No Accountability for Financial Decisions?

President Bush will soon announce a plan to help homeowners amid this sub-prime mortgage debacle. Once again our government demonstrates that individual responsibility isn’t important by rewarding people who make bad (or risky) decisions. The plan will likely involve temporarily freezing low, introductory mortgage rates, that would otherwise jump higher in the next few years. This intervention is expected to stave the rising number of foreclosures and save the economy from recession (in an election year).

$362 billion in U.S. subprime home mortgages with adjustable interest rates are due to reset at potentially higher rates in the coming year

Part of the reason for the mortgage crisis is the way homes are financed. Long gone are the days of bank and borrower, today’s home loans are bundled together and sold to investors as securities. This ties the hands of lenders who might like to help borrowers in need because they no longer control the loan.

According to Bank of America Securities, as much as $362 billion in U.S. subprime home mortgages with adjustable interest rates are due to reset at potentially higher rates in 2008, risking a wave of defaults by borrowers unable to afford the new monthly payments. That in turn could lead to a wave of write-offs by investors who now own those mortgages. The losses tied to bad mortgages have already reached the tens of billions of dollars and has had a tumultuous effect on the world’s financial markets.

Furthermore, to help one segment of the population, ultimately hurts another. Bush’s plan may help homeowners, but what of the investors? Freezing interest rates for homeowners is, in essence, cheating investors out of their money. Why is this okay?

So what’s the problem? The problem is that no one is held accountable for the decisions they make. I believe the government should not intervene and let the markets correct themselves. Yes, many may find themselves in financial straits for a time, but their situation is a result of a decision freely made. The President’s plan amounts to charity and is not the responsibility of government.