Bailouts

Ezra Klein's post yesterday about a Robert Reich commentary reminds me of something I was thinking about at the gym yesterday. Through most of the mortgage crisis, I've argued to friends that people who took on "silly" mortgages--e.g. paying interest only for five years--were just plain crazy and shouldn't be bailed out.

But then the Fed rescued Bear Stearns and became increasingly generous in loaning money to banks that got themselves into trouble by lending too generously and creating investment vehicles that were difficult if not impossible to value.

This re-framed the problem for me. I think everyone--homeowners, lenders, regulators--have responsibility for the current mess. But keep in mind this fact: the financial industry created the "silly" investment products that consumers subsequently got into so much trouble with. And so far, it's the financial industry and not homeowners who are getting assistance from the government. (Sure, we all benefit when our entire financial system doesn't disintegrate around us, but there has to be a more balanced way to protect those most vulnerable... and I'm feeling a lot more sympathy these days for homeowners than the financial giants who took on so much risk that they risked destabilizing our entire economy.)

People are responsible for the choices they make, and consumers should know what they are getting into when they sign a mortgage. But you also have to look at the fact that banks and other mortgage lenders were serving up these non-traditional mortgages like there was no tomorrow (some proof of their complicity). In the arcane world of mortgage loans, the guy writing the loan always has the upper hand.

UPDATE: Looks like real assistance for homeowners may be a little closer... let's wait and see what happens. And when.