Dukes of Moral Hazzard

http://online.wsj.com/article/SB123500760093118475.html

I love the title. One of the things that was very clear from both Buffet's and Greenspan's books was the extreme danger in the "loss of moral hazard" -- in other words, what happens if people and businesses no longer suffer the losses of poor luck, decisions, lack of work, etc and conversely if they are unable to realize the gains of good luck, good decisions, solid work, etc. They both discussed it, and realized that previous government actions (which they both generally supported) were "pushing the envelope" on the topic.

Any doubts that we are well over the edge now? I find this paragraph captures it well:

Let's focus on the plan's effect on the individual borrower. Anyone with mortgages owned or guaranteed by Fannie Mae and Freddie Mac will be able to refinance to lower rates if his mortgage is between 80% and 105% of the value of the home. This is a sweet deal that is not available, for example, to many renters looking to buy homes now. Sadly for those who deferred the gratification of homeownership, the 20% down payment has now become industry standard. But at least their taxes will allow other people to stay in homes they can't afford.

Prior to Reagan, there really was some sense that folks that went to college trying to "get ahead" were kind of "chumps". I remember more than one high school or other person explaining it to me. It went something like this:

"By wasting 4 years of your life in school PAYING good money, while I went out and got a good union job, I got a great head-start on you college boys. All the "stuff" just keeps going up in value (houses, cars, toys, etc), and our union makes sure that our salaries do as well. When you get out of school, you will start at a lot lower pay level and everything you buy will be way more expensive. Going to college is for losers!"

At the time I started my career, my salary was $15,500 in 1978 with 2 weeks vacation, which was a good salary, and a GM Union Autoworker in Janesville was starting out at $25K with a month off and a lot better benefits. A 25+ year veteran, still on the line was making over $50K with 6 weeks+ off and retirement at 30 years at something like 75% of base pay. Had the Democrats remained in power, they would have likely been right on the foolishness of college.

It looks like "we have returned". Education, savings, prudence, etc now appear to be for chumps, and the rewards are for those that "live for today" -- the chumps are going to be required to bail out the folks that ought to be going through bankruptcy.

In a "rational world", the guy that forgoes pleasure today, saves, and in the future buys a home, has the advantage of being able to pick up the foreclosed McMansion for 50 cents or less on the dollar, while the guy that purchased too much home ends up in a flea bitten appt.

In the BO world, the spendthrift stays in the McMansion and the saver sits in the flea bitten appartment and subsidises the spendthrifts habits -- or so BO hopes. As Ayn Rand pointed out long ago, that isn't a very motivational structure, and the worker bees tend to stop working.

Shocking.