Here's a piece from Yahoo on how one senator wants the government to foot the bill for the subprime lending fiasco. On one hand, the effort makes financial sense:
A report by the Joint Economic Committee of Congress, which Schumer chairs, estimates that the average cost of a foreclosure -- to the homeowner, lender, local government, and neighbors (whose homes decline in value) -- is $78,000. By contrast, preventing the foreclosure would cost $3,300 per home on average.
Spending $3,300 to save $78,000 is a no-brainer -- I wish all government spending was so productive. Then again, is $78,000 a real number and will $3,300 really save the day for someone who borrowed way too much on a bad loan? The numbers are from the government, after all, so I'm not quite convinced they are accurate.
Besides, what about personal responsibility? What about the freedom to make our own decisions (and the "right" to accept the consequences of them?) Shouldn't people suffer the effects of their own financial stupidity?
That's what Laura Rowley thinks. Her position:
On the other hand, as far as I can tell, none of these modern-day bandits held a gun to anyone's head and forced them to take out a loan.
"There's a lot of discussion in Congress about how these are predatory loans, and widows and orphans are being thrown in the street," says Keith Gumbinger, vice president HSH Associates, a financial publisher. "But some of the issues we're dealing with today are self-inflicted wounds -- people who didn't bother to read applications or documents and signed for a loan."
Someone once said "you do the crime, you do the time." Same applies here doesn't it?
She continues:
Clearly, lenders, investors, and homeowners should step up to the plate here -- not taxpayers. In a hearing on the crisis in March, Schumer said families were "teased into unsuitable subprime loans."
"Teased into"? What kind of language is this? When did we transform from being a culture of opportunity to a culture of victimization? Taking out a mortgage is a choice, and choices have consequences. If we want to own our financial successes, we also have to own our financial mistakes.
And what kind of message does a government bailout send to Americans who did things the right way? People who had a job, paid their bills on time, built solid credit scores, saved for a down payment, read their loan terms, and scrutinized their budgets to make sure they could afford not only the mortgage payments, but the taxes, insurance and maintenance on their homes?
She's on a roll:
More important, what kind of precedent does a subprime bailout set? Undoubtedly, foreclosures will cause personal tragedy, as well as economic dislocations in the affected communities. But there's a much, much larger crisis brewing: Rising poverty among the soon-to-retire baby boomers who haven't saved for retirement.
When they can't work any longer, and don't have enough to live on, and cause a dislocation in the economy, will Congress bail them out too? Will Schumer be around to go after the "rogue" retailers and "bandits" who "teased" Americans into buying consumer goods when they should have been saving for retirement? Or will the government just put the burden on those of us who have done the right thing all along?
This is one issue that irks me about our society -- everyone wants to blame someone else for their own mistakes. They want the right to do whatever they want to do, make whatever decisions they want to make and so on, and as long as things are good (whatever good means to them), all's right in the world. But the second things turn south, they're looking for someone to blame. After all, they themselves couldn't be the ones to blame now could they?
The same holds true for personal finances. People have the right to spend their money however they want it. They can enter into whatever contracts they want to. They can save or not save, spend or not spend, invest or not invest -- it's all up to them. But then they need to live with the consequences of their decisions.
Yes, as a society we will certainly be better if we bail out people from some stupid decisions. It will be better for me and you to not have people with no money wandering the streets. But this is an extreme example. Will it really hurt us that badly if a few people suffer for poor financial judgment?
And what really galls me is the fact that the principles of personal finance are so basic, simple, and easy to learn that anyone out of elementary school can understand them. Personal finance is not rocket science (if it was, I couldn't write about it). If you simply do the basics right, you'll be well off. It seems that most people can learn and apply wealth-building principles -- but they just don't want to. Instead, they "wing it," make whatever un-informed decision they want to make, then expect the rest of us to bail them out.
Whew! Thanks for letting me rant. I'll be back to my normal self soon. ;-)
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