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<p><strong>Strange Silence on the Mortgage Bailout Plan</strong>
<strong>By <a href="http://apps.thestreet.com/cms/email/rmyEmailStory.do?storyId=10393057&authorId=1619871&storyUrl=/p/rmoney/revsharkblog/10393057.html">Rev Shark</a>
RealMoney.com Contributor
12/5/2007 1:38 PM EST</strong>
URL: <a href="http://www.thestreet.com/p/rmoney/revsharkblog/10393057.html">http://www.thestreet.com/p/rmoney/revsharkblog/10393057.html</a>
I'm surprised that there isn't more outrage in the financial press over the government efforts to force banks to freeze mortgages at artificially low "teaser rates." The response I hear from most everyone is, "If I ruin my credit, can I get a great deal too?" </p>
<p> </p>
One of the problems with bailouts of all types is what is known as "moral hazard." If you excuse the behavior that caused the problems, then other folks will likely engage in the same behavior as well.
<p> </p>
What is really troubling about this whole scheme is that it is so grossly unfair to the many folks who didn't overextend themselves. The financially responsible folks will end up supplementing the financially irresponsible not only through high taxes but through more onerous lending standards and terms.
<p> </p>
In addition, you have to wonder if this scheme will do anything other than delay the inevitable. The hope is that real estate prices will rise enough or that incomes will increase sufficiently to bail some of these people out before the day of reckoning comes. Perhaps that will occur, but in many of these cases these people had no business buying the homes that they did. You can blame the evil lenders for forcing them to buy more house than they can afford, but the real cost of this bailout will be borne by responsible homeowners.
<p><strong>Strange Silence on the Mortgage Bailout Plan</strong>
<strong>By <a href="http://apps.thestreet.com/cms/email/rmyEmailStory.do?storyId=10393057&authorId=1619871&storyUrl=/p/rmoney/revsharkblog/10393057.html">Rev Shark</a>
RealMoney.com Contributor
12/5/2007 1:38 PM EST</strong>
URL: <a href="http://www.thestreet.com/p/rmoney/revsharkblog/10393057.html">http://www.thestreet.com/p/rmoney/revsharkblog/10393057.html</a>
I'm surprised that there isn't more outrage in the financial press over the government efforts to force banks to freeze mortgages at artificially low "teaser rates." The response I hear from most everyone is, "If I ruin my credit, can I get a great deal too?" </p>
<p> </p>
One of the problems with bailouts of all types is what is known as "moral hazard." If you excuse the behavior that caused the problems, then other folks will likely engage in the same behavior as well.
<p> </p>
What is really troubling about this whole scheme is that it is so grossly unfair to the many folks who didn't overextend themselves. The financially responsible folks will end up supplementing the financially irresponsible not only through high taxes but through more onerous lending standards and terms.
<p> </p>
In addition, you have to wonder if this scheme will do anything other than delay the inevitable. The hope is that real estate prices will rise enough or that incomes will increase sufficiently to bail some of these people out before the day of reckoning comes. Perhaps that will occur, but in many of these cases these people had no business buying the homes that they did. You can blame the evil lenders for forcing them to buy more house than they can afford, but the real cost of this bailout will be borne by responsible homeowners.
