Seeing the Personal Side of the Mortgage Crisis Who should, or should not, be bailed out by the federal government in the subprime mortgage debacle? Do homeowners need help, or do they need to live with the consequences of their actions?
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Seeing the Personal Side of the Mortgage Crisis

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Seeing the Personal Side of the Mortgage Crisis

Seeing the Personal Side of the Mortgage Crisis

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JOHN YDSTIE, host:

During the debate on the housing aid bill in the House of Representatives this week, there was a lot of argument about just who ought to be rescued as the wave of home foreclosures engulfs the country. Republican leader John Boehner said the bill, largely written by Democrats, would, quote, "bail out scam artists and those who were speculating in the market." And he said taxpayers would pick up the tab.

Fellow Republican Steve LaTourette stood up to defend the bill, which he said is limited to homeowners. And, of course, there were reminders that the government had put billions of dollars on the line to rescue the investment bank Bear Stearns.

There are some clearcut examples of who deserves a bailout and who doesn't. Someone who bought a house or two or three, not to live in them but to flip them for profit doesn't deserve a bailout. They're speculators who bet wrong in the midst of a huge housing bubble and they should pay for their mistakes.

On the other hand, people who were the victims of fraudulent mortgage brokers, who were lied to about the kind of exotic mortgage they were taking on, those victims of fraud should rightly get government assistance.

The problem is that between those black and white cases are shades of gray. Does someone who bought their dream house, ignoring the obvious fact that they didn't have the income to pay for it, deserve to be rescued? How about a naïve first-time buyer swept up in the frenzied belief that home prices would rocket higher forever, who felt they had to buy immediately or forever give up a chance to own a home?

Many economists tell us if these homeowners don't feel the pain then we'll just get into trouble again. We won't learn our lesson and the next time a sure thing comes along, whether it's housing or stocks or tulip bulbs, we'll line up again to get into the game.

Those economists say a bailout will create a moral hazard. But if we really love the free market, as most Americans profess to, they suggest that we should accept that some people who are simply naïve or got caught up in the frenzy should feel some pain. The problem is that while that sounds great in the abstract, it feels different when you start to see it happen to real people.

When you see the moving van pull up in front of your nephew's house; when you get an email from your sister saying things aren't going so well and she's going to have to give up her home. Imagine that being repeated four million times in the country over the next few years. Isn't there a moral hazard in having that happen too?

(Soundbite of music)

Mr. MUDDY WATERS (Singer): (Singing) All I have is gone. Well, brooks run into the ocean, the ocean run into the sea, but don't find my baby somebody gone sure bury me. Brooks run into the ocean, the ocean ran to the sea. Well, now, I don't find my baby (unintelligible), somebody sure gonna bury me. Play the guitar, boy.

YDSTIE: That's Muddy Waters on NPR News.

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