Off the Cuff: Some of Us (The Banks) Are More Equal Than Others (The Taxpayers)

In this week’s Off the Cuff with Mish & Chris podcast, Chris and Mish debate:

• Rewarding Moral Hazard
  • The President’s announced Mortgage Relief Plan has little help for underwater homeowners, lots for the banks, and none for those who where prudent
• Europe
  
  • France is weakening
• 0% Interest Rates
  
  • We are bumping up against the limit of what additional liquidity can do. And it will almost undoubtedly result in a currency crisis.

Are you one of the responsible ones who didn’t overextend yourself economically during the boom, only to watch the risk-takers rewarded with bailouts? If so, there’s lots to be irritated by this week.

Moral Hazard

Obama’s recently-announced plan to help 3.5 million homeowners refinance into lower-rate mortgages through the Federal Housing Administration is a thinly-disguised bailout for the banks, hedge funds and anyone with exposure to mortgage debt. Of course, it’s the taxpayers paying the tab.

Chris sees this and other recent developments as further evidence that our system is establishing a dangerous precedent: that we are becoming a nation that applies the laws differently for corporations vs people. 

Take MF Global for example. The claim that it’s not possible to track where the client money went is ridiculous. It’s all traceable, and there are many previous examples of fraud or failure where client accounts – in some cases, several years’ worth – were retrieved . Why can’t they find the money? It’s hard to come to any conclusion at this point other than deliberate obfuscation to protect the interests of the financial system.

The ultimate result is that truly responsible individuals get screwed. If you chose to rent, or otherwise not stretch yourself to buy a house you couldn’t afford, what can you look forward to more of? Higher taxes, low interest rates on your savings, and higher inflation down the road.

The lesson here: “the rules will be changed”. Those in charge will heavily enforce the rule of law when it supports their interests, but will bend and change it whenever it doesn’t.

Europe

French consumption is cratering and will get even worse after its upcoming VAT tax increase is passed.