Bailout?

So, we’re confronted with the question of whether a bailout by the government of Wall Street is a good thing? While I could quote from newspaper articles all day long, I like the approach that David took in his blog, trying to form his own thoughts without the help of a panic-obsessed media.

While I don’t have blind trust in Paulson or Bernanke, I do think we have to proceed with some large-scale rescue effort by the government. I, like many others, am partially blinded by the disdain for companies that brought this upon themselves that should be allowed to wither and die.

But here’s the thing. Having done my homework, living mostly within my means, I’m experiencing a lot of pain from the current crisis. Wildly fluctuating oil prices (an increase of $17 a barrel one day, followed by a $12 reduction the next) are just the start. Savings yields are down, my 401K is taking a beating, and it’s costing me more and more to buy the items I need.

I read my mortgage completely, understood the terms, and can afford my mortgage. I’m perfectly comfortable with people losing their houses if they did not properly prepare themselves for home ownership. We knew we were taking a risk when we bought our house, so we socked aside some money in case I lost my job. If others took bigger risks, I don’t want my tax dollars going to bail them out, and I’m extremely angry that Congress would hang this weight around the neck of a bailout proposal. Those people can go rent a house, and I don’t have to suffer.

I believe this to be a great example of Congress doing their best to add their influence to something they are not informed about. Was a mortgage officer wrong to sell someone a mortgage they couldn’t afford? Sure. Was the homeowner some poor, unsuspecting soul who needs protecting? NO. Every mortgage has standard disclosures the government requires, printed very clearly. Buyer beware.

The only positive I’ve seen Congress add so far is a desire to cap the salaries of the people who run these defunct companies if they come to the Treasury for a bailout. 2 points for getting that one right. -10 points for taking too long to agree to this bailout. We’re already three days in, with no clear end in sight. I’m betting nothing gets done this week, and the market continues to thrash around trying to figure out the value of things nobody will buy.

To be clear, I’m not happy about a free pass for companies that were too aggressive during this crisis. However, I do think we need to step in quickly, decisively, and then proceed with tighter regulation in the future.

I’ll end this post with a thought from a couple of intelligent financial guys last night. It’s not like the things the government will buy on behalf of the taxpayers is worthless. Experts think 10% of the mortgages out there in these toxic bonds will fail, with another 10% in danger if they don’t get some sort of payment relief.

Departing from the financial gurus, back to my own thoughts. So, being conservative, let’s say that 30% of all the mortgages fail. That means we, as taxpayers, will get back at least 70 cents on the dollar, and we’ll still have the underlying assets to cash in on. And, as discussed with my best friend, the AIG deal isn’t a total waste. Rather, it may turn out to be a good deal for the taxpayer, helping offset some losses from toxic mortgages.

Do I want to see those “profit” dollars used to bail out someone who can’t afford their mortgage? Absolutely not. Give it back to me in the form of reduced taxes further down the road. I earned it.