Monday, June 11, 2012

Tortured Logic

Wishful thinking is not Logic.

People believe what they want to believe, and often what they want to believe in, is free ponies.  The problem with free ponies, is that they are often not free, and usually, they fail to materialize.

People do bad things, make bad decisions, and then expect a free do-over or a "bail out" - which is the word du jour these days.

As many as 1/3 of Americans are still upside-down on their mortgages - although by how much, we are not sure (some maybe so underwater as to need Robert Ballard, others may just have their ankles wet).  But many of these folks are calling for mortgage assistance - a write-off of a portion of the balance of their loans, or refinancing at favorable rates, or the latest gag - "condemnation" of mortgages by the State (talk about wishful thinking!).

And in all cases, the people who think these giveaways are "reasonable" say things like, "Well, if the government can bail out the big banks and auto companies, why not the little guy?"

This is tortured logic.

Let's parse this one phrase at a time, first by attacking the premise.  In any argument, always address the underlying premise, as that usually is the weak spot.

In this case, it is the soft underbelly of the argument.   You see, when the government "bailed out" the banks and auto companies, it didn't just "give away" money to them, as people are proposing to be done in the case of homeowners.   Rather, this money was loaned or given in exchange for stock, which will return at least some of the money, if not more, over time.

And over time, this money is being paid back, in dribs and drabs, and it appears that, over time, the government will likely get all its money back, and make a profit as well.

"But wait!" you say, "I was on a government conspiracy website the other day, and they say that is all a lie!"

Well, consider the source.   And consider comments by Republican Congressmen from South Carolina during an election year with a grain of salt.

The point is, whether you believe one set of numbers or another, the government is getting something back for its money.  The money wasn't just handed out with no promise of nothing being paid back, ever.  It was not a gift, but a loan.   And you can argue until you are blue in the face about how TARP was bad, the fact remains that many banks have already paid back their loans.

And you can't argue that, period  (at least not here - go sell crazy somewhere else).

Now of course, some folks, such as the aforementioned Ignorant Redneck Republican Congressman from South Carolina (and I am being triple or quadruple Redundant here, I believe) may say that bailouts are fraught with "moral hazard" - and they may be right about that.

So, let's assume TARP was a bad idea, from a moral standpoint.

OK, let's assume.

So your argument is that we should extend this same treatment to homeowners?  That makes no sense.

And let's assume that TARP was a "mistake."

OK, let's assume.

So, what you are saying is that the government, having once made a mistake is obligated to make the same mistake over and over again?

Because that is what these folks are arguing - that bailing out the banks was wrong, so why not bail out me as well?

That is tortured logic.

But beyond that is the fundamental difference between giving money to GM in return for stock or giving money to a bank in return for a promise to pay back, versus just giving money away to people who spent too much on houses, with no promise to pay back whatsoever.

One is a loan - which like most loans, has at least the promise of payback (and legal remedies if the loan is not paid).   The other is a Billion-dollar giveaway to individuals who really don't "need" the money, but just want to keep their fancy houses - with no promise of payback, ever, ever, even if they sell their house for a profit, 10 years down the road.

That's fair, right?  No, it is not.

But beyond that, if you think about it, if you "bail out" a mortgage holder by reducing his mortgage by $50,000 (let's say), who benefits from this "bailout"?

Not the homeowner, strictly speaking.  He still has to pay a mortgage and likely has no equity in his home - he is brought to the surface of the lake, but is hardly water-skiing.  He may get to keep his house, and maybe, after many, many years, may make a small profit.

But the bank that holds the mortgage, on the other hand, basically turns a bad loan into a good one, and with $50,000 of government money, pays off a bad debt.

In other words, this "bail out" of homeowners ends up being a bank bailout!

And in the original argument, bank bailouts were "bad" - right?   Only this time it is worse, as unlike the bailout where we loaned the banks money, this time we are giving the banks money with no expectation of payback.   "Here, have this mortgage reduction money, give it away to your mortgage holders, and then watch your balance sheet improve!  No need to pay us back, consider it a gift from the taxpayer!"

That is what we would, in effect, be saying, and it is tortured logic.

People in this country like to feel the victim - they like to tell you how they are put-upon and how lousy they have it, if only because they perceive someone else to be having a better time than they are.   But comparing yourself to others is not a good metric - there will always be someone getting a better deal than you.   You have to look at your own life and determine whether it is fair in abstract terms.   Did you do something that put you in the position you are in?  Who really is to blame for your own mistakes?

The idea that somehow the loaning of money to major banks and auto companies is a justification for giving away billions of dollars to underwater homeowners is just utter nonsense, wishful thinking, and, well, tortured logic.