Wow, I'm right

I haven't been posting it here, but I've been saying since November that bailing out the banks, then GM and Chrysler, is a bad idea. It escalates the national debt and props up businesses who have shown an inability to adjust to changing conditions and manage their resources. Now a nationally recognized economist has said the same thing. The best thing government can do in bad economic times (or any economic times, really) is get out of the way and let the free market take care of itself. Let businesses fail. Face it, GM isn't going to close it's doors. It will go through debt reorganization and hopefully come out leaner and more competitive. But with Uncle Sam Barack Obama and company pumping $30,000,000,000 into GM's coffers every few months to keep it from going under, is it any wonder there is no real effort to decrease expenses in an economically sensible fashion.

It should be obvious that propping up businesses whose problems arise from bad business practices is, believe it or not, bad business. Banks who give loans to people who can't afford them should face the consequences of their bad decisions. And saying that everyone deserves their shot at the American Dream is not a justification. We seem to have forgotten that the American dream has two parts, the first part being that if you work hard and use your money wisely, saving, investing, and being frugal, you can get the second part: a home, a car (or two) and 2.5 (or is it 1.5 now?) kids. In other words, you work hard to be able to buy the American Dream. If you can't afford the home you want, you save more, or find a home you can afford.

Two years ago my wife and I were looking for a new home. Our family had grown, and we needed a larger home. We were offered some truly wondrous ARM's and those fun loans that allow you to pay only the interest for the first 5 or 7 years, then hit you with payments that are 4 or 5 times what you were paying. If they couldn't guarantee I would be making enough to make those payments by that time, I wasn't going to get a loan that would require I make them. If the mortgage company was going to be so irresponsible as to give me a loan that was much higher than I could afford, it was my job to say "forget it" and look for a loan I could afford. But the bank should never even have made the offer.

Twelve years ago my wife and I bought our first home. And we almost didn't get it. We knew we could afford the payments for the home we wanted, but according to the formulas the bank used, we couldn't. We did eventually get a loan, but it was nerve-wracking. And it should have been. Today we have a financial meltdown with banks closing and loan defaults at epidemic levels because it has been too easy to get loans. It shouldn't have happened.

Granted, this is not just a problem caused by the banking industry. Bush was anything but fiscally conservative. He ran the deficit up to record level, which is detrimental to the health of the economy. It would have been nice if Obama would have turned around the spending policies of Bush, but he has taken the ball and is running with it. The world may not come to an end in 2012, but if we keep trying to spend our way out of this economic crisis, the world economy might.