Another Bailout

Congress is expected to pass another bailout package for a stricken industry this week, and there’s enough bipartisan support for this one that the White House may not be able to prevent it, even if they really want to. It’s the sort of legislation that bring out the worst in people on both sides of the aisle– Conservatives are against all government interference in business unless it involves giving billions of dollars to large companies that will support them in the next election, while Liberals tend to be against any government support for business unless it somehow preserves the jobs of “ordinary voters” who will support them in the next election. Which means this bailout should cause awkward moments all across Washington, because this one is intended to deal with the Mortgage Crisis…

Reuters is reporting that a fund of well over $300 billion, including over $4 billion for communities hit hard by foreclosures, is likely to pass in the Senate this week and become law later this year. The basic concept is that the fund would be used to help people with “exotic” mortgage arrangements re-finance into something they can actually afford. Critics from the Right are attacking it because of the money going to things like credit counseling services and community foreclosure maintenance programs (which keep foreclosed properties from turning into crack houses, condemned structures, or worse) which will actually help people instead of lending institutions. Critics from the Left are attacking it because it will keep lending institutions and investment firms from losing more money and going under. I can’t help thinking that the truth is, as usual, getting buried in the hoopla…

There’s no question that a lot of innocent people are getting screwed during the current mortgage crisis. People who were not sophisticated about money, people who were pursuing the American dream a bit too recklessly and people who had nothing to do with these disastrous loan programs but now stand to lose their jobs because their employers were greedy idiots all fall into this category, as do all of the other people who stand to be hurt by an accelerating recession in the country. At the same time, this program constitutes efforts by the Federal Government to take money from all of the people who made good money decisions and lived within their means and give it to a bunch of reckless, unwise and oblivious home buyers as well as a small but genuine number of outright greedy real estate speculators. It hardly seems fair to the people who carefully avoided the Real Estate Crisis to make them pay for all of the people who didn’t…

As usual, I’m a pragmatist, and I have to concede that a recession is bad for the whole country (the careless and the careful alike); if we can stop it from getting any worse by nipping the real estate crisis in the bud, I’m all for it. What I would like to see in return is stronger regulation of mortgage and commercial lenders that would make predatory lending practices illegal everywhere they aren’t already, stronger enforcement of mortgage fraud laws (400+ arrests is a good start; now let’s get the other 56,600 cases per year resolved) to prevent more of those cases, and constructive programs like credit counseling and community foreclosure maintenance to lessen the impact of other people’s idiocy the next time around. We can’t keep people from doing stupid things, nor would we want to try, but we can keep them from dragging everyone else down with them when they do…

The bottom line is that it’s a new world out there, and the business models that made sense a hundred years ago are lunacy now. That’s why the banking and securities laws have changed, and that’s why banks and investment companies don’t do business in 2008 the way they did in 1908. Maybe it’s time the real estate industry was dragged kicking and screaming into the new Century…