Sobering News
We’ve all seen the bumper sticker that says something to the effect of, “If you aren’t outraged, you’re not paying attention.”
Well, given the business news last week, if you aren’t nervous, you definitely weren’t paying attention.
The Hits Keep On Coming
The headlines were daunting: more worries over inflation, declines on Wall Street, news of more cuts planned by General Motors and the speculation that mortgage giants Fannie Mae and Freddie Mac need rescuing.
Then, in a throwback to the savings and loan disaster of 20 years ago, we had the failure of IndyMac Bank, a Pasadena, Calif.-based bank with $32 billion in assets that went belly up. Suddenly, there were news reports of people lining up on street corners to withdraw their money from the failed IndyMac.
But IndyMac aside, what’s clear from all this bad news is that we’re in unchartered territory, and we haven’t hit bottom yet.
There’s probably little our regulators and governing officials can do at this point to change the course that the economy is set upon. Instead, we just have to ride it out.
But, of course, our government is busily planning a bailout plan for Fannie Mae and Freddie Mac, while simultaneously discussing the possibility of yet another stimulus plan (apparently the first stimulus of tax rebate checks weren’t stimulating enough). All this comes on the heels of the government’s bailout of Bear Sterns this spring, which led to the financial house being acquired by Morgan Stanley at a bargain basement price.
The Cost Of Meddling
It’s understandable that our elected officials in Washington would want to do something to help us out of the trouble this mortgage mess has caused. But bailouts and other measures are sending a dangerous message.
If the government continues to step in every time a company or a quasi-public agency (like Fannie Mae and Freddie Mac) bets and loses, when will we learn our lesson?
We take risks in the business world. The greater the risk, the higher the reward — and the greater the potential for loss. Those in the mortgage writing business took some big risks on borrowers over the last five years. Some of those risks paid off with a boom-time for real estate and happy homeowners achieving the American dream. However, a stunning number of those have resulted in delinquent loans and foreclosures.
All that risk has resulted in a bust, not only in real estate market but throughout our economy.
A government safety net does nothing but encourage such dangerous risk-taking in the future. What’s to stop mortgage lenders a few years from now going further and further down the subprime path? If there are no serious consequences today, there will be no incentive to bet carefully in the future.
We as a nation are suffering from our real estate bubble hangover. The pain we’re feeling now will no doubt pass. Our federal officials should allow us to nurse that hangover without intervention with the hope that the memory of this discomfort will give us serious pause during the next boom.
WBJ Web Partners
Most Recent
Most Recent
0 Comments