Ethics Newsline®

Last week’s commentary on the ripple effects of the subprime loan implosion asked readers to comment on the moral issues involved in the government stepping in to bail out homeowners facing default and foreclosure.

While there is a lot of latitude in what a bailout would eventually mean (an issue that surfaced in this week’s lead news story), a variety of intriguing ethics issues seem pretty clearly defined in the minds of most of our respondents.

Several writers, for example, cited the ethical obligations of elite investors to consider the overall effects of the new financial vehicles they invent. In the words of one: “In my mind this is the currently most urgent issue concerning ethical behavior. At what point should wealthy, influential, and powerful individuals stop and consider the consequences for the nation and the economy?”

One reader reflected the often-expressed view that those who took the loan should bear the responsibility, though there is plenty of blame to go around: “Many parties are to blame, not the least of whom is the consumer, who chose to believe the bubble would not burst, and that he/she had full control over circumstances that would impact his/her financial resources. While folks may have had unscrupulous lenders/mortgage brokers, nonetheless they had to sign papers that they had read and understood the terms of the loan. Unless a consumer is saying they never signed those papers but happily took the financing, the fault still lies with the consumer. But the creation of such bogus loans and the selling of them reflects the greed of the institutions and their representatives.”

Many writers honed in on the argument that homeowners got themselves into trouble and had no right to expect the government to step in. “If most of these homeowners got their fantastic mortgages with no money down,” wrote one reader, “and now they are ‘losing their homes,’ why should we, through the government, help them out? All they did was pay rent for a time.”

“I am 76 years old,” wrote another, “and always have had the ingrained philosophy that I had to live within my means and I was personally responsible for any debt obligations that I contracted and therefore I do not think the federal government or any other agency should step in.”

“If the government got involved,” echoed another reader, a college professor, “I’d argue it would reinforce the ever-emerging great American rationale: ‘Why take responsibility for my actions when I can blame someone else?’ “

Another reader reinforced the same concept: “One might think that since there is precedent for bailing out a troubled company/industry/sector of the economy, that to do so again would be appropriate. I don’t agree in this case. I think it would be rewarding bad lending practices and greed on the part of the lenders.”

But the view was not universal. While letters ran about eight-to-two opposed, some argued that a bailout would be the right thing to do in the long run. One reader commented: “I know it’s rewarding irresponsible behavior on the part of the monied poobahs but without federal help too many little guys will get hurt and possibly lose everything. Hell, if we have billions for war we can surely spare a few bucks to help some families keep their homes.”

And another offered this assessment: “Shouldn’t a perfect storm have a perfect haven? There must be. And a caring, concerned, and conscientious government (or agencies thereof) will find it, for the benefit of the innocent and the guilty and the world at large.”