You are currently browsing the daily archive for February 20, 2009.

Rick Santelli of CNBC said it aptly in his rant on Thursday morning — “The government is promoting bad behavior.” Yes…yes it is. Rick is absolutely correct in his derision of the idea of giving money to people who made bad decisions and bought houses for far in excess of what they could afford. It’s a good rant and I think it’s worthwhile to view it in full

It’s a very populist message and it certainly resonates as we continue to watch our economy crumble, our net worth drop, and face the spectre of unemployment or even foreclosure ourselves. Especially when those facing these problems did nothing wrong, played by the rules, and made reasonable and pragmatic decisions.

However, if we look at the counterpoint as presented by the New York Times columnist David Brooks in his opinion piece this morning titled “Money for Idiots” the government must do something. If we let the foreclosure rate continue at it’s current pace (or go higher) and do nothing than it won’t just be those who made bad decisions and bought houses that were more than they could afford who will suffer. It will be all homeowners — foreclosures drop property values in the surrounding area dramatically as banks look to offload them as quickly as possible. In addition abandoned houses can become havens for criminals or drug users. It affects us all.

In the same way that giving money to the banks when they are the ones who played a large role in creating this mess may seem to be a “bad idea” — if the banks go down the economic hit would be much more severe. And what about the “Big Three”? Detroit has made blunder after blunder and missed many opportunities to innovate and to take the lead in the global competitive marketplace. Why should they get money? Honestly…that’s a harder one to swallow as the demise of Detroit would probably not have as devastating an impact on the economy as we may think. But the economic repercussions (at least on a regional level) would be dramatic and have farther reaching effects given how intertwined the world’s economies are.

No, we must do something to alleviate this and we need to do it in a way that will save the “Losers” and the Idiots who brought us to the edge of this abyss. We are like an economic train…if the last few cars of the train slide off the edge of the cliff, it drags the rest of the train with it. If enough cars fall down then the entire train is lost. There’s a lot of sympathy for the populist sentiment that we should just let these people lose their homes. But what will be the broader and longer term implication if that happens? It’s the same feeling with regards to the bankers and the auto industry executives. The feeling of “You have no one to blame but yourselves” is appropriate and well-deserved but by letting them slide down the hill they will drag the rest of us with them. President Obama is doing the right thing…but he must make sure that the rest of us doing get the short end of the stick or that the “Loser” and Idiots come out ahead. They need to lose as well. And it wouldn’t hurt to “tar and feather America’s 100 leading bankers” as Nicholas Kristof suggests (Kristof, Nicholas, “Escaping the Bust Bowl”, The New York Times, February 11, 2009) but I’d throw in the auto industry executives just for good measure.

February 2009

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