Economic Myths Abound

So I bring up the housing crisis to Conservative Cali Dude, who then proceeds to climb up on a 2-story soapbox and pontificate on the unfairness of the presumed bailout that's coming. Fact is, though, he's right. 5 or 6 years ago, when we were both still in Indianapolis, we talked about how utterly ridiculous the housing market was becoming and that there would be a serious correction coming. It wasn't if, it was when. And we were both right.

So now what do we do? Well, since both Democrats are in favor of some sort of a bailout, the reality is that there will likely be one. John McCain can't afford to be seen as insensitive, even if that's not the case. So we are all going to share the brunt of propping up a fair share of people who made bad decisions.

Here's the problem: we are panicking as a nation. The sky is falling. This is the worst recession since The Great Depression. Someone please help us.

Here's the reality: we are experiencing a market correction with respect to housing prices in much of the country. It needed to happen. Perhaps it could have/should have happened sooner, but it didn't. But that's all that's happening. Yes, it's going to affect a large number of people, but before everyone goes off their rocker about the problems with Predatory Lenders and Bad People...don't you think that this was telegraphed a long time ago? Are the CCD and me so omniscient that we could see this coming before the rest of the 300 million people in the U.S.? Somehow, I doubt that.

Housing prices have been out of line in certain markets (L.A., Vegas, Phoenix, south Florida) for a long time. C'mon; if you're paying $1MM for a 1000 square foot home on a zero lot and think that you're making a good investment, you're an idiot. Add in that you entered into that mortgage with no money down and took an ARM loan that states pretty clearly that your interest rate could rise as much as 2% per year...you're now just gambling. It didn't matter when this correction happened, you were going to have a significant number of same said idiots that were going to get burned.

So the question becomes, how much do they actually burn the economy back, and how much obligation do we have to bail them out? Personally, I don't think we have much obligation to these people or the institutions that lent them the money. The only reason to jump in with taxpayer money is if the hole left by this segment of the population will destroy the economy.

The new argument goes that unscrupulous lenders are somehow to blame, that they took advantage of people by not disclosing the actual loan terms, which has now caused this crisis to careen out of control. Couple this with investment banks and other lending institutions who traded the paper these loans were written, under the assumption that mortgages were relatively safe gambles, and look at where we’re at. In other words, no one’s at fault except for these crooks that wrote the loans in the first place. The argument then gets taken further to say that if we don’t rescue these poor people, the economy is going to collapse on itself.

People, are you all still in first grade? Do you really believe this?

Why is it not patently obvious that this is just a salve? An easy excuse so that those that got themselves into this fix can feel that they bear little to or even no blame? And the sad fact of the matter is, we’re all buying it! To the point where we’re doing the economic equivalent of overreacting and buying all of the stores out of bread, batteries and water before a snowstorm hits, like that’s really going to make a difference.

Some people are going to say that the true problem is that credit is tightening up to the point where it’s going to destroy the economy. While there is some veracity to that argument, don’t you think that’s masking another problem, that perhaps credit has been a little too easy? If you want to look for predatory lenders, how about credit card companies? Why have they been allowed to get away with the interest rates and practices that they have been utilizing for over 20 years?

What needs to happen right now is for everyone to take a deep breath and examine this a little more thoroughly. Unfortunately, we have our government rushing in to throw money at the problem….your money, I might add…to what end? And once the government gets control of an economic sector it becomes permanent.

That might be ok if they had a history of good management.