Painkiller for Few but Headaches for Many?

It hurts me to post this entry. Some of my well-admired qualities about U.S. economy, its hard work and die-hard optimism, the reason why I aspired to come to the U.S. more than 15 years ago as a student to earn a Ph.D. in engineering, suffered a serious setback during the course of recent events.

The last 4-5 months were painful as the process of "deleveraging" began in our capital markets. Sub-prime was how it started but it has spread to 'prime' and other areas of credit markets, affecting most recently, even a bellweather corporation like GE. Much of this is normal part of business cycle and it is healthy (possibly even cathartic) for the economy to self-reflect once in a while and shake off the excesses, in this case, in the housing market. The country emerges from this process (as it did from several such declines in the past) with a stronger and more efficient economy poised to embark on another long period of growth. But the deep credit crunch was caused by the excesses of too much and too easy credit in the last few years, so the severity of pain could have been mitigated but the pain itself could not possibly be avoided.

Enter the politicians or as a recent book called them the homopoliticus. From Japan to Jamaica, from Uruguay to United States, they are often one of a kind species. A wide range of policy makers and influential officials, ranging from the Federal Reserve to Presidential-hopefuls are stampeding one another to bail out the very individuals, banks and other Wall Street institutions that contributed to the recent boom-and-bust cycle. Responsible homeowners, investors and institutions are left wondering why they are suffering the pain for the excesses caused by a few. What do I tell my son, that America is a land of no consequences? That you can engage in fiscally irresponsible behavior all you want and when the going gets tough, Uncle Sam will bail you out?

When I last blogged about the craziness of the Washington DC real estate market after I first moved into this area, I thought I was making a responsible decision by not buying at the peak while feeling sorry for those who were stretching way beyond their means to buy obscenly priced homes. While I probably did the right thing, I did not imagine that even as a bystander, I would pay a price one day. As a renter, I did not suffer any home value deterioration as prices in our area suffered double digit declines and are going down further. However, the impact was still felt by my portfolio, which suffered along with the rest of the U.S. equity market over the past few months. Of course, homeowers suffered a 'double whammy' with the declining home values and equity markets. Many who bought a house in 2005 or later are facing an 'upside down' mortgage and some of them, though eminently credit-worthy, have locked in bloated monthly payments on their 30-year mortgages as the massive premium they paid haunts them for years to come.

Financial responsibility seems to be increasingly rare in America and unreasonable profligacy is ever-present, egged on by the populist political cries and mindless bailout policies. What happened to the America that rewarded hard work and responsibility while refusing to become a 'welfare state' like much of Europe is? The pain of the credit cruch is now unfairly borne by responsible individuals and well-managed institutions, in the form of serious erosions in their wealth and currency values, and whose only fault is to live in the same neighborhood or city as the profligate few.