Being critical of Obama's new plan to prevent home foreclosures is good sport for those who critical of all things Obama. I wrote a while back, when the financial crisis first hit, that I thought there should be a "hands-off" approach to the situation. Letting those banks and businesses that gambled and planned poorly for a crisis fail would allow for those that did not to take their place. This is the basic premise of natural selection and would, in my opinion, produce a stronger economy by allowing the less intelligent management teams and their institutions become less dominant or die out.
Now the big issue the right-wingers are harping on regarding helping home-owners that overbought and are heading towards foreclosure is one of a "moral hazard." What they really mean by this is that it is not fair to those (them) that played by the rules and did not buy more house then they could afford. To help them is to reward their bad behavior and, therefore perpetuate this idea that someone (the Government) will be there to pick them up should they fall.
This is a valid argument, however, it is not an issue of punishing and rewarding the individual that we should be focusing on, instead it should be what is the right approach to minimize the damage and allow us to move forward quicker and then to never let this happen again. It is unfortunate that the talking heads that have the tea party ears focus on the individual as the problem and not on the situation that was allowed it to take place.
It happened because there were no checks in place on its upward progress. This is one of the downsides to a laissez-faire approach to government as perpetuated by the Bush administration. This does not put blame on 43's shoulders but it does make him culpable.
Businesses, for the most part, exist to accumulate wealth for the shareholders. Sub-prime loans and derivatives were the cat's meow at the time. A lot of big institutions got into it because that's where money was being made. It fed off of home loans and what better way to create home loans then to make owning a home easy as putting zero down! House prices were moving up and up how could it go wrong? My wife and I thought this a risky proposition at the time as did a lot of other people. But more and more big players and trusted financial institutions were all giddy about it so why shouldn't the little guy get in on some of this action?
Which brings us to this point in time now. Millions are poised to lose their homes and the Obama government wants to - will - step in. Sounds good on paper - help the little guy, protect the banks, allow the economy to heal itself. Win-win win!
But it is the wrong solution. NPR interviewed Barry Ritholtz today about his blog "The Big Picture." I happen to agree with his stance. When you help the homeowner you also help the banks. Both were irresponsible and both should take the punishment. It sounds harsh but in the long run it will let the strong and lucky prosper. The real moral hazard is not me being somehow punished because I was prudent, its not letting a true market economy run its course.
Stupid people were in charge before the crisis and this money from President Obama will just keep them there.
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