mnot’s blog

Design depends largely on constraints.” — Charles Eames

Saturday, 5 February 2005

Who’ll Clean Up?

Filed under: Economics

Listening to people talk about the economy — and the housing bubble in particular — makes me wonder; what happens after it bursts?

Granted, that might not happen, but if interest rates go through the roof (as many predict) and those holding absurdly large mortgages in the US start defaulting, will George Bush’s White House allow American houses to be taken away en masse?

Remember that at least twice in the past — S&L and LTCM — the US government has bailed out wealthy investors and financial industry kingpins who have made bad choices, at the cost of billions (for the good of the country, we’re told).

So, would there be a housing market bubble bailout, or does US government reserve its largesse for bailing out a small number of wealthy investors, rather than a large number of average Americans?

Forgive me for giving odds to the latter. It is true that some execs involved in both the S&L crisis and LTCM went to jail, which brings another interesting question; who would be held responsible? Millions of Americans, for living off of borrowed money? Those who lent it to them?

I have a sinking feeling that in the end, something will be done to cushion the blow; it’ll be a political necessity. Therefore, the current situation is encouraging people to be irresponsible with their money; after all, somebody else will clean up. More realistically, I’ll be forced to pay my share, whether I’m part of the problem or not, so why not get as well as give?

There’s tangentially related, and interesting, reading at the Economist this week (subscription required).


1 Comment

RichB said:

Who is saying interest rates will go through the roof? Here in the UK, the expectation is that rates will rise by .25 sometime during Q2 and then fall back again.

Sunday, February 6 2005 at 1:31 AM

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