Mortgage Meltdown: Privatizing Profits, Socializing Losses

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Commentary by Ralph R. Roberts

RISMEDIA, March 27, 2008-What if our government afforded the same privileges to gamblers as it awards to banks? You place a bet. If you win, you get to keep the money. If you lose, the bank covers your bet. In the United States, the pillar of capitalism, this is exactly how banks are allowed to operate.

Even socialism would be better than the way we practice capitalism. With socialism, the profits and the losses are distributed among the citizens. One for all and all for one! In the United States, however, we privatize profits and socialize losses. When they win, banks keep their profits. When they lose, the taxpayers foot the bill.

How can banks have the gall to charge fees? How do they have the power to hold a check for five days to make sure it clears before you have access to your money? How do they get away with charging interest on loans, when they are protected by the government from any losses?

Over two million families stand to lose their homes in foreclosure due to the current crisis. If you are one of the unfortunate families facing foreclosure right now, how does this make you feel? Your bank has the right to seize your home and sell it to collect the debt you owe, but when the bank can’t pay its debt, the government swoops in to bail it out.

Recently, the U.S. Department of Treasury brokered a deal in which JPMorgan offered the financially troubled Bear Stearns $2 per share (which was later increased to $10 per share) or a total somewhere between $232.6 million and $2.326 billion. What a deal!

Except for U.S. tax payers… and, of course, holders of Bear Stearns stock. We got nothing but the privilege of guaranteeing up to $30 billion of the bad loans and other assets that led to Bear Stearns’ demise.

Maybe when homeowners default on their mortgages, banks should offer the same courtesy as the government offers them. The government should purchase the home and let you live in it until you’re back on your feet again. This would certainly be a better way the government could spend its money… I mean our money.

Another solution would be to socialize banks. When banks earn profits, we all receive our dividend checks or we get a tax break or the profits go to fund our retirement. This way, when the banks suffer a loss, we might not feel so bad about bailing them out.

The current arrangement, however, is shear madness. Privatizing profits while socializing losses is just plain unfair! Bailing out the banks is not the capitalism that has made this country great. It is un-American and worse than the worst of the socialist and communist states that we often criticize.

Ralph R. Roberts is a real estate fraud expert and activist and co-author of Foreclosure Self-Defense For Dummies (Kaplan) and Mortgage Myths: 77 Secrets That Will Save You Thousands on Home Financing. Visit www.FlippingFrenzy.com, e-mail RalphRoberts@ralphroberts.com or call 586.751.0000.

RISMedia welcomes your questions and comments. Send your e-mail to: realestatemagazinefeedback@rismedia.com.

For more articles by Ralph R. Roberts, see:

• When Receiving Cash Back at Closing is Legal  
  Mortgage Meltdown: Let the Finger-Pointing Begin  
  Realtor Caught in Cash-Back-at-Closing’s Crosshairs

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