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September 22, 2008
Great Depression, Take Two!
Before my wife and I purchased our home, we visited a mortgage company and examined our options. We were asked to provide quite a bit of information about our debts, our earnings and our current net worth. We decided how much house we could afford, and resolved to stick within that price range. The mortgage company and its representative were extremely responsible - both for our benefit and to minimize their own risk.
At this point, I wish more mortgage companies had been as careful. But no...spurred on by a philosophy of 'high risk, high reward' and pressure from the government, lenders virtually handed out money to people who could not afford to pay it back. Unfortunately, people would much rather seek a political scapegoat than face the truth. This isn't the fault of Republicans or Democrats. It's the fault of millions of people who made bad decisions abetted by companies seeking to make money.
Fast forward a few years, and now we're very near the greatest financial crisis since the big "D" and Congress is now debating whether the government should take on $700 billion in bad loans. Although the conservative within me says this is a bad idea, the pragmatist reluctantly agrees with Jonah Goldberg:
I think the bailout plan stinks from my limited and less-than-fully-informed vantage point. But lots of necessary things stink. World War Two was a major bummer, but it was better than the knowable alternatives. Likewise, I haven't seen an alternative proposal that delivers all of the components we seem to need: clarity, action, comprehensiveness etc.I'm already responsible for my own mortgage, and if this bailout succeeds, taxpayers like me will also be on the hook for thousands of other mortgages. And yet, the alternative (a global economic meltdown) seems worse.
There is one provision of the proposed bailout that has caused great consternation in the conservative blogosphere:
Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.Yes, this gives one man incredible power over the economy. Yes, that sort of power invested in one person is a scary thought. Earlier today, I was talking to an economist friend about this provision and he made a good point - do we really want Congress second-guessing the need to broker a deal like Bear Stearns? The economy is a volatile and fast-moving entity. Can we afford the lag time that such oversight would bring?
A middle ground seems appropriate - instead of Congress having oversight, they should create an entity made up of economists/market experts who would make these decisions along with Paulson or his successor. These experts could be approved by the Senate for appropriate oversight. Both presidential candidates seem to agree that some oversight is needed. Why not go to the experts instead of the Congress whose actions helped lead to this problem in the first place? Best of both worlds.
Posted by slublog at September 22, 2008 07:45 PM
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Comments
It occurs to me the major difference between this proposal and the Resolution Trust Corporation is that this time the entity buys up the crap assets before the companies go belly up.
Posted by: Dave in Texas at September 23, 2008 04:46 PM
Slublog -- yes, I am satisfied that my mortgage is right for my house, for my income, I can pay what it is.
Then I actully had a guy tell me his reasoning for being satisfied with his crazy scheme of how he was going to pay for the McMansion he had moved into -- it would be ok, bec. in a couple years I'll be earning more money anyway so if the mortgage payment goes up some, it will only just be in line with my increased income.
And new house, meant had to buy new furniture and furn. stores are always offering delayed for a year payments, so, hey, not to worry!!
Needless to say, I was not impressed.
And, yes, now he and the wife can't understand why they are scraping to pay their bills and their property taxes and their homeowner's insurance and the electric bill for this lovely McMansion that now is not worth what they bought it for.
Posted by: Kath at September 24, 2008 05:20 AM
Oh, and Dave In Texas -- RTC -- had almost forgotten that fiasco. Ugh.
Posted by: Kath at September 24, 2008 05:21 AM