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Law, culture, and Catholicism...up in smoke!

Wednesday, October 01, 2008

Why Isn't Bankruptcy, Not Bailout, the Answer?

Now I don't have an advanced degree, but I like to think that I've got half a brain when it comes to economics. And I've been puzzled by this whole bailout, greatest-crisis-since-the-Great-Depression issue. The $700 billion bailout doesn't make sense to me: Why dump taxpayer money into Fannie and Freddie when they are flawed to begin with? Why are we trusting unintelligent DC politicians like Barney Frank to fix the problem when they partly caused it to begin with? Why does the frantic support for the bailout sound to me like the ranting of a doomsday prophet? Am I a fool for thinking that we'll survive even if the bailout doesn't happen?

So I was pleased to read this editorial from a real-life economist who explained the financial crisis in layman's terms and who confirmed all my gut feelings. The editorial states that a bailout is not the answer. Instead, the government should:
Eliminate those policies that generated the current mess. This means, at a general level, abandoning the goal of home ownership independent of ability to pay. This means, in particular, getting rid of Fannie Mae and Freddie Mac, along with policies like the Community Reinvestment Act that pressure banks into subprime lending.
Good idea.

It also seems to me that the financial crisis is partly a result of the self-centered, instant gratification mentality that pervades society, coupled with an attendent unwillingness to take responsiblity or even think about the long-term consequences of one's financial decisions. People need be fiscally responsible and stop making risky purchases on credit they can't pay back, and the government needs to stop facilitating this irresponsibility.