With the housing market at the root of the economic collapse and going from bad to worse, you can hear the hue and cry for a government backed bailout of homeowners in imminent danger of losing their homes to foreclosure. The problem arose when lenders were encouraged by the government to make the American dream of home ownership come true for all. Thus the advent of subprime mortgages - home mortgages granted to people who, due to low incomes or outstanding debts, ordinarily would not have qualified for a mortgage loan.
The question is, do those in danger of losing their homes deserve to have their mortgages restructured through a lower interest rate and a longer life of the loan? My answer is, yes and no, depending own which homeowners we are talking about. The economic downtourn has led to a dramatic increase in unemployment. People who have worked hard for years in a well paying job, are suddenly finding themselves in the unemployment line with little hope of finding a new job anytime soon. These unfortunate souls, who have made their house payments on time for years, are the only ones who deserve some kind of bailout.
Not so for most of the homeowners with subprime mortgage loans. I am talking about those folks who never should have been given one of these loans in the first place. In order to make those loans, lenders did not bother to look into whether or not the borrower would have the means to keep up with the payments, regardless of how they were structured or at what interest rate. Worse yet, quite a few lenders encouraged high risk applicants to falsify their employment and income records so that they would qualify for a subprime mortgage.
Now the credit card industry is facing a collapse similar to that of the housing market. People are stuck in a quicksand of credit card debt. And who is to blame for that? Both the banks and the credit card holders. The banks have been offering their cards to everyone but pet dogs and goldfish. The card holders have been making credit purchases with reckless abandonment. With overly generous lines of credit granted by the banks, countless card holders have maxed out their accounts, accumulating so much debt that they can only afford to make the monthly minimum payments.
Consequently, the banks, backed by consumer interest groups, are proposing that they forgive up to 40% of the credit card debt owed by those consumers who are close to bankruptcy. These consumers would then get five years to pay off their remaining card debt, interest-free. At first, banks would make this offer to 50,000 consumers, then to tens of thousands of others if the initial program proved to be a success. The Office of the Comptroller of the Currency, which regulates national banks, said no to the plan because of a clause that would let banks defer paying income tax on the forgiven debt until the rest of the debt was paid off.
Not so fast. Now the banks are proposing that they be rewarded for facilitating the swamping of their card holders in a sea of debt. And consumer interest groups want the card holders rewarded for going on undisciplined and unafordable spending sprees. What about those of us who have always kept up with our payments? No rewards for us, only for deadbeats. Now that makes a lot of sense, doesn't it?
As with the housing market, responsible card holders through no fault of their own, suddenly find themselves out of work and with no health insurance. These victims of the economic collapse rapidly empty their checking and savings accounts and are then forced to pay all their bills, including some for astronomical medical charges, with their credit cards. These people have run up huge credit card debts out of desperation. They are the only ones who deserve a credit card bailout.
A society that takes its responsible homeowners and credit card holders for granted while rewarding its irresponsible lenders and its deadbeats is a society that has lost its way. Homeowners who never really qualified for a mortgage in the first place do not deserve protection from foreclosure and irresponsible lenders deserve to be punished, not rewarded.
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