A bailout for the ‘undeserving’
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The L.A. Times this morning explores the issue of whether the government should offer mortgage aid -- a bailout, for lack of a better word -- to the ‘undeserving.’ Peter Gosselin’s front-page article observes that, in previous crises, the government has erred on the side of helping the overall economy rather than trying to determine who deserves special aid and who doesn’t.
‘And in almost every instance, a simple calculation tipped the balance in favor of action: Although some who were undeserving might end up being helped along the way, the benefit to society as a whole was simply too substantial to ignore.’
A couple of thoughts: You would think it goes without saying that many oppose these mortgage aid packages for very specific reasons, but it doesn’t -- so I’ll say it: Many Americans oppose mortgage aid right now because they believe lenders and borrowers participated in an unsustainable housing bubble that drove up prices, enriched millions, gave the economy a false appearance of prosperity, and made housing unaffordable to those who refused to take foolish mortgage risks. This argument is particularly potent in Los Angeles, where soaring housing prices long ago lost touch with income levels, and home ownership levels lag well behind national rates.
Many of these bailout critics also argue -- they argue it here daily -- that government attempts to prop up housing prices will ultimately prolong the housing crisis rather than shorten it. In other words, there are two arguments here: the first is fairness, the second is whether a broad bailout provides ‘a benefit to society as a whole’ -- whether it will work.
Will a widespread bailout help the reckless and the undeserving? Probably. Here’s PIMCO economist Paul McCulley: ‘.. The inequities smell to high heaven, and that is one of the huge problems in dealing with it. It runs against the streak of basic fairness in a lot of Americans. You’re going to provide a handout to the fool. The fool is going to be rewarded and I, the taxpayer, will be put at risk at the margin for that handout to the fool. When all I did was exactly what I was supposed to do. Where is the fairness here? It’s a hard question to answer.’
Your thoughts? Comments? E-mail story tips to peter.viles@latimes.com.