Posted by
Andrews on Monday, September 29, 2008 8:22:28 PM
I am tired of hearing how we need a bailout because innocent people will be hurt. The truth is, the only innocent people are the ones people are blaming, and those everyone is calling innocent are not.
First, the supposed "greedy bankers" who made the mortgages are, by and large, the only innocents. Yes, they made the bad loans, but they did so at gunpoint. The federal government threatened many lenders with EHOC investigations, or at least implied as much, if those banks refused to lend to poor and minority borrowers without traditional credit criteria. There were some banks which tried to cash in on the easy credit environment, but if we are going to find any innocents, they are among the banks bullied by Democrats into making risky loans.
The people who took those loans are not innocents. The innocents have not defaulted on their loans. The ones in default almost entirely were people who took loans they cannot afford, took interest only loans, or took ARMs gambling on the interest rates continuing to drop while housing prices rose. Some may have been ignorant, but ignorance is not innocence. If you don't know something, you are responsible to investigate, the world is not responsible to bail you out because of your ignorance*.
The banks and investors which bought those loans are not innocent either. They thought the good returns justified the risks. Or else they bought loans from Fannie Mae as they expected any losses might be bailed out by the feds. In either case they are not naifs who knew no better. They knew the risks and they got caught out this time. That is what risk means. You get high returns because you can also lose your shirt. If you want safety, accept low returns, if you want the high returns, you accept the possibility of a total loss.
Which brings us to the group everyone is calling "innocent victims", the depositors in banks such as WaMu. Well, I beg to differ. Why did they have money in WaMu? Because the returns were high. They should have known higher interest equals greater risk. That is how the market works. Of course they don't, as we do everything we can to insulate the average citizen from risk. But I think that is a bad precedent. If we did not try to remove all risk, then people would make sensible decisions, rather than chasing absurd interest rates and then demanding a bailout when things go south. If depositors had to evaluate the relative stability of their banks, they would demand better behavior from the banks and we would have fewer problems such as these. It is our efforts to insulate both citizens and enterprises from risk which make such events common.
I ask this, if my stocks tank, is the government going to bail me out? Then why should my money go to people who defaulted on loans that were too big? Investors who bought risky instruments? And depositors who wanted excessively high interest rates? Why shouldn't they have the same risk I do? What makes them special enough that they can demand my money to offset their losses?
When someone can answer that question, I may consider the bailout. Until then, I will assume it is nothing but massive vote buying at my expense.
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* It is unrelated to this bailout, but housing investors who are losing their shirts are not innocent either. They were making a fortune by taking a risk, and they finally drew the short straw. They should have expected that could happen. Failing to anticipate risks does not make one innocent.