The Cheeseburger, The Lobster and The Bailout

Imagine if you will that a man walks into a restaurant, sits at the table and opens a menu. He has $5.00 in his pocket...no more, no less. He sees a cheeseburger meal for $3.99 (I wish!). But he keeps looking at the menu and suddenly notices a huge lobster meal that costs $20.00. (Again, we're imagining here.) The man likes the lobster. He really, really wants the lobster. But he has a problem. He only has $5.00. He has no way of getting any more money. This is what he can spend on his meal. Yet that succulent lobster is calling his name. It's not just a meal, it's DINNER and it would be so nice. So the man (let's call him Bob) decides he must have the lobster.

Bob calls the Manager over to his table. He says, "Sir, the lobster looks wonderful. I really, really like lobster. I want it. I have enough money for the cheeseburger, but I don't want a cheeseburger. I want the lobster. I must have it, but I only have $5.00 and I won't be getting any more. What can you do for me?"

So the Manager, who is interested in making money, thinks for a moment and says, "Okay Bob, I'll cut you a deal. I know you only have $5.00. I know you won't be able to pay any more than that, but we'll worry about that later. Who knows, maybe sometime before you leave, you'll find the rest of the money, so I'll let you have the lobster for 30% off. You only have to pay $15.00. But if you don't pay that $15.00 before you leave, I'll have to take back your half-eaten (read: now worthless) lobster. Deal?"

And without worrying about what might happen later, Bob, who really wanted the lobster, but still had no way of paying for it, said, "Deal!"

Well sadly (and we all feel really bad for him), Bob could not pay for the lobster and before he had finished even a little bit of it, the waiter came back and took away the lobster that Bob really, really wanted, but knew he could not afford. The Manager then took all of Bob's $5.00 as payment and also took a hit because he did not make a profit (and perhaps even lost money) on the once-yummy lobster.

Now Bob and the restaurant Manager were sad and upset and even a little angry. How dare they not only not get what they both really wanted, but they both lost something in the process!

So both Bob and the Manager went to see the King. They both told their sad tales to the King (with a few tears, some screaming and lots and lots of panic). "Help us get out of this mess we've made!", they cried. And the King had a decision to make. He could either help the two men or he could let them suffer the consequences of their foolish decisions. If he helped them, then all the King's responsible Countrymen would have to pay more taxes, (which were already far too high) and they might even revolt and kill the King, but if he let them suffer the consequences, the restaurant might go out of business and Bob might go bankrupt.

What do you think the King should choose? I think the answer is obvious, don't you?

Now, of course, this is just an imaginary tale and I am admittedly not an economic genius. (I hate math!) But this is my understanding of the way the whole sub-prime mortgage lending/bailout crisis happened. This example seems silly, but isn't this what happened on a much larger scale? (someone please correct me if I'm way off base here) Why then, should I, as a responsible tax-payer and borrower, pay even more of my hard-earned money to fix this mess that irresponsible gamblers created?

And can someone else explain to me what is so bad about allowing the market to correct this mess as it is designed to do? Yes, companies will fail, times will be rough for many, but the free market would also root out the irresponsible lenders and be stronger for it, right?

Someone, please correct me if I'm wrong.