Bush Threatens Veto on Bailout Bill

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.

4 thoughts on “Bush Threatens Veto on Bailout Bill”

  1. Well written, I have been against the bailout since the subject
    was brought up in Congress. Bush is right on with vetoing this.
    The only time a bailout paid off was when Chrysler was bailed
    out in the late 70’s, and sold their defense contract on the M1
    tank to General Dynamics to pay the loan off early. IMHO
    Congress has another political football to kick around and
    pander for votes. And the taxpayers will get kicked around

  2. Thank you for this article. It seems to me that the thing that no one is mentioning is that a lot of the “homeowners” who purchased houses with no down payment, and made partial interest payments are not losing their homes. They had the benefit of below market rent for the period they lived there.

    The vast majority of foreclosures are in exactly that category. They got cheap rent for a few years. They failed to increase their income or take any corrective action to ensure they could pay for the homes. So, the free ride, or discount ride is over.

    Just because they scammed the system doesn’t mean they are entitled to do so forever.

    Regarding the banks, you are exactly right. They are the professionals, they knew the risks they were taking. We should not bail them out.

    Best regards,

  3. I just finished my own blog post on this, and with all due respect, you have no idea what is going on. This is no bailout of struggling borrowers. If it was, it would be bad enough. What this really is is the culmination of a complicated quid pro quo between Chris Dodd, Countrywide and Bank of America. This bill is not merely anti capitalist, but obscenely corrupt. What this bill really does is transfer a bunch of bad loans from the books of banks to the FHA. Many of these loans include bad loans on the books of the former Countrywide now a part of Bank of America. These bad loans depressed Countrywide and allowed BofA to buy them out. Now, they are going to be bought up by the federal government and create a boondoggle for BofA. That is the real story of this bill and no one is saying anything even though every single part is a matter of public record. Here is my piece exposing it all..


  4. Mike, did you read the post? Did I say it was a bailout of borrowers anywhere in the post?
    What part of this don’t you get:

    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 has worked for all of the majors, and testified as expert witness in many cases.
    I know exactly what’s going on, and the one point right in your post is that BofA & Countrywide led the charge in subprime. The forces that led them & countrywide there were social, and involved shakedowns by the usual socialist leaning lobbies. (do some reading on neighborhood advantage Mike.)

    It was really three things that led to this: programs like neighborhood advantage, churn and burn refinance and speculators doing arms with the idea of flipping, and the incredible low rates that came into play four to five years back. People were refi’ing three times in a row, and each time imaginary value was added.

Comments are closed.