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Commentary I read on government bailout
Old 12-11-2007, 01:36 PM   #1
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Commentary I read on government bailout

The following is commentary I read from another forum, directed at recent government bailout of banking/mortgage industry, rate cuts, etc. It's from a very different point of view and I thought it might be interested to read.

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Minyanville - NEWS & VIEWS-Article

Thanks to Prof. Sedacca for his piece yesterday on bailouts and moral hazards.

As a result of my values and life experiences, I chose conservative personal finances. Due to my preference for security and prudence, I forgo the opportunity for larger gains and windfalls in exchange for the lower risk and security. It used to be that I could live with this trade-off. However, the last decade (and last few years in particular) have made this choice increasingly difficult. Not only have risky investments been deliberately supported by government policy, but less risky paths have been infected by overspill from the risk-taking activities; worse yet, my very own government is treating me as a sucker. I mean openly, which is kind of new.

The increasing role of federal intervention in stimulating certain segments of the economy and bailing out risk-takers has made it increasingly clear that the choice to be a conservative investor was not only foolish, but is being deliberately singled out for punishment by our own government. The flogging of the prudent investor has moved from sublime to ridiculous, as government officials blatantly enter a mode of panicked bailout of preferred gamblers and spreading misinformation about the situation.

Not to be too dramatic, but I am left wondering how to explain this to my children. I was ready to explain risky versus conservative financial preferences. As some of my friends and neighbors seemed to prosper without end in reward for their doubling-down of high personal leverage and asset concentration, I began to wonder how to explain to my children why their dad was such a, well, loser. I kept telling myself that the once-a-generation correction (the same one that stung my grandparents in the 1930s, and my parents in the 1970s) would eventually validate my own choices as a reasonable personal strategy. Now I wonder.

The net effect of these bailout activities is to reward the people who took wild risk and ignored generations of wisdom about debt and gambling. It leaves me trying to explain why I chose a higher-rate fixed mortgage and a modest house and modest consumer debt, with a higher proportion of my investment in low yield supposedly "safe" mutual funds. I am left now, perhaps always on the sidelines, too late to enjoy those low rate ARMs and to jump on the leveraged house purchase bandwagon, watching as my government actively turns the knife in my back.

Dramatic? Perhaps. But I would argue that we are witnessing a very dramatic episode in US economic history. The "end of consequences" and the era of overt elite market socialism? I dont know yet what I will tell my kids. Something along the lines of: go ahead and be reckless; someone will save your butt so long as that butt is aligned with the chosen elite butts.

Never bet against the house. I get that now.

Thanks,
Minyan Malcolm

Minyanville - NEWS & VIEWS-Article
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Old 12-11-2007, 02:48 PM   #2
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Not to be too dramatic, but I am left wondering how to explain this to my children.


Geeesh.....what a dimwit!

Of all the things I've tried to explain to the kids, explaining a so-called bailout of subprime ARM's borrowers wouldn't rank anywhere near the top of the difficulty scale!

Comparing this to explaining child molestation, death of their puppy - or of grandma, their school chum having lukemia, there is a God or there isn't a God, why they're shorter than their friends, why they were born with cerebral palsy and others weren't, etc. Well.......... This is not even in the same category.

This author needs to get a life......! A true idiot of the grandest scale!
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Old 12-11-2007, 04:07 PM   #3
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There is an old Irish saying Youbet, something like, "you reached into my mouth and took the words right out of my throat."
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Old 12-11-2007, 04:18 PM   #4
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Someone's tinfoil hat is on too tight.
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Old 12-11-2007, 05:32 PM   #5
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Man tough crowd. I'm pretty sure the author was speaking allegorically, since I am sure most kids won't be too interested.

Do you guys really think that the author's main point that the government is bailing out risky behavior and setting a bad example for the future is wrong. Yes I know it isn't a tax payer paid bailout, we are chosing between the lesser of two evils etc. etc.
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Old 12-11-2007, 05:57 PM   #6
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Do you guys really think that author's main point that government is bailing out risky behavior and setting a bad example for the future is wrong.
Yes.
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Old 12-11-2007, 07:13 PM   #7
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Yes.
why


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Old 12-11-2007, 07:46 PM   #8
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I suppose you can interpret the question several ways. I think the author's point, the point, is correct. Along the same vein, I think that a government-assisted bailout is wrong.

Why's it wrong? For the reason you mentioned; it encourages and rewards bad behavior. Although we haven't yet seen the ramifications of this "bailout", but it has the potential to also punish those who didn't lose control in the craziness.

Also, I don't think it's the government's place to step in with respect to the overall mortgage fiasco.
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Old 12-11-2007, 09:21 PM   #9
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I have always been fiscally conservative. I bought a house that I could easily afford. When I refinanced, I never took money out. I have always saved and lived below my means, while some of my neighbors lived it up on leverage, using their house as an ATM. Now they are in trouble and the government may help them out. Have I been a sucker all these years? Maybe, but I would still do it the same way if given another chance.

I think the author needs to take a deep breath and ask himself whether the government helping his profligate neighbors really harms him in any way. The answer is probably not at all. If his personal financial situation was adequate last year, I'm sure it will be adequate next year, regardless of how well or poorly his neighbors do in the interim.

Envy has a corrosive effect on the soul. Once we give up envying our neighbor's good fortune and begin appreciating our own, we will all be happier.
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