Do you Support a Congressional Bailout of Foreclosed Home Speculators?

As home prices decline and many overextended homeowners face foreclosure some are calling on Washington to step in with taxpayer dollars and bail them out. Keep in mind there are always foreclosures, many of which are caused by legitimate causes: loss of a job, serious medical issues etc. Unfortunately for those homeowners there are no government bailouts. However, this most recent wave of foreclosures has largely been caused by "speculators" who can't afford the home they bought but figured that if home price appreciation continued they could make a quick buck. Why should they get a bailout if the normal foreclosure victims never got one?

I for one do not support a bailout for two reasons. First, I think it creates a moral hazard problem. If the government steps in every time speculators take on too much risk the speculators will never learn their lesson. Second, I don't think that a spike in foreclosures is enough to derail the "real economy" and as a taxpayer I am willing to take that risk before I give my hard earned money to speculators.

Pimco's Bill Gross is one prominent investor who is pro-bailout:

``Why is it possible to rescue corrupt S&L buccaneers in the early 1990s and provide guidance to levered Wall Street investment bankers during the 1998 LTCM crisis, yet throw 2 million homeowners to the wolves in 2007?'' Gross wrote. ``If we can bail out Chrysler, why can't we support the American homeowners?''

Gross does have a point. The Federal government has engaged in or organized bailouts of the private sector in the past. But, this just goes to illustrate my point. If every constituency "expects" to be bailed out if they get into trouble what is to prevent them from taking on too much risk in the future? People have to fear the worst in order to prevent them from making mistakes in the present. Oh and by the way I also think that what Bill Gross mean to say is "if we can bail out Chrysler, why can't we support the American home speculators?"

If you agree with my sentiment I encourage you to check out and sign an online petition that can be found here.