ANDREW HARRER/BLOOMBERG VIA GETTY IMAGES
WRONG
TURN
thought it would be dramatically
more expensive for the American
taxpayer, harder to justify, create
much greater risk of unfairness
and our program was not designed
to do that.”
This is the “moral hazard” argument. Writing off debt threatens
the covenant between borrowers
and lenders, and encourages those
making their payments on time to
default and cash in. If the phrase
sounds familiar, it is because Bush
administration officials, includ-
HUFFINGTON
11.04.12
ing then Secretary of the Treasury
Henry Paulson, frequently used
it in 2008 to explain why they
failed to throw a lifeline to Lehman
Brothers, the investment bank that
gorged on subprime mortgages,
then melted down.
When that decision threatened
to ruin the economy, Bush officials
pushed the TARP bailout through
Congress, threatening financial
armageddon should lawmakers
fail to act. Banks eventually collected $245 billion with little vetting, and still owe $13 billion.
The biggest financial institutions are now even larger than
A woman
in Boston
protests
in front of
Fannie Mae
headquarters
in
Washington,
D.C., in
September
2012.