Now Let's Bailout the Home Owners

October 04, 2008

Yesterday the $700 Billion bailout of Wall Street was signed by President Bush.  Like many Americans I felt scared and uncertain about the financial crisis and the need to do something about it.  We won’t know for sometime whether history will see this as an intelligent response to the situation, or a knee-jerk reaction. However, it is done.

We’ve only taken care of half of the problem; many of the home owners who were given sub-prime mortgages still face foreclosure and our economy will continue to suffer as a result.  To my way of thinking there were two parties involved in each and every one of the sub-prime mortgages written: the bank and the home owner. The bailout comes to the aid of the banks but not to the people like Addie Polk.

If we are going to pat the banks on the head and say, “There, there, it’s alright,” and then invest up to $700 Billion a year into restoring them to financial stability, then we ought to do the same for the home owners. Both parties sat down at the table and agreed to these mortgages.  The banks approved them knowing full well that many if not all of the people they were lending to couldn’t afford the mortgage and would likely end up in foreclosure. Because the financial institution planned on selling off the mortgage they were willing to break or bend their lending rules.  Initially the bank profited from this action.  Why now, should the home owner, who also initially profited from this arrangement, by the only one who isn’t bailed out?

The argument seems to be that institutions are worth saving.  If we allow them to go bankrupt or allow consolidation, we will alter the landscape of the financial industry and that may have long lasting effects on our economy.  I guess if you are an individual taxpayer you aren’t as important to our economy as an institution.  You are important enough to have to pay for the institutions mistakes, however.

If I sell my used car to another individual, knowing it has a flaw, I can be made to pay for the repair and or return their money.  If, however, I sell that same vehicle to a dealer and they don’t notice the problem, they are stuck with it.  Since they are considered the expert in the transaction they aren’t protected like an individual.  In the case of sub-prime mortgages, the bank was (or should have been) the expert - and yet we bailed them out.

The $700 Billion bailout of Wall Street is a start, it may even be a good start.  But it is at best, only a start.  We need to restore the individuals too.

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Mark H. Nichols

I am a husband, cellist, code prole, nerd, technologist, and all around good guy living and working in fly-over country. You should follow me on Twitter.