell us that this period will allow those “homeowners” to get back on their feet and put them in a position to refinance their mortgages. However, where is the incentive for people to refinance to a higher fixed rate of interest? Such bailoutees can reason, with a great deal of logic, that the government will probably step in after five years and force their lenders to extend the teaser periods for another five years. So why refinance now? Why play the chump, like the guy next door who busted his butt to get his house in order only to be forced to bail out those who laughed at his new found sense of financial responsibility? Even if the government doesn’t step in and extend the teaser period again, it is a well worth taking the minimal risk that it won’t. Why should the financial miscreant, once absolved of his fiscal sins with generous doses of other people’s money, refinance any sooner than he absolutely has to?

This, ladies and gentlemen, is a textbook example of moral hazard.

--There are those of us who, unlike the Bush administration, really believe in the free market and thus feel that the heavy hand of government is not needed to work out of this financial problem. In fact, Sheila Bair, doubtless unknowingly, outlined this argument when she said “It’s in everybody’s interest to modify these loans. If you’re in a down market, closing out (sic) a property almost never makes sense because you’re going to have to settle for a significant loss.” If that is the case, Ms. Bair, why does the government have to get involved?

Oh, I forgot. The free market Bush administration knows better than the free market.

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