A Necessary Evil

I hate the bailout plan. You hate the bailout plan. We all hate the bailout plan. But we need the bailout plan.

Listen. For those of you who think this is something recent, think again. This thing has been in the offing since the 1970s. It began during the Carter administration. Suburban whites were getting more mortgages than urban blacks. So, under pressure from the lefties, we started slacking off on the strictness of mortgage lending.

We’ve been doing two things. We’ve been giving mortgages to people who can’t afford them, and we’ve been overvaluing properties. Which means, in some cases, people are taking out mortgages that are higher than the actual market value of the property.

What happens? You know what happens. People can’t pay their mortgages. In many cases, the mortgage, as I said, is more than the house is worth, so they simply just abandon the house and the bank that lent the property owner the money is stuck with a loss.

How does this translate into a financial meltdown? I’ll oversimplify. Banks lend money. A lot of the money they lend is in housing. Suddenly, the housing loans are going bad. This means the banks have less money to lend. More important, no matter how good a shape the bank is in, the bank doesn’t want to lend money. The market hates uncertainty. Hates it. Loathes it. So a bank may say, well, even though we have the money, we’re not going to lend it — it’s just not prudent right now. We’re going to wait.

This affects you very simply. Suddenly you need a hell of a lot of a better credit score to get any kind of loan. The banks themselves lend to themselves and the same happens there — they’re more reluctant to lend.

Here’s another oversimplification. Most Americans don’t have the money to buy a $20,000 car. So they take out a car loan and put a certain amount of money down. Five years ago, say, your credit score needed to be 650 to qualify for that loan. Now that the banks are reluctant to lend, let’s say it’s 720. That means a vast number of people can no longer buy that car.

And the auto company can’t sell the car. Their profits decline. They’re not making as much money. They have to cut corners. They have to lay people off. Same goes for small companies that operate with credit. They can’t get the small business loan anymore, so they can’t pay their employees.

It goes on like this, spiralling and spiralling and spiralling. Now. What’s Uncle Sugar going to do? Uncle Sugar is going to step in and say, listen, we will cover these bad mortgages. You don’t have to worry. They are not automatically bailing everybody out. They’re just saying, look, if worse comes to worse, we’ll buy that mortgage out from under you. You don’t have to worry.

You have certainty.

And, as I said, the one thing the market can’t stand is uncertainty.

I understand the urge to say, let ’em fail. Let ’em all fall apart. But the reason the government steps in in situations like these is to try to make sure a downturn in the economy, a medium-level recession or something, does not turn into a depression (now, do not confuse what we are going through with the Great Depression — the problem there was liquidity in the markets, not credit, although there are some similarities).

If the government did nothing, credit would freeze up. Money would not be moved around. You would ultimately suffer.

This is a vast oversimplification of what is going on, but I’m stating it anyway. The most obvious parts. There is no one person who understands how the market works. The market is a beast of its own. There are people who spend decades studying certain parts of the market, and understand those, but there is no one person who understands completely how the market works. It’s simply too vast and complicated. It’s been around too long. If you think you know how the market works, you don’t. Period. End paragraph.

I’m a conservative. I hate to see government solutions to private sector problems. But government does exist for a reason, and this is one of them. They will cushion the fall, and hopefully instead of crash-landing, we’ll just thud somewhat heavily onto the ground.

You should, however, stay pissed off. Just try to remember who you should be pissed off at. You should be pissed off at the liberals in the 1970s who insisted that mortgages be given to people who simply couldn’t afford the mortgages, and every person who followed that reasoning up until the present date.

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