Why the Bailout is a Bad Idea

First and foremost, I do not support bailout. It is a free market, and should be treated as such. This entire situation has its roots based in the Fannie Mae and Freddie Mac mortgage lending institutions started in 1938 and 1970, respectively. Throughout the 1980s and 1990s, Congress encouraged these lenders to engage in more subprime lending in order to ensure that everyone could afford a house. For those unfamiliar with subprime lending, it goes like this: Suppose a bank takes a loan from the government at 5% interest. That 5% is considered the prime level. Prime borrowers are people who are able to take out a loan from that bank with a 5% or higher interest rate. Subprime lending occurs when an individual, who normally would not qualify as a prime borrower(bad credit, inability to pay interest rate), takes out a loan with an interest rate below 5%.

This practice, throughout the 1980s, 1990s, and 2000s, significantly increased the supply of money available in the housing market and did allow more people to own homes. The vast of majority of loans, however were adjustable rate mortgages. These loans typically started with subprime rates appealing to borrowers, but later down the road banks began to increase interest rates to cover themselves financially. This inevitably led to the increase in home foreclosures (when the bank reclaims the home of an individual who is unable to continue making payments) seen from about 2000 up to the present. These recent crashes have been building for quite some years; now just happens to be when we see a spike in home foreclosures, affecting practically every aspect of American economics, especially the stock market.

What I'm getting at is that this crisis was brought on by banks, encouraged by the government, giving out cheap loans to unqualified candidates in an effort to make a larger profit. They ran the risk and enjoyed the temporary benefits of that risk. Conversely, borrowers took out loans they couldn't repay and enjoyed the temporary benefits (better housing) of that risk. I say let the free market work. These people took a risk and now it's coming back to them. I do not believe that the government should use our taxes to bail out these individuals who knowingly took a risk. Its outrageous! This is my money and your money. I don't want it spent "saving" people whose actions finally caught up with them. What will that teach them? Remember, this whole issue started when the government stepped into the free market and began encouraging subprime lending. And now they're saying that more government involvement will solve the problem? Let's take a lesson from history and good common sense: what we need right now is for the government to step back, the media to stop scaring everyone, and an understanding that the free market will work everything out on its own.