The Thing No One is Discussing About the Financial Bailout

I have been paying rapt attention to the goings-on with the Financial Bailout Legislation.  I read the Washington Post from cover to cover every day, the Times (NY, not that fish wrap known as the Washington Times*) on Wednesday and Sundays; and NPR keeps me company when I am working from home.  I have supplemented my usual sources of information with the Wall Street Journal, NYT everyday, and a couple of other sources – time permitting.  I understand the problems in our current financial climate, hell, I explained it to one of my financially challenged friends in about 15 minutes and without the use of a whiteboard, graph, or extremely esoteric terms associated with financial engineering.

I’ve listened to the politicians and the pundits, sat silently digesting the opinions of leading world economists, watched both of our presidential candidates demonstrate a barely cursory understanding of the situation during their debate.  The thing that disturbs me the most – and there are more to choose from than bloggers with an opinion – is the lack of discussion regarding reasonable contraction.

Lubricating the credit market to ensure that the world economy continues to operate is necessary, and the morally responsible course of action.  However, the focus on “keeping main street Americans in their homes and protecting the value of their homes” is an economically backward concept.  One need not be an economist** to understand that home values have risen at an unreasonable rate nor to comprehend stabilizing the value of housing at an artificially high and unsustainable level would prolong the crisis.

This situation sucks for people all over the country who bought houses at inflated prices and with mortgages they could not afford. But over-paying for a house whose price is being recalibrated by the market is not really a good reason for the government to jump on your financial grenade.   Yet no politician is willing to state the politically difficult but economically unequivocal fact that bubbles must contract – even ones that are going to cause Main Street to defer their American Dream.



* I don’t hate the Washington Times because of the politics of their editorial board, but because the writing is bad.

** but I do have an academic background in the subject.


3 Responses to The Thing No One is Discussing About the Financial Bailout

  1. As an employee in the financial industry and one who purchased a home WITHIN her means, I am sickened by the whole thing. Seriously, WHAT WAS EVERYTING THINKING? Hello? Home values could NOT continue to rise. Interest Only loans, SISA loans, NINA loans, unreasonable HUD goals?

    I sat back in my average home and watched average people buy multi-million dollar homes just because some genius would give them a loan. And watched others get approved for home loans who didn’t even have a checking account, much less the ability to pay back a loan.


  2. lacochran says:

    I’m totally with Nothing Fancy here. I am sick to death of hearing that the government should help people who took out mortgages they couldn’t afford and then defaulted. JeezLouise, what about the rest of us that actually live within our means and pay our bills regularly? What’s the reward for hard work? More hard work.

  3. folks took out LOANS they didnt understand..they are never gonna understand why we should or shouldnt bail them out…they didnt even understand the basic home loan terms.. and the ones that DID understand…shame on them….
    i vote we move away from the gold standard type of economy and move to a shoe based one…

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