KEY POINTS:
We are in the mess we are in because of a cavalier attitude towards debt and risk by households and their bankers, both here and in more important economies overseas.
Yet the prevailing view seems to be that the solution is to be equally reckless with the taxpayer's money. Having privatised the gains, it's time to socialise the losses. That doesn't just relocate the problem. It makes it worse by creating a disconnect between actions and consequences.
The latest example of this is the National Party's proposed "rescue package" for people who lose their jobs and consequently struggle to meet their loan obligations.
It sounds compassionate. It might even be seen as a pragmatic measure that would limit further downward pressure on house prices.
But that is a thin coating of sugar around a bitter pill, made of a substance called moral hazard.
It heightens the risk that we will entrench, rather than reduce, the very structural problems which underlie the credit crunch.
The line of argument which follows comes with a caveat. At the time of writing National has yet to announce the details of its plan, so it is based on the rather hazy outline given by John Key over the weekend.
On TV One's Agenda programme he said: "Some people will lose their jobs as a result of the downturn and we've got a couple of options: We either try and assist them in meeting their liabilities because we're confident in the medium term they'll get back into a job, or we just simply say they're high and dry."
Key is undoubtedly right to say we are in for a period when banks lend less liberally and when the capacity to borrow against a rising housing market is gone. Unemployment will rise from its current 3.9 per cent - remarkably low for an economy already nine months into recession.
But that does not make it right, or wise, for the state to bail out the parties to loan transactions freely entered into in better times.
It is not as though they were not warned.
Reserve Bank Governor Alan Bollard, for one, in a series of speeches when the housing market was booming, warned borrowers to remember that house prices can fall, that mortgage rates can rise and that people can lose their jobs. By and large they took no notice.
Commonsense should have told them that house prices cannot keep rising at double-digit rates indefinitely, when the incomes out of which mortgages and rents have to be paid were growing much more slowly.
Now, when events are about to deliver that lesson the hard way, National is giving the opposite message: Fill your boots when the going is good; you might as well, because when things turn ugly the taxpayer will bail you out.
Economists call that moral hazard. It is a pejorative term.
The precedent it sets increases the chances of even riskier behaviour in the future.
There are also some obvious practical questions.
How will they decide who gets this transitional assistance and who does not?
Wherever the boundaries are drawn someone will be on the wrong side of it. The deposit guarantee schemes, here and in Australia, illustrate that point. Anomalies and grievances are guaranteed, especially if it covers mortgage payments but not rents.
Who will administer the scheme? How can it be reconciled with a pledge to rein in bureaucracy? Even the Greens' welfare spokeswoman, Sue Bradford, has accused Key of "designing a bureaucratic nightmare on the hoof".
How long will it run? The longer it is in place the more distortionary it will be.
How much will it cost and where will the money come from?
"We're confident we have a sense, at least, of the numbers," Key said on Sunday, though he volunteered no numbers.
There are several forecasts around how much unemployment will rise over the next two or three years. The Treasury in its pre-election economic and fiscal update expected the unemployment rate to hit 5.1 per cent by March 2011. That would be 25,000 more people unemployed than now.
The New Zealand Institute of Economic Research's September consensus survey of forecasters is more optimistic at 4.8 per cent or 20,000 more than now.
But the Reserve Bank in its September monetary policy statement sees unemployment hitting 5.8 per cent by 2011, or 45,000 more than now.
All of these forecasts predate the acute market turmoil of the past few weeks which has led to widespread expectations of a global recession.
The average mortgage is $114,000. As a rule of thumb one third of households have a mortgage, one third rent and the remaining third are owner-occupiers who have paid off their mortgage. Among the working age population the third group is likely to be under-represented.
So, depending on how liberally the rescue package is drawn, we are talking about thousands and potentially tens of thousands of people qualifying for it.
The fiscal cost would not be trivial.
National may be tempted by the idea that it can fund this by recycling the unexpected revenue from fees the banks will have to pay for the retail deposit guarantee. Easy come, easy go.
But it is still the Government's money, payment for an insurance service provided, and how far it will stretch remains to be seen.
The wholesale funding guarantee, yet to be announced, if it follows the Australian model will impose a sliding scale of fees to banks which need to take up the offer of a guarantee. The Australians have gone for 70 basis points for AA-rated institutions up to 150 points for BBB and unrated ones.
The aim no doubt is to have a cost which discourages banks from taking it up without being prohibitive.
Whether New Zealand banks will need to avail themselves of such a scheme remains to be seen.
But in any case any money the Government gets from this is compensation for risk it is taking on. It is not a windfall.
We have had recessions before. People are entitled to ask what is so different about this one that it requires a rescue package of the kind National is proposing. What is so different about these borrowers that they deserve such largesse?
And for the young, who have never seen hard times and for whom instant gratification takes too long, it sends the worst possible signal.
If Labour had proposed such a scheme, great monsoon-bucketsful of scorn would have been dumped on them. "Muddle-headed ad-hockery born of electoral desperation," would have been the charge.
Instead it is proposed by a centre right party well ahead in the polls. Go figure, as the Americans say.
And from the business lobby groups all we hear is an embarrassed silence.
