When banks lend irresponsibly to inflate profits, they usually end up in trouble. When lots of banks do this (and they do, time and time again) and end up in trouble, politicians get worried and bail the banks out with the people’s money. Lots and lots of it. Moral: if you fail really big, you will be bailed out. Capitalism without failure is like socialism for the rich.
Another thing that happens when banks lend irresponsibly is that people are given loans they can’t service. Then they end up in trouble, and typically default on the debt and lose everything. This is also considered to be a bad thing, but not bad enough for bailouts. Except now: rather surprisingly the US is mandating that there is to be a five-year rate freeze on currently existing subprime loans, many of which are scheduled to become more expensive in the next couple of years and to generate a lot of defaults. This is an instance of the US government rewriting existing private contracts, pretty much unheard of in that bastion of free marketeering. Moral: if you’re really irresponsible, hope that you’re not the only one and that there’s an election on the way.
What is the bottom line here? Redistributing wealth to the poor is out; redistributing it to the rich and the financially irresponsible is in. In the US it’s now more important to be able to live beyond your means than to get a university education or health insurance. Coming soon to a society near you.
