Sunday, December 09, 2007

Mortgage meltdown and bailout

Megan McArdle says it well.

...people who qualify for the bailout are mostly people who really should have known better; they will now be bailed out mostly by people who did know better.

In spite of this she is in favor of a bailout because "a willingness to tolerate high levels of moral hazard--to give people second, and third, and eighth chances without inquiring too closely about how they got into so much trouble--is one of the great strengths of the American system. It makes us happier as people, and it lets our society make use of human capital that is too often left moldering in (metaphorical) debtor's prison under the more punitive and moralistic regimes that prevail in the rest of the world."

I'm inclined to agree with her. My only reservation is that any "bailout" probably helps the charlatans as much as their targets. When the dust settles the truly irresponsible mortgagees will still lose their property along with a once in a lifetime chance to begin building a nest egg. But the charlatans will keep on playing the same game, adapting to a new set of rules, having learned little except how to play the system better next time.

Living beyond one's means is as American as baseball and a lot of people in high income levels do it as much as those at the bottom. The only difference is that they have figured out how to fly with more safety nets and do the same thing more cleverly at a higher level. (Think insurance policies that lower income people cannot afford, skill sets providing more job security and flexibility, and investment habits all the way up to hedge funds that allow gambling with high stakes, and a tax system that allows losses to offset profits. These are games that ordinary people are not allowed to play until they join the right club.)

She takes a lot of heat in the comments. One called her a communist in libertarian clothing and there is a lot of righteous indignation from all sides. I say good on her. She's right.

Best comment:

Threads like this are the reason why I read Megan's blog regularly -- to remind myself that libertarians are almost invariably also greedy, selfish sociopaths.

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