[Ben Bernanke is Time's person of the year, Howard Dean takes up arms against the Senate health care bill, and Megan McArdle says we all have a moral obligation to pay our mortgages, whether it makes financial sense or not. We'll discuss all that and more on today's edition of Coffee and Markets, a daily podcast from The New Ledger on politics, policy and the marketplace with Francis Cianfrocca, brought to you by BigGovernment.com.
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Francis adds: I couldn’t agree more with McArdle, because (contrary to popular opinion) I believe deeply in traditional moral norms. But I also believe in pointing out the macro consequences of such behavior.
She’s pointing out macro consequences of a different kind with her story about Memphis. But that just made me think of Argentina and Mexico, the poster children for sovereign moral hazard. These countries (and others) have a history of stiffing global banks every few years. Do they end up like Memphis? Of course not. Bankers always come around offering more later.
The whole country won’t become like Memphis, not with Congress and the Administration pursuing a reflate-even-at-the-cost-of-moral-hazard policy, and with the Fed tacitly supporting that policy. If people who can afford to pay off mortgages on inflated property values continue to do so, then they will have shouldered the collapse of the housing bubble. McArdle implicitly believes this is a good and right outcome. I don’t disagree in the slightest, but it does mean that we’re facing years of economic underperformance.