Raghu writes:
David,
You raise a very important question.
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As usual.
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This is moral hazard at its finest. But what is the alternative? The financiers
have got everyone in this situation where, without government intervention, the
entire financial system is at risk of complete collapse. How can the government
intervene without being unfair to *someone*? It is impossible.
This situation must never have been allowed to happen. Perhaps we can think of
how such things will not be allowed to happen again in future. As to your
responsible couple, well, they are out of luck. They will pay for their
profligate fellow-citizens. I don't see any other way out. Maybe they should
write to their Congressman and demand better oversight of the financiers.
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First, I reject your premise that the entire financial system is at risk. It
is nonsense. As usual, the government will ultimately pass "crisis"
legislation months after the crisis has ended, thereby demontrating once again
the irrelevance of the government to a market economy.
More significantly, why would permitting people to suffer the consequence of
their actions be "unfair?" The people benefitting from anti-foreclosure
legislation will be (generally) the people who were irresponsible, and the
people suffering from the legislation will be (generally) the people who acted
responsibly. If you have to choose a policy that hurts someone, select the one
that hurts those who acted irresponsibly.
David Shemano
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