Spring Break
Feds Should Not Bail Out Lenders
Our Opinion
Issue date: 4/1/08 Section: Commentary
As government debt continues to skyrocket, Washington is now mulling over the idea of a taxpayer-funded bailout for the imprudent people who gambled on the housing market and the banks who funded their gambling.
During the housing boom of the early 2000s, a lot of large developments packed with "McMansions" were constructed. These cookie-cutter style homes were built cheaply, so people snapped them up as quickly as they could with the hopes of reselling them at a higher value later on or having a large house that they normally couldn't afford.
The other players in the scenario were big banks and lending corporations. In 1997, banks denied housing loans to 29 percent of applicants. In 2003, however, banks denied housing loans to only 14 percent of applicants. This is because banks wanted a piece of the real estate pie too. So, they turned a blind eye to credit reports and common sense by lending money to just about anyone. Gambling on the housing bubble continuing to rise, banks helped finance thousands of mortgages to people that would be unable to pay them back if the bubble burst. And burst, it did.
In late 2005, housing prices began to drop precipitously. By 2007, many sub-prime lenders declared bankruptcy. To date, banks continue to foreclose on houses because people simply can't afford to pay their mortgages anymore. So, Washington wants to help them out by handing out taxpayer dollars. One plan on the table calls for the government to buy out all of the people who gambled and lost. This could cost up to $300 billion. Besides the tremendous cost, this also sets a dangerous precedent. If the government has to bail out everyone who makes bad investments, taxpayers could end up paying billions more for every failed idea on the market. That would be disastrous for the economy, the national debt and the average American, whose taxes are going to have to be raised to pay for what basically amounts to government sponsored investing.
With this being an election year, it is important to note where the top three contenders stand on this issue. Hillary Clinton and Barack Obama both support some form of government handout to those who invested badly. This basically amounts to a government handout to big banks and lending companies, since most people who get the money are just going to turn around and hand it over to their lenders. John McCain is the only presidential candidate to take the rational and responsible stance that irresponsible investors should not be bailed out at the expense of the rest of America.
There are avenues of help in place for people who can no longer afford to pay their mortgage. They can opt for foreclosure or bankruptcy. Both have consequences, and gambling on the market means sometimes people lose and have to pay those consequences. By allowing people not to have to take responsibility for their actions, the government is punishing those people who have a head on their shoulders and invest prudently.
During the housing boom of the early 2000s, a lot of large developments packed with "McMansions" were constructed. These cookie-cutter style homes were built cheaply, so people snapped them up as quickly as they could with the hopes of reselling them at a higher value later on or having a large house that they normally couldn't afford.
The other players in the scenario were big banks and lending corporations. In 1997, banks denied housing loans to 29 percent of applicants. In 2003, however, banks denied housing loans to only 14 percent of applicants. This is because banks wanted a piece of the real estate pie too. So, they turned a blind eye to credit reports and common sense by lending money to just about anyone. Gambling on the housing bubble continuing to rise, banks helped finance thousands of mortgages to people that would be unable to pay them back if the bubble burst. And burst, it did.
In late 2005, housing prices began to drop precipitously. By 2007, many sub-prime lenders declared bankruptcy. To date, banks continue to foreclose on houses because people simply can't afford to pay their mortgages anymore. So, Washington wants to help them out by handing out taxpayer dollars. One plan on the table calls for the government to buy out all of the people who gambled and lost. This could cost up to $300 billion. Besides the tremendous cost, this also sets a dangerous precedent. If the government has to bail out everyone who makes bad investments, taxpayers could end up paying billions more for every failed idea on the market. That would be disastrous for the economy, the national debt and the average American, whose taxes are going to have to be raised to pay for what basically amounts to government sponsored investing.
With this being an election year, it is important to note where the top three contenders stand on this issue. Hillary Clinton and Barack Obama both support some form of government handout to those who invested badly. This basically amounts to a government handout to big banks and lending companies, since most people who get the money are just going to turn around and hand it over to their lenders. John McCain is the only presidential candidate to take the rational and responsible stance that irresponsible investors should not be bailed out at the expense of the rest of America.
There are avenues of help in place for people who can no longer afford to pay their mortgage. They can opt for foreclosure or bankruptcy. Both have consequences, and gambling on the market means sometimes people lose and have to pay those consequences. By allowing people not to have to take responsibility for their actions, the government is punishing those people who have a head on their shoulders and invest prudently.
Viewing Comments 1 - 2 of 2
James
posted 4/01/08 @ 9:23 AM EST
Yeah, really? And where did he got this wisdom from?
Come on, you mean Ron Paul is the only candidate who has a plan to fix the economy and get us out of this recession. (Continued…)
earonesty
doc
posted 4/14/08 @ 1:56 PM EST
The idea floating in Congress new is for putting a floor under the housing market. The government will buy the loan but only after an 15% principle-loss is accepted by the lender. (Continued…)
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