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February 25, 2009

Bernanke to borrowers: You picked a good time to take out an irresponsible loan

Let me get this right.

A borrower takes out a mortgage, knowing full well that he is buying more house than he can really afford in the long run.

Even in the best of economic times, this fellow stood a good chance of defaulting. But in the economic tsunami currently overwhelming the housing market, his mortgage is just one piece of debris among many.

Even though he, with premeditation, took out a loan that he knew he could not repay, should he have his fortunes restored at the expense of the taxpayers?

You betcha, says Federal Reserve Chairman Bernanke.

CNNMoney reports today:
Federal Reserve Chairman Ben Bernanke said Wednesday that the embattled housing market has crippled the economy, and at-risk homeowners need a bailout - even if they knew they couldn't afford their home in the first place.

"Some borrowers presumably knew what they were getting into," Bernanke said before the House Financial Services Committee. "But from a public policy point of view, the large amount of foreclosures are detrimental not just to the borrower and lender but to the broader system."

"In many of these situations we have to trade off the moral hazard issue against the greater good," he added.

Are we witnessing the abolition of personal responsibility in financial matters? For how long? Barney Frank agrees that "moral hazard needs to take a back seat for the time being". "For the time being" -- whatever that means.

That giant sucking sound you hear is the draining away of the livelihood of our children and grandchildren -- all of whom will be footing the bill for our current drunken spending spree:
"I'm worried that the [government's] policies will only delay the inevitable -- a full correction of the market -- while saddling future generations with trillions of dollars in debt," said Rep. Scott Garrett, R-N.J.

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