“SEND A FEW LOBSTERS AND A BOTTLE OF CHAMPAGNE TO THOSE LADIES IN THAT BOOTH OVER THERE, AND GIVE MY YOUNG FRIEND AT THE END OF THE TABLE THE CHECK”

3/26/10

According to this morning’s (i.e., Friday’s 3/26/10’s) Wall Street Journal (page A4), the White House is set to announce “an expansion of its foreclosure prevention efforts to include reducing mortgage loan balances for some borrowers, a controversial (You’re kidding!) step that policy makes have long resisted…”

In this latest manifestation of ever benevolent government intervention, banks will be paid your money to reduce the principal amount on loans they made to deadbeats. Further, once those deadbeats have had their principal reduced, their loans will be backed by the FHA, thus putting you on the hook in order to keep these people in homes you wouldn’t dream of buying yourself. “I’m from the government, and I’m here to help you” indeed.

Anticipating the protests of those who don’t meekly swallow whatever codswallop the pandering politicians try to force, or sneak, down their throats, the administration argues that these programs are not designed to have you, dear taxpayer, who have acted responsibly in your spending and your home purchasing, bail out those who insisted on buying more house than they could possibly afford in order to look down their noses at you. No, this program will “better assist responsible homeowners who have been affected by the economic crisis through no fault of their own.”

One can hear these “responsible” homeowners who are in trouble through “no fault of their own” right now:

What? You mean when I borrow money I have to pay it back? How can you possibly expect people to understand such complicated financial transactions?

Certainly people will say that I am being too hard on those who have found themselves unemployed or similarly affected by the economic downturn. No I’m not. People lose jobs. People get their hours cut back. Business evaporates, especially when one is in a field that relies on the uninterrupted continuation of financial lunacy. These are not unheard of economic phenomenon. We are supposed to plan for these eventualities by engaging in arcane, almost forgotten, practices called “saving money” and “building a nest egg.” And, no, establishing an equity line of credit and getting banks to expand one’s credit card limits does not constitute “building a nest egg.” Bad things, like losing houses, do happen when the economy encounters its periodic, and ultimately healthy, bumps in the road, but such bad things are far more likely to happen to one when one is living on the very edge.

Some will argue that it is often in the lenders’ interests to reduce principal balances, and certainly that is true. But the banks (Well, maybe I’m going out on a limb here…let’s say “many bankers” or “some bankers”) are capable of making that assessment themselves without the government helping them. But the banks are even more willing to accept (demand, really) government handouts for doing things that they would have to do in any case, and such handouts serve to cushion the blow for these financial institutions and investors who, to use a highly technical financial term, screwed up.

Others will argue that we have to bail out those who bought more house than we could afford by contending that, if we don’t, the real estate market will take an enormous hit and we will all suffer, the old (and trite) “put out the fire in your neighbor’s house to prevent yours from burning down” “argument.” But that’s how a free economy, a concept that grows increasingly foreign to our masters in Washington, works; excesses must get worked out of the system and often the process is painful, even to the innocent. But to try to avert pain to the innocent by demanding that they, or other innocents, suffer certain pain by having to reach into their own pockets not only presupposes that politicians are better at working out economic problems than is the free market but also exacerbates the pain down the road. It’s the financial equivalent of applying a band-aid to a cut that one has not cleaned and disinfected.

If one wants to buy more house than one can afford on the supposition that the economic road will always be sunny and bright, that is his or her prerogative; this is a free country. But when such dreams rationalized as plans fail to come true, one must be willing to suffer the consequences for one’s fiscal friviolity. If banks make bad loans, that, too, is their prerogative; this, again, is a free country and remains a reasonably free economy. But when their “put it all on red 7” approach to lending rationalized as the product of a sophisticated financial model fails to pay off, they, too, much suffer the consequences.

Forcing taxpayers to pay for the exoneration of those who, in most cases, committed monumental acts of financial idiocy will only lead to more monumental acts of financial idiocy…and some very angry taxpayers.