New legislation that will enable the government to finance $300 billion of troubled mortgages was just approved by the House of Representatives Financial Services Committee. It includes a mandate to FHA to guarantee loans on properties that have declined in value since the mortgage was taken out.
OK, we’re talking about properties with “distressed” mortgages, presumably past due or in default already and insufficiently collateralized. Now, would any individual investor or taxpayer ever willingly finance that kind of debt? Who wants to be the first to whip out his or her checkbook?
Yet collectively that is exactly what we will be expected to do. Pay for someone else’s greed, lapse in judgment, bad luck, or whatever. According to Barney Frank (D-Mass), who supports the bill, it could cost us up to $6 billion. I’m inclined to agree with those who opposed it — we already have adequate means to deal with this problem — laws to punish fraudsters, market forces to drive poor decision-makers from the industry, credit consequenses to those who abuse the trust of their lenders, disclosure laws for investments, and bankruptcy protection for those who need and deserve it. How about spending money to enforce what we already have and shore up weaknesses? The system is not flawed when people and companies have to pay for bad decisions. That’s what provides the incentive to do the right thing in the long run. This legislation is flawed because it punishes the ones who exercised prudence and rewards those who played fast and loose with other people’s money.
Sounds like the old grasshopper and ant story, remember? The grasshopper spent his summer screwing around and having a good time — meanwhile the ant worked his tail off and made sure his savings were stored up and sufficient to keep him sheltered and fed. In the end, Mr. Ant took pity on his short-sighted neighbor and let him move in.
I don’t have a problem with that because Mr. Ant made his own choice. Unfortunately, we taxpayers won’t be allowed to make ours.
RSS