Buying a home is the biggest expenditure that most of us will make, and no where is that more obvious than in California.

Houses are expensive almost everywhere in the Golden State--and people are losing their homes almost everywhere.

Over one million houses are going into foreclosure nationally this year, and many of them are in California.  In just April, May, and June, 54,000 California homeowners were in
default, a record.  Bakersfield, Sacramento, and Stockton are  among the top ten cities nationwide when it comes to foreclosure rates.

Now so-called activists are demanding that the state step in.  (What kind of a job is being an "activist"?)

In Washington legislation has been introduced to create a new set of long-term home loans through the Federal Housing Administration.  The Federal Reserve is under pressure to push down interest rates.

In Massachusetts the governor has created a bailout fund to refinance bad loans.  In California politicians are talking about imposing a moratorium on foreclosures and banning prepayment penalties.

But bailing out the housing market would allow the subprime tail to wag the industry dog.  Most Americans are responsible homebuyers.  During the recent price run-up, however, banks provided more loans to marginal borrowers; investors purchased more securities made up of "subprime" loans.
 
Everyone made money in the good times.  But, explains Ray Haynes, a former California legislator:  "The slowdown in real estate prices has brought the party to a sharp halt."
 
Readjustment has been underway, but it's painful to all concerned.  Still, says "Haynes, "It's the way capitalism is supposed to work."

A bailout would be bad for everyone.  First, it would be unfair for the vast majority of homeowners.  The subprime market accounts for just one in 20 mortgages, yet these borrowers make up 60 percent of foreclosures.  Most of these people never should have borrowed to purchase their current house.

Second, taxpayers would be forced into yet another corporate bailout.  Whenever companies, whether the automakers, savings and loans, or mortgage lenders, get into trouble, they run to the government for protection.  The rest of us pay the price.

Third, politicizing the Federal Reserve would turn it into a political pawn in any future financial crunch.  That risks constantly exacerbating our economic problems.

Finally, a bailout would be an open invitation for everyone else to rush to Sacramento or Washington when they get into trouble.  Haynes warns, "Consider the message the state would be sending:  don't worry if you find a house that you really can't afford.  The state will protect you if you get in over your head.  The government also will protect lenders who provide you with an excessive mortgage and investors who trade in your risky mortgage."

Politicians should stop bailing out people who make bad decisions.  Maybe it's time to bail out the rest of us, who've been paying the bill for everyone else for so long!