Capitalism is the fairest system of commerce there is. It doesn’t care what color you are, what books you read, or what views you hold. If you offer something of value at reasonable price you will profit, if you invest in businesses worthy of trust you will profit. Not always overnight, not always this year, but over time solid investments pay off.
When that system is short circuited and there is no consequence for investing in business unworthy of trust then that fair system falters. President Bush is making exactly the right choice with the threat to veto the housing bill. We trust in banks to invest money in people worthy of trust; when they don’t then taxpayers should not pay for their bad business practices. That’s pretty simple.
This bill doesn’t help anyone who had their house foreclosed on, it helps the banks who shouldn’t have made that investment.
My wife worked as a head underwriter for many years, and she’s had a history of getting “talked to” about holding high standards on loans and sticking to the guidelines when doing FHA, FNMA, or any other type of financing. She’s had to move from job to job as cadres of loan officers mounted attacks on her within the company (she has worked for most of the majors,) and it’s great now that she is retired. The stress on her to produce a loan when she knew it shouldn’t be approved was tremendous, and sticking to her guns after saying no really wore her down over time. She’s much happier now that she’s retired that’s for certain.
The two things I learned from her talking to me to relieve the stress (she never mentioned names or particulars btw, it was always “a borrower” or “a loan officer”,) is that the bank didn’t care, they intended to sell the low grade loan, and the loan officer didn’t care if you were buying a house ridiculously over your head and couldn’t really make the payments because they still got their cut regardless.
During the final years of her carreer it got worse as banks really lowered standards after Congress completed legislation to encourage home ownership. Marginal loans were made in bundles, and speculators and house flippers swarmed the refinance and finance industry. Churn and burn were the watchwords, and that is not my problem as a taxpayer.
In the end, the responsible people who bought a bit over their heads will fight thorugh and retain their homes – we’ll probably end this with home ownership still up. The flippers will walk away, taking a loss but cutting larger losses. The banks who held low standards need to take the consequences like Indymac is right now, and the US needs to keep capitalism fair by not bailing out the bilkers with your money.
You can count on grandstanding and politicking in the days ahead over this, but the fair thing to do, the right thing to do, is to let those who invested badly take the hit. The evil thing to do which subverts the fairness of capitalism is encourage more of this behaviour in the finance industry with bail outs.
Our dollar is based on trust, and the world is watching. Bailing institutions out diminishes that trust and diminishes the worth of a dollar.