WSJ on the “bailout”

The WSJ Opinion Journal site is more skeptical of the proposed $700,000,000,000 federal bailout than the traditional media, although they take its necessity for granted.

In Bankruptcy Ploy, they agreed that Democrats are buying votes by “[making] it easier for borrowers to renege on their mortgage payments yet still keep their home.” They are clearly buying votes from greedy, irresponsible, or naive borrowers, and in the process they will increase the interest rates of new mortgages.

In Let’s Get the Bank Rescue Right, the editors argue that any plan must (this is a quote):

  1. restore the stability of the financial system quickly and at the lowest possible cost to the taxpayer;
  2. punish those who are responsible for losses;
  3. address the root cause of the crisis — the price collapse in the residential real-estate market.

The editors go on to discuss technical points, including that we need to trust politicians to devise a wholly new scheme to appropriately price purchased securities. Yeah, like they won’t abuse that!

I think the WSJ is “putting the cart before the horse.” It appears that they believe an ongoing seizure in the economic markets may hamstring access to financing, thus making homes unsellable and causing all sorts of economic calamity.

But they don’t address why time-tested and reliable financial instruments are in danger. What about them would turn off investors? Does anyone really know?

I guess instability in home prices?

Oooh, vicious circle: financial market seizure may cause instability in home prices, and instability in home prices may cause market seizure. This can only go so far, however. People still need a place to live. There will be demand for shelter, the “nice areas” will still be desirable, and investors will still be willing to invest in well-understood financial instruments such as mortgages where you actually determine the borrower’s ability to pay and don’t lend for 100% of the home’s value.

Still sounds like a leadership issue to me, not a $700,000,000,000 or $1,400,000,000,000 bailout, depending on whose estimates you use.

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