Let's start with a disclaimer. I don't like to see any company fail. And I don't like to see anyone lose their job or their home. But, just because I don't like it, that doesn't mean that it won't happen. Let's face it. There are some things (like death and taxes) that I don't like, but are very much a part of reality.
That's my concern with government bailouts. Often they don't seem to have much to do with reality. And rarely do they do anything about the root causes of the problem. The end result is that they make a bad situation even worse.
Take the banking/housing bailout. Just this week a new government study reported that 53% of homeowners who received restructured home loans were in default again. They weren't helped. People who were already hurting were just put through additional hassle. And when they attempt to restore their credit scores it will now be harder and take longer. For these people the bailout was not helpful.
There comes a time when it is most merciful to recognize a situation for what it is. Some people are in homes that they simply cannot keep. To lead them on is cruel. To do so while you claim to be helping them is unusually cruel.
If you want to help these people, find them housing that they can afford. It won't be as fancy. But they'll have the comfort of knowing that no one is going to take it away from them.
Take the money that's going to bailouts and give them job training so that they can earn a better income. Show them how to build credit by paying off credit card balances every month and staying current with their auto loans. Explain how borrowing money that they can't repay will make their lives harder. If you really want to help them, those are the steps to take.
The bailout has hurt the banks, too. Bankers know that these bad (so called 'toxic') mortgages are owned by many banks. Those banks are at risk of going under. So bankers are reluctant to lend money to other banks for fear that they won't be repaid. The longer that these bad mortgages exist, the longer we'll have banks that are afraid to lend money. So the credit crisis will continue.
And, that's showing up even among good credit risks. You may have received a notice saying that the credit card company is reducing your credit limit. Or, if you haven't used your card in awhile, they have chosen to close your account.
That's not the only way that those who had nothing to do with the banking/mortgage crisis are paying. Ultimately someone has to pay for the bailout. Now we all know that Washington isn't going to reduce other spending or raise taxes to pay for the bailout. They're going to borrow the money. So not only will we be paying for the bailout, but we'll also be paying interest on the money that was borrowed for the bailout!
That deficit spending will also likely cause additional inflationary pressures. So if you have money tucked away in savings, you'll need to take precautions against inflation eating them away.
Plus it looks like we'll be going through this again and again. The line up for bailouts is beginning to resemble the ticket window for a hit Broadway show.
Each time the failed company/industry/state will show how much human suffering will happen if they are allowed to go under. The stories will be compelling. And, the media will play them over and over again.
But, remember this - if the bailout does not address the root causes of the problem, it will not solve it. It will only delay the inevitable and make a bad situation worse. And, the suffering will spread from a few people to a lot of people.
Choices have consequences. We can choose to bailout those who made poor choices and attempt to reduce their consequences. Bailouts will not make the consequences go away. They can't. They can only spread the suffering around.
And worst of all, bailouts leave the people who made the bad choices no wiser for their next decision. They will have been denied the opportunity to learn from their mistakes. That makes us all poorer in the end.
Or we can require that any bailouts address the root causes of the problem. That will mean that those who made poor choices will learn from their experiences. It will also mean that we'll keep the consequences to a minimum and have a healthier financial system which means a better life for all of us.
Keep on Stretching those Dollars!
Gary
