SFE blog Consectatio offers some excellent food for thought on the bailouts:

Every reaction the government has to the current “crisis” keeps leaving me with the question “How could we possibly dig ourselves any deeper?” Needless to say, I have been amazed at our ingenuity in this regard. Fr. Sirico’s observations (”Isn’t it obvious that once we concede the principle of a bail-out for those ‘too big to fail,’ we invite a queue that will wrap around the globe?”) are becoming more and more realized, with one of the latest announcements that the FDIC is now proposing to “help delinquent homeowners”.

Dictionary.com defines delinquent as: “failing in or neglectful of a duty or obligation“, and these are the folks who are getting the bailouts.

This begs the question, if you fathered two twin sons who were very, very different (one was very responsible and planned ahead, the other was reckless and failed in fulfilling or was neglectful of duties or obligations), who would you drop the big bucks to send to college? Which one is going to take care of you when you retire? Which could you trust with your money? Which investment guarantees that the money will be spent for productive purposes?

It is true that people had varying degrees of awareness about the oncoming dip in the housing market, but, as Christopher Deming pointed out:

“The banks are regulated. They have to tell you everything. They can’t make you read it, and really, why should they have to? They spend the time to write it, the least you could do is go through it.”

When you sign a mortgage agreement, you know what you are getting into. This is why, Chris says “there is a reason why you don’t see mortgage agreements written on cocktail napkins.”

I’ll wrap this up with a personal example: I am starting a new Electrical Engineering job in January. I have to move across the state, and, while I knew that I would be given no relocation fee, I knew there was a signing bonus included with the job. I was later notified that the signing bonus would be given to me in the first paycheck, which will appear about a month after I start (…and four months later than I had expected).

This means, I’m on my own for a U-Haul, securing an apartment, and all of the additional charges associated with moving to a new place. This may not seem like much, but it is quite a bit for a student to handle (I haven’t been making nearly as much as the typical starting-salaried engineer in my internship). Regardless of my smaller salary, I have managed to save enough in my bank account to allow me to get a U-Haul, secure an apartment, buy an engagement ring, and have several months of groceries or whatever else I may require.

This does mean, however, that I do not have an mp3 player (not even a cheap one). As a bass guitar-playing, electrical engineer, I do not even own a Sansa. I also do not have a cool, flashy cell phone, and my car is probably 25% rust. I rode my bike 26 miles a day last summer to work and back to avoid buying gas, and I ate two packs of oatmeal for lunch every day instead of going out to eat.

I’m not trying to make myself sound spectacular, but I know my own story the best.

There are plenty of people who have saved. There are many people who did not rule out the possibility of this “crisis” and they planned accordingly. These are the good sons that are not only going unrewarded, but paying out of their pockets for those who were reckless.

An excerpt of the newest proposal (with some more specifics) can be found on CNN here:

“The proposal would have the government share up to 50% of the losses if the homeowner re-defaulted on the modified loan.”*

Yes, it appears that the age of personal bailouts is on the horizon.

How could we possibly dig ourselves any deeper?

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*Recent talk of “help” for people struggling with mortages has included the idea of offering lower rates or exemptions from payment only to those who have missed at least three payments.  Talk about moral hazard.