Massive Government Bail-Out … Good Business or Bad Ethics? Ethics Speaker Chuck Gallagher Comments…

Unless you are on an island somewhere disconnected from society…you are no doubt aware that we are in the midst of one of the most massive government bail outs in US history!  While I wasn’t around during the great depression – from everything we read what is taking place now is second only to that and, folks, that is amazing.  I was around during the massive savings and loan scandal and, like most who read, know that we are far from over with this one.  In fact, I don’t know of many institutions (Savings and Loans that is) who did survive.  

If the past is to be repeated, our financial climate or landscape will be dramatically different in several years.  Further, seldom does the government estimate a number that is right.  You can count on the cost being several times what is proposed today.  200 Billion will likely be a drop in the bucket when it is all said and done.  

For months I have been reporting on mortgage frauds and the number seems to keep increasing.  Clearly, the “greed is good” mentality went far beyond the crooks who are being prosecuted today and spread far and wide.  The net is being cast wide for this financial disaster and many will not survive.

The question, however, here is – should the government being doing what it is doing.  Many popular writers of financial books say – YES.  “What took them so long?”  Yet others claim that the government has no business getting involved in private business – especially when there are companies who perhaps engaged in unethical behavior – knowing full well that the products they were selling would result in financial disaster for many.  When you loan money to someone who cannot afford to make the payments you are committing a financial unethical act.  Sure there is short term profit, but at what cost?   

What’s your opinion:  (1)  Were the financial institutions unethical in their actions related to the sub-prime mortgage issue? (2)  Should the government have taken the actions that are now underway?  (3) Would it have been better to let the free market take it’s own corrective action and let the chips fall where they may?

Good business or bad ethics – what’s your call?

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2 Responses to Massive Government Bail-Out … Good Business or Bad Ethics? Ethics Speaker Chuck Gallagher Comments…

  1. Andrew says:

    Chuck,

    (1) Yes – the practice of selling mortgages to those who do not have a realistic means of servicing the loan is very poor from an ethical standpoint.

    To be sure, it is the responsibility of borrowers to understand the full consequences of the loan commitments they make. It is also the responsibility of individual borrowers to avoid borrowing in excess of their capacity to service the debt.

    Nevertheless, this does not absolve lenders of the responsibility to avoid selling such irresponsible loans.

    (2) Probably. I am not an expert on this matter by any means. However, given the importance of the financial system to the broader economy, the government should undertake whatever means are necessary to stabilize the markets – even if this involves the sacrifice of a significant amount of taxpayer funds.

    (3) Not in my view. Whilst I support the idea of minimal government interference, the free market is not perfect, and there are some cases where intervention is required.

    Whilst the government is prone to mistakes in it’s response, I highly doubt that the free market mechanisms would provide an adequate solution to the crisis.

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