(10-22-2011, 02:06 AM)Concillian Wrote: An individual, regardless of occupation (even one who also owns a bank,) can choose to be a saver or to not be a saver. One of those groups will be favored by governmental policy. There may even be policies that favor savers and other policies that favor those who do not save, in this case it is a matter of degrees and which is more favored.
To save is to invest. Whether you choose to invest your savings in dollars, gold, bonds, stocks, hyper-secure loans to large financial institutions (aka: bank deposits), real estate, or whatever else, is a private decision. Each carries risks and returns, and people are free to negotiate them. And each carries an entirely different set of government regulations, from outright guarantees (gov't bonds) to implicit crisis support ("too big to fail"), to nothing at all.
Government is *very* touchy about savers' deposits, which is why allowing banks to fail has been basically forbidden since the great depression. But other kinds of assets are allowed to fail, more or less, depending on political will.
Non-savers are also protected in various ways. But they are, in some sense, no different - free individuals negotiating contracts with other private entities (banks, mostly). Everyone knows the regulatory environment. Credit card companies do not give out credit cards assuming that none of their creditors will go bankrupt, and they price their interest rates accordingly. No coddling involved. Contracts adapt to the laws, making it very difficult for government to "coddle" anyone, except by doing one of two things: either picking up the tab themselves, or by changing the rules in the middle of the game.
How often does the government pick up the tab for non-savers? Pretty rarely. How often did they pick up the tab for "savers" by bailing out banks? Just look at the last four years. This is not a simple story, measured out in percentages.
Quote:How banks are favored, or who picks up the tab, doesn't really have to be a factor in an individual's decision as to which group he wants to make himself a part of. Inclusion of this factor is allowing emotion and/or morals to enter the decision process. If there's anything the first decade of the 21st century has taught me, it's that emotion and morals often get in the way of good financial decisions.
I absolutely agree that introducing morals into this process is at best a distraction, at worst, a serious problem. But, then, it is difficult to tell what the problem was in your example. Someone who took out a $600,000 mortgage, then, when the house price fell below that, and handed back the keys, is just making a very rational decision. They have a contract with the bank. The asset is the collateral, negotiated ex ante. If the collateral is worth less than the debt, then the correct move is to hand back the house. Contract fulfilled, no further obligations incurred. That they bought another house is beside the point. Without a moral dimension of debt, this is just what I said it was - the bank making a very stupid decision.
Similarly with your inlaws. They did not conjure a mortgage out of nowhere, they borrowed it from a bank. The bank decided they'd rather make the loan than not. Maybe they thought the collateral was enough. Or maybe they had insured themselves against default with some kind of credit default swap. Or maybe they took the mortgage, packaged it up with other lousy mortgages, cut it up into slices, and sold them as CDOs. Who knows, who cares - the point is, the bank voluntarily took on the risk, in exchange for the reward. Your inlaws, probably by accident, negotiated a surprisingly good deal, and the banks a surprisingly bad one. But it was all *negotiated*, everyone responsible for their own interests. This is not coddling. This is the free market.
-Jester