Tuesday, September 23, 2008

Bailout Boosters And Pitcairn Pedophiles

This proposed Wall Street bailout has me in such a bad mood I didn’t even try being polite over at the Art of the Possible today, when I compared bailout supporters to the infamous pedophile apologists of the Pitcairn Islands.

And I gave it the title “Bailout Boosters and Pitcairn Pedophiles” because I don’t know how to spell that juicy sound people make when they stick their tongues out and blow the loudest raspberry they possibly can.

LATER EDIT: The essay is archived here.

If a system’s survival requires making innocents suffer so the guilty can prosper, is that system worth saving? I ask in light of the Wall Street meltdown, and the government’s proposal to force people and companies who live within their means to bail out people and companies who do not. For that matter, I pondered a similar question back in 2004, before the housing bubble registered on most people’s radar but after the Pitcairn Island save-the-rapists scandal made international headlines.

Brief recap for those who have forgotten: Pitcairn Island (of Fletcher Christian and Mutiny on the Bounty fame) had a total population of less than 50 people, and no natural harbors where ships could dock. The only way people and supplies could get on and off the island was via “longboats” traveling to and from larger ships anchored some distance offshore.

The town’s seven adult men were the only ones strong enough to handle the longboats; without those men, the island would effectively be uninhabitable. So in 2004, when the world discovered that the men treated all island females as members of their personal harem and repeatedly raped girls as young as 12, the Pitcairn Islanders insisted that their townsmen still shouldn’t go to prison because:

Islanders have expressed concern that if the men are imprisoned, there will be no one to crew a long boat that serves as the island’s lifeline, transporting freight and passengers to and from passing ships that cannot dock along the rocky shore …. some of the island’s women came out in defense of the men, saying that while underage sex did happen, it was consensual and important to the island’s survival. Pitcairn has a permanent population of just 47 …. Professor John Connell, an expert on the South Pacific from the University of Sydney, said even if the men are incarcerated, they likely will be released temporarily when they are needed to crew the longboat. If they are imprisoned and not let out even temporarily, “then it would be a punishment for the whole community,” he said.

I’m just enough of a social Darwinist to think “If a community’s survival depends on keeping rapists happy, the community doesn’t deserve to survive.” A similar principle applies to plantation owners of yore who argued that the South’s agricultural economy would collapse without chattel slavery to bolster it: “If your economy can’t live without slavery then your economy needs to die so a better one can be reborn.”

Now consider the economic meltdown facing America. What caused it? Bad debt, for the most part. Too many mortgage companies made loans to people who couldn’t afford them. These loans, in turn, inflated housing prices to historically unsustainable levels. The old affordability rubric said, “Get a mortgage equal to three years’ salary, after making a 20 percent down payment.” So if you checked local real estate markets you’d find houses selling, on average, for about three or four times the annual salary of area wage earners.

The housing bubble changed that. At the height of the bubble, certain markets (especially in Florida and California) saw prices rise as high as nine or ten times the average area income.

How can anyone afford to buy a house for ten times their yearly wage? They can’t. But mortgage lenders ignored this inconvenient fact and made loans anyway, replacing the old three-year 20-percent rule with a new affordability standard: “Sign here and we’ll loan you all the money you want. Don’t worry about paying it back! By the time the loan comes due, your house will be worth a lot more than it is now, and you can use that equity to refinance your loan.”

The system worked so long as house prices rose faster than inflation. A guy making 30 grand a year can still afford a $300,000 house today if he expects it to sell for $400,000 next year.

Then the bubble popped. That $300,000 house is now worth only $150,000 and there’s few buyers even at that price, because folks in the region make only 30 grand a year, and can’t afford more than 100 grand worth of house. So even a $150,000 mortgage is too high.

Some loans were even worse: remember the California strawberry picker who made $14,000 a year and bought a $720,000 house? That particular house is probably selling for “only” $300,000 or so these days. That’s $420,000 in value vanished from a single house. And another $150,000 gone from that $300,000 house now selling for half price. And then there’s all the other devalued houses across America, and all the inflated loans made to buy them.

That’s the money Congress says must not disappear. That’s the bad debt Congress wants taxpayers to repay. No matter how irresponsible such lenders have been, we’re told they deserve a bailout because they’re “too big to fail.” Despite their demonstrated inability to be trusted with money, we’re supposed to trust them with more.

The Pitcairn Islanders built a status quo so dysfunctional they must kiss the collective ass of a rapists’ clique to maintain it. Island girls are told “The whole community will suffer if you don’t bend over, take it and then get over it.” Coincidentally, that’s exactly what American taxpayers are being told abut the bailout.

“I don’t think the government had a choice but to take these bad debts of the banks’ books,” said Tom Higgins, chief economist with Payden & Rygel, a Los Angeles-based money management firm.

“What makes capitalism work is borrowing and lending. The problem, without this bailout, would have been you would have condemned the economy to a period of halting growth at best,” Higgins added.

Wrong, Mr. Higgins. What makes capitalism work is this: good business models prosper whilst bad business models fail. And inflating an unsustainable asset bubble by making oversized loans to people who can’t afford to pay them back is a bad business model.


Anonymous A Moose said...

Absolute power corrupts?

7:57 AM  
Blogger Jennifer said...

This country is in big, big trouble, Moose.

12:20 PM  
Anonymous smartass sob said...

Here's a link to a pps presentation you might find entertaining. I swiped it from The Winecommonsewer. (Just click on the image when you are ready for the next.)

How Subprime Really Worked It contains some foul language I'm afraid - if that bothers anyone here.

8:19 PM  
Anonymous Anonymous said...

Traditionally, the raspberry sound is spelled something like "plbbbtttt" - at least in the funny pages...

8:29 PM  

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