Risks of a bailout

Besides the moral hazard problems, one the biggest risks of a government bail is huge losses on the loans that go bad. In California and likely other coastal states, the collateral and not be moved without taking a huge hit:

An auction of about 135 foreclosed homes in San Diego Saturday provided more sobering news for mortgage lenders. Ramsey Su, an investor and former real-estate broker who attended, calculated that the high bids for the homes averaged 67% of the prices they fetched when they were last sold, mostly in 2004 or 2005. At a similar auction in San Diego in May, the average was 73%.

That's a loss of a 1/3rd before expenses! I'm highly doubtful Freddie Mac or Fannie Mae models take these kinds of haircuts into pricing risk. The capital markets see the risk and want nothing to do with this mess which why the secondary market for mortgages has shutdown. If the government steps in, taxpayers could be left holding a trillion dollar bag.

rewarding the irresponsible

There's a great deal of rhetoric both from left wing pundits and Democratic presidential candidates about how we need to save over-leveraged borrowers from foreclosure. I could not disagree more and while this may look cold hearted, I don't think it is.

None of these pundits are politicians are concerned renters can be kicked out their home for no reason at all on 30 days notice. This insecurity is considered the natural state of affairs for the second class citizens renters. However, when first class citizen "home owners" who bought their properties on zero down mortgages on loans they never had any hope of affording when the teaser rates expired are in danger of being kicked out their homes these same politicos declare it crisis and start advocating for massive subsidies from the responsible to irresponsible.

I rent and am subject to 30 day tenancy termination. I concluded that housing prices were dangerous overvalued in my area and I did not want to burden of the large mortgage. Renting if you are not comfortable with the size of the mortgage is the fiscally prudent decision. Unfortunately, renting is an inferior option to buying but because I'm prudent person I accepted the drawbacks. In addition to potentially having to find another home at very short notice, my rent can be raised any amount at any time and the level of repair of residence is only what the landlord chooses to provide.

I'm going to be outraged to pay $1 to bail out people who bought and can not their home afford it. I took hit on renting and now Clinton, Edwards, Dodd, etc want me to pay to somebody else's house because they might be kicked out for not being able to make their commitments. Cry me a river.