The controversy about a taxpayer funded bailout of Wall Street investors and mortgage companies has been making the rounds on the news and the blogosphere. My colleagues, Skip and Doug over at GraniteGrok have posted twice about this as well as discussing it on Meet The New Press earlier today.
Like them, I firmly believe that it is not up to the taxpayers to bail out the firms that played in the mortgage market. They gambled with 'creative' financing and lost. It's their loss to take.
Now some may say that the Feds bailed out all of the banks that were holding bad mortgages back in the early 1990's, but that's not the case. A large number of banks failed when too many of the mortgages they gave out stopped performing. The only parties that were 'bailed out' by the government were the depositors of the banks that failed. They were covered by the Federal Depositors Insurance Corporation, or FDIC. The banks themselves either closed, reorganized, or were bought up by other banks. But the government didn't give them billions in taxpayer dollars to keep them from failing.
Five major banks in New Hampshire failed when the real estate bubble burst back then. A couple of them had been in business for well over 100 years. Hundreds more failed all across the country.
It's no different now, except for the fact that this time around it isn't the banks that are taking the hits for nonperforming mortgages, but mortgage lenders financed by Wall Street. They are no more deserving of a bailout than the banks were almost 20 years ago. They gambled. They lost.
If I went to Las Vegas and gambled my money away, would the government be obligated to bail me out because I lost? Of course not. It isn't any different for the mortgage lenders or their investors because they chose to underwrite mortgages that the banks considered too risky. (At least the banks learned their lesson and weren't involved to any great extent in writing sub-prime mortgages.)
That's the thing with investments, they aren't a sure thing. If you invest in risky ventures then the chances are proportionately higher that they might fail. And that's what the mortgages that the lenders wrote were – a high risk investment. They gambled. They lost.
It's not up to you and me and all of the other taxpayers to make up for their losses.
They gambled. They lost.
So endith the lesson.