Ben Bernanke and Moral Hazard

In case you hadn't noticed, Congress stlil hasn't passed legislation that would stem the tide of home foreclosures sweeping through some low- and moderate-income neighborhoods. What's holding them up? It's the moral hazard question. If taxpayers bail out homeowners who were tricked into taking out teaser-rate loans and now face foreclosure, it may also inadvertently bail out speculators who bought homes hoping to flip them in ever-rising markets, not to mention the people who can't afford the homes they bought under any circumstances.

But what if you're Bear Stearns and the Federal Reserve Board rushes in to avert panic? Here's an entertaining column by Los Angeles Times columnist Joel Stein that puts that bailout in its proper perspective:

nobody besides the Fed is panicking. People are bummed because their houses are worth less, but people were bummed because their tech stocks were worth less, their alpacas were worth less and their Ugg boots were worth less. But your average American isn't freaking out. A CNN poll this week showed that people's main economic fear is inflation -- which is what you get when you print a lot of money, like the Fed is essentially doing by giving so much away. It makes money fun to borrow and not worth saving, which is how the trouble started in the first place. Plus, it makes the dollar fall, allowing Canadians to make fun of us.

Now there's a fate worse than death: inflation and Canadians laughing at us. Sounds like Bernanke's prescription for the overall economy is to make it more like the health care economy. Heaven help us.