Despite the widespread belief that the bailout plan is a terrible idea, the plan has already been passed.
The fundamental problem with this plan is that it rewards bad decisions and irresponsible behavior. The government, by assisting those people and institutions which are failing essentially punishes responsible behavior.
One of the most vital functions of a relatively free economic system is to discourage bad business practices by forcing those businesses to live with the consequences of their actions. However, with the government and Federal Reserve acting as a safety net, businesses would have no reason to make wise decisions.
President Bush has stated that he wants to focus on bailing out borrowers rather than lenders. However, the argument could be made that the bailout will focus largely on rescuing homeowners in debt is flawed in that money given to the borrowers is surely intended to wind up with the lenders anyway.
The bailout idea is also flawed in that it fails to address the reasons behind loan foreclosures. When property values decline to the point where the amount of money you owe is greater than the amount your property is worth, foreclosing seems like the sensible thing to do regardless of whether the borrower can pay off the debt. The government’s past actions have already helped raise property values to an unnaturally high level, and giving out money does not address the problem.
At this point, the best thing the government can do is back off and let the crisis run its course.
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