This of course is an age old question. I have had many interesting times with this question including my coin flipping with the owner of a restaurant for lunch any time I wanted, double or nothing, and at another time having the entire office of a California state labor board refuse my offer of a free lunch after Proposition 13 passed which limited the property tax in California. Their comment was " we will all probably lose our jobs over this and your free lunch is insulting". I happened to be the managing partner of a major office building in Whittier, California. Post script: they didn't lose their jobs and my partnership didn't lose the office building, which probably would have happened, if Proposition 13 hadn't passed. I bring this question up because too many people in this country believe someone else is always getting a free lunch. Doctors are always on the list for the exorbitant amount of money they make for spending three minutes with a patient. The minimum 8 years of college and medical school, 2 years of residency and who knows how long of specialized training and internship they go through is never mentioned. The amount of student loans and other loans to set up their practice is also forgotten. The fact that they earn a lot of money, some do - some don't, seems to irk a whole lot of people.
Have you noticed how nobody seems to think professional athletes earn too much money? I would have become one if I could have figured out how to gain a foot in height, lowered my 40 yard sprint from 5.4 to 4.5 seconds or found a way to add 80 pounds to my frame and still be able to move. I won't even begin to discuss their education and the time most of them put into studying. I haven't heard of anyone complaining that a $6 million signing bonus is out of line. I am not saying it is, because this is a free country and everyone has the right to earn what ever they can, but when you complain about doctors or dentists how about asking about athletes and entertainers.
Why is this a concern at this time? One reason is everyone who has made an error financially wants a "do over". This comes from the highest financial levels, the banks and the brokerage houses, and goes to the smallest of the consuming public, the individual home owner. Everyone wants to be bailed out. Why not? It all comes from the government and they just have to print up some money and hand it out, don't they? Not exactly. The government gives nothing away that isn't funded by either tax receipts or the sale of treasury bills, notes or bonds. So once again there isn't a free lunch. Every time we add new amounts to the treasuries we are adding to our national debt which all of us owe, in a manner of speaking. The government hasn't tried to collect everyones portion, but notice the word "hasn't." We do not know what we might face in the future.
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The problem with the "do overs" is simple: those who screwed up, whether purposely or not, are supposed to be saved from foreclosure and now have a chance to right the ship at exceptionally low rates. Rates that are well under the market go to the perceived bad guys and basicaly nothing is available to those who didn't get in trouble but could also use some help. Seems a bit backwards to the common John or Jane. Is this the moral hazard we heard so much about when the bailout bills, and the housing bills were discussed? Not exactly. The main concern at that time was if we save one bank or one brokerage house or one industry won't we have to save all of them? To escape facing the problem the government let Lehman Brothers fail and created a whole new parcel of problems. Nobody is convinced that doing nothing was right either. The best or worse news is the answer to what we should have done won't probably be clear for years.
So let's get back to the free lunch thoughts. The biggest concern we have, or should have, is that like it or not we are all connected in this country. When two or more houses go into foreclosure in your neighborhood and are taken from their owners, the value of your house has just dropped. The equity you have had is diminished and the financial utility of your house is less than it was. This means your house as a financial asset isn't as meaningful to you as it was before the other houses were forclosed. If as a nation we "bail out" these people and give them the proverbial free lunch aren't we actually setting the table for ourselves as well? No foreclosure, no drop in value and therefore no loss on our financial asset. The others we help may get the blue plate special and we are only getting soup and salad but in the long run it all works out. Our house doesn't have to appreciate from a lower base, when the market returns to normalcy.
We all know that whatever happens in the future, the one thing that must happen, is a change in the rules or at least enforcing the rules we have on hand. This will be the hardest part of this or any recovery we are going to face. The reason is very simple: the cause of the problem hasn't been discerened. The public is sure that this crisis was simply caused by the "sub prime" lenders giving loans to everyone who could walk, wheel or crawl into their offices and ask for one. The lenders believe it was Wall Street's insistance that they should keep making loans and packaging (bundling the loans) and letting them sell these loan pools to anyone and everyone. Wall Street is sure it was the Sarbanes-Oxley rules that did them in and a whole bunch of experts link all of it together and put the blame on the "no uptick rule" that was installed in the stock market for short sellers that allowed the speculaters to ruin the party. Throw in the weak dollar and the rise in the oil prices and you probably have the major culprits covered.
That brings us to our situation today. We have lots of money floating everywhere and the government is basically either owning the major financial companies or at least a piece of all of them. We have the lenders flush with the greenbacks and we have the need for loans to homeowners, business owners and more importantly the government itself. (See above) And of course a recession, record deficits and lack of confidence by the consumers in this country. Unfortunately what we don't have is the end of the financial crisis because with all of the above lenders still do not wish to lend. I have many thoughts on the matter, which I have expressed before in other columns, but I do believe we really need to look at the concept of a "free lunch" in a way we have never looked at it before.
If we can't all work together then we might find we are all tearing each other apart. If one group gets a "free lunch" and it helps everyone else so be it. If we start adding rules for everything we will have nothing, expect a lot of rules. We need incredible skill from those in charge and amazing luck for the rest of us and maybe, just maybe we will pull out of the financial mess that is rocking our country. The one thing I am sure of is there isn't one solution, or that any road we choose as a nation to travel will be a smooth one. Nevertheless we need to start moving now!
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