The Subprime Bailout

This past week the Bush Administration and the Treasury Department unveiled a plan to help people caught up in a sub prime mortgage mess. In the process the government intends to help alleviate or maybe avoid a sub prime and subsequent real estate meltdown. Under the plan, introductory rates on sub prime loans would be frozen preventing them from being reset to higher rates for another five years. There are a few caveats to the program and not everyone would be eligible. But it is estimated that between 150,000 to 240,000 borrowers may be able to benefit from this plan.

It’s not secret that for the past few years, the real estate market has carried this economy through a growing phase. Aided by lower interest rates and lower borrowing requirements, growth in real estate sales put money in the hands of sellers, real estate agencies, lenders, home improvement business and many other sectors of the economy.

I understand how important it is for our government to try to prevent an economic crisis, but it’s the principle that I can’t swallow. I think it is not fair to responsible borrowers to have the government come to the aid of those who simply spent more than they could afford. Isn’t this what is intrinsically wrong with this economy? We are spending more than we can afford to spend and we do it over and over again? Then the government comes to the rescue of those who have not been stewards of their money to bail them out? What message are we getting here? Don’t worry about living beyond your means, one way or another you’ll find a way out of this mess without many implications to you.

This is very similar to filing for bankruptcy. Don’t get me wrong, I am not against those filing for bankruptcy. But I do know of a lot of people who have abused the system. They simply have lived well beyond their means not because they had to but because they chose to. Then, they turn to bankruptcy to help clean up their mess.

What kind of reward or incentive are we (responsible borrowers) getting? Not many let me tell you. Even saving money is almost overrated nowadays. Every time the Federal Reserve Bank lowers interest rates, it’s less return we get on our savings. But more incentive for individuals to continue borrowing money and financing the lifestyle they can’t afford to live on their paycheck only.

It’s a most flawed system when irresponsible individuals get a helping hand and those who work hard to live within their means get shafted.