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Its not fair, right?

Question: Fortunately, our personal and self-employed business credit rating is very good, no late payments, etc. It would almost seem that with all the proposed "bailouts", people are being rewarded for mis-managing their finances and credit. What about us? What do we get for being financially responsible? What's in it for me? Bob, Deltona, FL

Answer: Congratulations on managing your money well. You're far from alone in feeling that the bailout isn't fair, that it isn't right that folks who didn't get caught up in the real estate frenzy and borrowing boom of the 2000s are now paying for the financial mistakes of those that did. Like you, they were prudent with their money. Now they're on the hook for bailing out Wall Street, bankers, and irresponsible borrowers. That's not fair, is it?

No, it isn't.

That said, none of this means the current bailout is a mistake. Would it be fair to put the economy into a deep recession or depression? I don't think so.

Here's the rub. If the monetary and fiscal authorities are right in their judgment that the risk of an economic plunge of frightening proportions is real--and I think they are--then the Herculean actions they're taking are fair to all of us. And it's striking how a majority of economists looking at what is going on in the financial markets, watching the ongoing national plunge in housing prices and accelerating unemployment take the risk of a depression seriously.

For instance, at the recent American Economics Association annual meeting there was a general agreement that the economy needed massive fiscal stimulus. As Michael Mandel, chief economist at Business Week reported from the convention, the highly respected Harvard University economist Kenneth Rogoff set the tome for the three day meeting: "His message was a gloomy one. We've got a lot further down to go," says Mandel. "He compared the U.S. crisis to other big financial cataclysms, among them the Nordic banking crises of the early 1990s and the Asian crisis of 1997-98, and suggested we are following much the same path. In each of these, the devastation was enormous, with home prices, adjusted for inflation, dropping by an average of 35% over the stretch of the downturn, and the unemployment rate rising by an average of 7 percentage points over the period."

The good news for you is that there is potentially a huge reward for your personal fiscal prudence. History shows that for anyone with money, downturns offer lots of opportunities to find terrific bargains. You get to buy good assets at a cheap price. Want to purchase a home at a substantial discount? You can. Good companies are selling at a discount in the market, too. I'd keep my eye open for bargains. After all, those that are strapped can't tale advantage of them.

That's fair, no?

About the author

Chris Farrell is the economics editor of Marketplace Money.
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I would like to also point out something that a lot of people have a misconception about.

There are a lot of people in financial straights right now that did NOT mismanage their money. Here in the Midwest, there are many people who have permanently lost jobs, or found new employment at 70% or less of their old jobs, all the face of significantly reduced medical benefits, significantly increased medical costs, significantly increased energy bills and significantly increased bank and credit fees.

Is it fair to all those people here in the Midwest that NAFTA allowed companies such large labor savings by shipping employment elsewhere? Is it fair that the much promised technical service industry has largely been allocated to places such as India?

Surely there were large numbers of people trying to make a fast buck at our expense, there is also a great number who have failed at their mortgages because of employment collapsing and skyrocketing expenses that do not seem to be able to be held in check.

I have been very fortunate in my own job, but there are many people close to me who are truly suffering, due solely to the greed in the system and these "credit" agencies who make money by promoting debt.

That's all well and good but we have to be very prudent about who we help. Just today on Marketplace someone mentioned, in a discussion about the potential use of the next tranche of TARP funds, that the problem with money right now "is that its only being used to refinance the mortgages of people with good credit. Its not going to help suffering homeowners..."

So from this I'm to assume that the solution is to finance those that have bad credit? Isn't that a recipe for disaster if not now then later (and isn't this how those people got in over their heads in the first place)?

I don't mind fiscal stimulus but I do mind fiscal waste. We've seen the redefault rate from those that were already helped sky-rocket why should we continue this trend? Why not use that money instead to help the unemployed. Knowing that your income is partially protected will do much more for protecting spending levels than allowing you to be (less) house poor than before.

Those people will lose there houses but is that so bad? They'll rent (the vast majority won't become homeless) and their real estate will be turned over to those that can afford it in the long term. Painful yes but as you said this type of pain is good for all of us in the long run.

Lets not cure a drug problem by applying more drugs. Its time to shake and sweat it out, you'll be glad you did.

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