Bush seems poised to offer an huge bail-out for sub-prime mortgages that are going to adjust upwards in the near future. “Lenders Agree to Freeze Rates”
The political response of republicans and democrats has been pretty much the same. All of the presidential candidates pays lip service to the notion of personal responsibility, but at the end of the day they all propose allowing people to remain in homes that they could never have reasonably afforded.
This is classic moral hazard. Rewarding people for taking crazy risks is bad policy. Rather than saving my money for a down-payment and living within my means, I should have gotten an interest-only loan for a house that I could only afford on the teaser rate. Then I would get 5 years of subsidized interest rates in this bail-out.
Irrational bubbles like this are painful and they should be. I do not know of any investors who got bailed out after the dot.com bust. They took a risk and lost.
So whoever gets elected in 2008, they will be on the wrong side of this important issue.