An Open Letter to Borrowers and Lenders: Take Responsibility for Your

[softwareNerd]

None of you can convince me that this mortgage crisis would be happening in a true laissez-faire capitalist society.

K-Mac, you're right. Such a broad-based bust would not happen. Under Capitalism, selected companies might well take undue risks (often they may not even realize that they're doing so). They would run into problems, suffer the consequences, and there would be less likelihood that future companies committed the same types of mistakes.

There are two aspects to the current system. The first is that the government forces certain behavior -- e.g. with the CRA. However, there is a second aspect: that the government acts as a back-stop, protecting against some consequences of bad behavior. Those who indulge in such behavior do not deserve compensation any more than a career street bum deserves welfare.

Now back to my original post/question... I still don't understand the difference between someone who accepts welfare and this bail out.

I don't think the thread on welfare supports the idea that it is always right for anyone to accept government welfare.

Similarly, it is not always right for every company to accept bailouts and compensation. Some companies have definitely been innocent victims, while others played the system for what it was worth. The latter do not deserve a penny, not even any amount of tax they have paid. To quote from Rand's essay:

The issue is primarily ideological, not financial.

[JMeganSnow]

You should have been a responsible person and not spent all you had/bought more home than you could afford.

Even the most responsible person in the universe can run into circumstances they didn't predict. I've been unwilling to accept welfare even in circumstances when I was technically eligible for it. I don't worry about the people who do use welfare when they are eligible for it, I worry about whether or not they're advocating the continued existence of welfare.

[Steve D'Ippolito]

K-mac, you probably haven't read yet the essay Ayn Rand wrote where she came to the conclusion it was sometimes OK to accept government money as long as you had the proper Objectivist attitude that you weren't entitled to it and regarded it as reparations for the direct harm (and parasitic leech harm) the government has done to you.

Anyhow I suspect the arguments made in that essay are probably in the backs of the the minds of those saying they could accept the money from welfare or some other program under certain circumstances.

Wish I could remember what it was.

Steve

[K-Mac]

I read Brook's recent article in Forbes today, and this excerpt caught my eye...

It is popular to take low lending standards as proof that the free market has failed, that the system that is supposed to reward productive behavior and punish unproductive behavior has failed to do so. Yet this claim ignores that for years irrational lending standards have been forced on lenders by the federal Community Reinvestment Act (CRA) and rewarded (at taxpayers' expense) by multiple government bodies.

The CRA forces banks to make loans in poor communities, loans that banks may otherwise reject as financially unsound. Under the CRA, banks must convince a set of bureaucracies that they are not engaging in discrimination, a charge that the act encourages any CRA-recognized community group to bring forward. Otherwise, any merger or expansion the banks attempt will likely be denied.

Earlier in this thread, I asked the question, why do banks (and possibly borrowers) not deserve to take part in this bailout and earn some of their tax dollars back, when the government set them up for failure by putting them in this position? I am willing to give in some about borrowers, although the government and lenders were making all these loans sound like doing business this way was normal and okay when it wasn't, but when it comes to the banks, it appears to me they deserve the bailout by the government that set them up for failure and forced their hand.

In earlier posts in this thread, some of you said their hands weren't forced, but Brook says they were (and based on what I've read about CRA, it seemed to be a forced action to me as well.) So, if we are to believe what Brook says above, I pose my question again...why shouldn't the government bail out these banks and how is it any different from the threads where many of you claim it's okay to take welfare as long as you really need it, because it's your tax money being returned to you, after all? The bank situation seems even worse and more "worthy" of a bailout than the individual welfare situation to me since the government directly placed these banks in peril, unlike someone who lost their job due to downsizing, for example.

[softwareNerd]

The CRA is clearly a use of government force. However, not all loans that are going bad were granted under the framework of the CRA.

[~Sophia~]

In earlier posts in this thread, some of you said their hands weren't forced, but Brook says they were (and based on what I've read about CRA, it seemed to be a forced action to me as well.) So, if we are to believe what Brook says above, I pose my question again...why shouldn't the government bail out these banks ...

As far as I know CRA agreements are voluntary pledges. A bank need not enter into one and many banks do not. I know that banks with low CRA rating can run into difficulties when seeking merger approval but other than that I have not herd of any other negative consequences/penalties (anybody know?). I did hear that having a low rating can have an adverse effect on community approval - but that is a more broad philosophical problem in society.