September 29, 2008

Just finished reading the breaking news update on the economy, and I’m glad the $700 billion bailout bill failed. We got into this mess not only from Wall Street ethics of greed, or deficient government oversight but from the ham-handed meddling in the market that forced banks to take on bad loans in the name of increasing home ownership. Most folks don’t realize the Community Reinvestment Act of the 1980’s was changed in 1995 to require banks to extend credit to otherwise unworthy credit risks, or face significant fines. Yes, the banks and mortgage lenders made mistakes, but we asked them to get into the sub-prime market because we didn’t want to hurt anybody’s feelings by denying a loan. The rejection of the bailout was bi-partisan. These were my two favorite quotes from the Washington Post website (WP Site):

Arguing that the country was on a "slippery slope toward socialism," Rep. Jeb Hensarling (R-Tex.) urged his colleagues to oppose the bill because of the "unintended consequences" to come. "If we lose our ability to fail, we will soon lose our ability to succeed. If we bail out risky behavior, we will soon see even riskier behavior," said Hensarling, the leader of a conservative caucus.

"It's not sustainable and we know it won't solve the underlying problem," said Rep. Peter DeFazio (D-Ore.).

Do you think those homeowners who were drawn into an unsustainable loan are happier than if they had simply been able to find decent market rate rental housing at an affordable price? Home ownership is a good thing for many people, but not if you’re paying interest only on an adjustable rate mortgage. That’s a cruel illusion, and turned out to be a set up for failure. Congress needs to go back to the drawing board. We don’t have $700 billion just laying around to throw at the problem.