Taxpayers and the Bailout: From Gratitude to Rage

Love it or hate it, the $700 billion bailout is here to stay. Tempers are flaring on both sides of the issue, as responsible homeowners feel slighted, and at-risk homeowners feel gratitude.

Nineteenth century poet Josh Billings once wrote, "I hate to be a kicker, I always long for peace, But the wheel that does the squeaking, Is the one that gets the grease." Right now, our Congress is using taxpayer money to grease a whole collection of squeaky wheels-and that's not sitting well with those who aren't going to get any of the help.

A growing rift

Federal efforts to shut down the foreclosure crisis are causing a rift between two classes of taxpayers: those who pride themselves on making responsible decisions, and those who don't. The former group includes renters and homeowners who remain financially solvent because they've been deliberately conservative with their finances. The latter includes those who stretched their budgets impossibly thin to buy a home, or who drained their home equity to buy cars, fund expensive home remodels, or go on nice vacations.

Bailout wars

At issue is a $700 billion taxpayer-funded bailout known as the Troubled Asset Relief Program (TARP). In its short life, the TARP has logged a history that's as troubled as the mortgage-related assets for which it's named. So far, half of the TARP money has been used to fund equity investments in various banks. The investments haven't produced much in the way of measurable results. Now, Rep. Barney Frank (D-Mass.) has said he won't release the remaining bailout funds unless some of it can be deployed directly to prevent foreclosures.

The recipients of that direct help will be at-risk homeowners. Likely uses of the TARP money include various measures designed to convert an unaffordable mortgage into an affordable one: interest rate reductions, debt forgiveness, and principal deferrals. These actions will create big monthly savings for those at-risk homeowners, but those savings will be partially funded by the tax dollars of the responsible homeowners-the folks who won't get a dime of government relief.

Tempers rage online

A dialogue is now raging online between the two camps. Blogs and financial media websites are collecting emotional comments from the taxpayers who want the help, and the taxpayers who feel punished for being responsible. In early-December, for example, Yahoo! Finance columnist Laura Rowley outlined a bailout proposal that would stimulate the economy by giving assistance to responsible mortgage borrowers.  In less than two weeks, her piece had collected more than 550 fervent responses from readers who either hailed or skewered the idea. News stories pertaining to the TARP are generating a similar frenzy of commentary and blogging.

Try as they might, the responsible homeowners aren't going to squeak as loud as their at-risk counterparts. And at the end of the day, our lawmakers will continue down the only path they know: bailing out those in need, and asking everyone else to pay for it.