Bailouts Are for Chumps

They'll get bailed out... while you pick up the tab

Why does everyone nowadays expect to be bailed out? You've heard it over the last months; stocks and real estate are nose-diving, Wall Street and the homeowners are in trouble, and everyone is crying for help. They cried so loud that the Fed and the government both are going the extra mile to relieve them from their pain. As a result, some officials (including Senator Clinton) are talking about a national, government funded bailout for overwhelmed homeowners. Others are pressuring high-profile public companies to be taken over at a "fair" market price by stronger competitors (namely Bear Stearns by JP Morgan). In the meantime, the U.S. Treasury is on a credit spree and the Fed is hastily slashing interest rates.

What is going on? I thought this was America, land of the brave. Yet, I can't help but notice that entitlement, greed and irresponsibility has taken over the financial marketplace today, be it among corporations or individuals. Make no mistake; even if you rent your primary residence, or if you've stayed away from the stock market for the past 12 months, as a tax payer, the current slump might affect you somehow, sometime.

The Grammy Awards have nothing on these guys

Lately, it's striking how similar the behavior of a large part of the financial crowd is to that of a spoiled child. If Wall Street were in Vegas, our (not so) hot shot execs would want out, asking for their chips back, complaining that the game is rigged. If our (not so) savvy homeowners were on the Strip, they would ask for their money back, arguing that the loss should be on the casino.

They seem conveniently oblivious to the fact that they are responsible for the turmoil we are all in now. So I find it quite ironic that they have the nerve to call themselves victims now that the storm is hitting. But let's dig a little further and take a close look together at all the artists that masterfully crafted the First Big Economic Setback of the New Century. Let's see how they got themselves, and the others, in trouble. Sit tight - it is award time!

• Gold Medalists: The greedy real estate investors that expected to make a quick buck flipping homes. They've been flooding the US market for more than half a decade, usually taking shady mortgages with the complicity of banks, FALSELY claiming they acquired property to live in, in order to take advantage of more favorable mortgage conditions that are reserved for real home dwellers to enjoy. By preying on entire neighborhoods, they artificially drove the prices up and prevented any sound investment from real long-term home buyers that expected to actually use the home to live in. One of the most famous of this kind is Casey Serin, a California Central Valley investor, whose seedy practices and stubborn enthusiasm got him $2.2 million in debt. A record, at age 24.

• Silver Medalists: The banks that shamelessly accepted to finance economically fragile families that genuinely expected to own a house, but were obviously unprepared to do so. Numerous banks encouraged inexperienced people with a negative net worth to get into half-a-century-long mortgages, sometimes luring them into these absurd no-money-down-but-you-go-down schemes. The poor fools that signed up for these financial atrocities were so happy to call themselves homeowners that they sometimes did not realize that their meager monthly payments would barely cover the interests of the mortgage! Simply put, that meant they would never actually own the home since the debt was growing faster than they were reimbursing. No disrespect Mister Banker, but tapping into the national dream of homeownership to make money in such a deceiving way is low, very low.

• Bronze Medalists: The aforementioned naïve dupes that signed for the sub-par mortgages without blinking. So proud to finally be part of the Homeowners' Club that they forgot what paying for a mortgage really meant. Have these people even heard about due diligence, gathering information before jumping head first into a life-changing investment, questioning the terms of a legal contract? Wait, have they even heard about common sense and basic financial planning? This is the obvious proof that not everybody in America is cut to be a homeowner. Purchasing a primary residence or investment property is a big deal; it requires preparation, expense forecast and a good deal of savings for a down payment. Otherwise, stick to renting. In the end, those who came unprepared or bought more house than they could afford only got themselves a one-way ticket to bankruptcy.

• Honorable Mention: The media air-heads that kept on claiming that real estate prices would never go down. They even went as far as saying that real estate prices should keep going up for the whole good of the nation, because it reflected the dynamism of the US economy. The saddest part is that these people were screaming those insanities so loudly that the American public started to believe them, acted without research, and got taken for a ride. We've got a problem when a national economy's sole indicator of health ends up being summarized by something as subjective as the prices of domestic real estate. Domestic real estate prices do not drive the wealth of the U.S. as a nation in a global economy. Does it mean anything to the Indians or the Chinese that the average home in California is worth half a million dollars? The media needs to go back to the basics and re-evaluate what really fuels the economic powerhouse of our nation. Let me give a few hints: technical innovation in the homeland; manufacturing and exporting of value-added, U.S.-made goods; intellectual property protection... Wait, I heard somebody say "the value of the dollar"!

Where should the money go?

I think you get the point. My answer to the whole bailout situation is NO. I don't want to bail these people out: not homeowners that can barely balance a checkbook nor ill-managed Wall Street investments banks that took out of proportion risks for a quick buck. My tax money could be used for much better things, such as:

• Funding the public school system. For example, the L.A. Unified School District is in desperate need for capital.

• Granting more scholarships for good students who can't afford college.

• Creating a national healthcare fund.

• Maintaining public infrastructure. I don't appreciate hearing about bridges falling apart on commuters during rush hour in our large cities. This is America, people, not North Korea!

... And you still feel sorry for them? I don't!

To all the people that still are in favor of a general bailout, I must commend your altruism. But I still think you would be giving a hand to the wrong people. Instead, why don't you assemble to create a Solidarity Fund to compensate the ex-Enron employees or shareholders that saw their investments vanish when the company collapsed? That would be a much fairer use for your money! It's been 8 years, and none of these people got bailed out. But God knows they deserved it; most are hard-working middle class victims of a company-wide scam orchestrated by the top managers. And as Janet Novack wrote in Forbes (April 21, 2008, p.52), to "add insult to injury", even the IRS declined them the right to claim for a tax-deductible theft loss.

Senator Clinton is very sympathetic to the distressed homeowners; as she states, "losing one's home is anti-American." Sadly, I have gotten to the point of thinking that nothing is more American than losing one's home (as long as this is clearly due to financial incompetence). The same goes for certain banks that deserve to tank but that Henry Paulson from the US Treasury want to help to badly. That's just the good ol' law of the Free Market, and that's one of the foundations of this country, isn't it? So why not let the Free Market clean up the mess and teach the bad students a valuable lesson? I can't remember hearing the home flippers complain about the Free Market when they were on a roll, making money by driving prices up, blindly leading the real estate market to its demise.

We all are Gordon Gekko's bastard children

In 1987, Gordon "Greed is good" Gekko had that legendary line that gave America the giggles: "Lunch is for wimps". It's 2008 now, and America is coughing. Today I'd say that bailouts are for chumps. If you haven't seen it yet, it's time to treat yourself in these times of turmoil and watch Oliver Stone's masterpiece Wall Street in DVD or BlueRay.