Debating a Financial Bailout

Thursday, September 25, 2008

The Sept. 22 front-page article "A Sense of Resentment Amid the 'For Sale' Signs" illustrated the frustration of many of us who are stunned by the enormous bailout the federal government is apparently about to provide to a lot of bad investors.

I, too, am resentful that I and millions of fellow taxpayers who have managed their finances like mature adults may be compelled to take on nearly $1 trillion in debt without so much as a clear explanation from the administration of why this has to be done and done quickly. Instead, as in the past, the administration ramps up the hysteria machine and aims to ram through another dubious and poorly-thought-out solution.

Adding insult to injury has been the failure of the media and congressional representatives to ask a stark question: How is it that year after year we highlight the dire conditions of our education and health-care systems, our transportation infrastructure and Social Security while doing nothing to find comprehensive solutions, but the moment a bunch of rich investors on Wall Street are in a pinch, the U.S. government can find $700 billion to save the day?

MARK A. SCHEUER

Vienna

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There's a lot of discussion these days about companies that are getting "bailed out" by the government. This is creating an incorrect view of what's happening. Who, we should ask, is getting bailed out?

All the institutions involved have issued and sold asset-backed obligations. The obligations are not stock; they are more like bonds. If these companies were allowed to fail, the assets backing the obligations would have to be sold to pay off the debts they represent.

But many of those assets are mortgages -- both prime and subprime. Because the markets are scared to death of buying mortgages of any quality, their prices have dropped dramatically, and they wouldn't bring enough to pay off the debt. Were that to happen, the debt holders would be seriously damaged.

Who holds this debt? Much of it is held in mutual funds owned by average investors. Much is held by pension funds that will support the retirement of U.S. workers. Much is held in portfolios backing endowments at educational and charitable institutions.

It's not just fat cats who are benefiting. Many average taxpayers are the beneficiaries. We should be happy our government officials are wise enough to see the potential consequences and bail us out.

D. JAMES CROFT

Great Falls

The writer founded the Reston-based Mortgage Asset Research Institute.

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We need to state accurately who is likely to pay for the $700 billion Wall Street bailout: our children and grandchildren.

Some 10 percent of gross federal tax receipts goes to interest on the national debt -- one dime out of every tax dollar. But that estimate was applicable when the projected federal deficit was half of what some experts now expect it to be.

Our country skates along on a federal credit-card economy, charging more and more to debt, much of which is owed to foreign creditors. Will federal debt interest in 2010 be 12 percent of tax receipts? Fifteen percent a couple of years later? Twenty percent for our children?

WILLIAM L. WITHUHN

Lanham

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Given the potential harm from more storied firms falling by the wayside, our government is right to seek to buy bad debt with the hope of stabilizing the situation. But we can't let this assistance reward bad behavior. New rules need to be put in place.

It took the Great Depression to bring in good regulations, some of which have lasted till today. If any good is to come of today's financial mess, it would be that we establish rules to prevent a recurrence.

STEVEN M. CLAYTON

Ocean, N.J.

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While witnessing, but not participating in, the home real estate frenzy in 2005 and 2006, I kept asking: Who is the idiot buying up all these mortgages issued on inflated home prices to all these people who have neither the capacity nor the intention to repay the loans?

Now I learn it was me.

TED THACKER

Ann Arbor, Mich.

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The "taxpayers" asked to "bail out" Wall Street firms that have collapsed or are in danger of collapsing because of falling housing prices might view their plight from another perspective: Their real estate appreciation was never taxed on the way up.

Take my case. I bought a condo in 2000 and sold it in 2006 for triple my purchase price price, taking my profit tax-free. My first home, purchased with my then-wife, sold for more than double the purchase price amid the housing boom, also tax-free.

Part of what is happening is an unintended rebalancing of the generous tax benefits Uncle Sam bestows on those who own a home (or two): deductible property taxes and mortgage interest, and tax-free gain on sale, among others. Now Uncle Sam has come to collect.

Tax benefits originally were elements of a rational policy to foster homeownership. Congress would be wise, after we get through this turmoil, to reconsider irrational homeowner benefits that, besides tilting capital into unproductive housing investment, contributed to the economic bubble for which we must now pay.

BENNETT MINTON

Arlington

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In evaluating rescue plans, the public should bear in mind one simple rule: If taxpayers are going to own companies' liabilities, we should also own their assets. The administration's plan would saddle taxpayers with risk while denying them any chance of benefit, and it would reward those who failed in their fiduciary duties.

JIM KLUMPNER

Silver Spring

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It is unconscionable that taxpayers should have to pay for mistakes made by financiers who paid themselves $38 billion in bonuses less than a year ago, even as their reckless investment strategies had begun to unravel. Had bankers not treated their firms like personal piggy banks year after year, Wall Street would be in much better shape. Any new bailout package should compel culpable bankers to disgorge their most recent bonuses, so that they can help clean up their own mess.

KARL VON SCHRILTZ

Washington