(Meanwhile, this leaves thoughtful, careful, responsible people who didn't commit mass sins of gross financial stupidity . . . where? Well, it sticks us with a $700 billion bill, and that's just for starters. But I digress.)
UPDATE: Two law professors discuss causes also even while they try to debunk three popular (but "deeply flawed," to quote the profs) narratives about the origin of the current mess. They have this opinion about one real cause -- the obsession with home ownership as an end in itself:
The one narrative that strikes me as more plausible than any of these three, but which no one seems willing to raise, is a story about our preoccupation with homeownership in this country, particularly since World War II. The desire to expand homeownership is in many respects a wonderful thing- I certainly have benefitted from it myself- but it also has serious downsides. Homeowners are privileged by comparison with renters, most obviously in the tax deduction for interest. And the efforts to pump up the housing market in recent years, in part by keeping interest rates low and in part by protecting Fannie Mae and Freddie Mac from reform, seem to have spawned much of behavior that is now being criticized. It is hard to imagine a serious conversation about whether our commitment to subsidizing home ownership has gone too far. Everyone from prominent interest groups to ordinary American has a stake in continuing to promote homeownership in every way possible. But the costs of this commitment strike me as the one story that best explains the current crisis.
2 comments:
this leaves thoughtful, careful, responsible people who didn't commit mass sins of gross financial stupidity . . . where? Well, it sticks us with a $700 billion bill, and that's just for starters.
If I may, let me take your digression a little further. As the most important conservative newspaper in Germany pointed out in a commentary today, this goes for responsible banks as well (or, for you Palinite: "also" ;-)). If you behaved responsible and advised your customers wisely and with an appropriate risk management - bad luck! The bailout goes to your irresponsible competitors.
It's like the Emmy award. You are the reliable, hard-working artist who never misses a deadline and always shows up at scheduled gigs. And at the end of the day, the Emmy goes to... Britney Spears and Amy Whinehouse. And why? Because they are too much a celeb to fail.
Btw, that's why I'm a Paris Hilton fanboy - Miss Hilton is both a celeb and a hard-working, reliable money machine.
(Now, that was a digression!)
"this leaves thoughtful, careful, responsible people who didn't commit mass sins of gross financial stupidity . . . where? Well, it sticks us with a $700 billion bill, and that's just for starters."
Well... Yes and no. My problem isn't the size of the bailout (which should be nowhere near $700 bllion in the end), it's more a matter of trust.
If the Fed purchases these things more or less at market price there may not be a loss at all, because the current market price I think has actually sunk well below the actual value of the assets underlying them. Particularly if they hold on to the worst ones for a decade or so.
But I think the idea of bailing out masses of mortgage holders (as McCain has proposed) is a really, really BAD idea. Bad because the worst losers were by and large speculators who have either mailed in the keys or are preapring to do so. Why bail them out. Leave 'em with bad credit and be damned to them.
Another group were the legitimate poor who got suckered into loans they couldn't afford to pay for. But this group has long-since been foreclosed upon - there is no way to get them back into the houses they once owned for most of them. Even so, I could see a partial bailout for those who have managed to hold on to the present - maybe bring the loan down to the affordable point or move them into something affordable for their income, with equlity intact.
Finally there are the people who put down 20% and are owner-occupants and who didn't take HELOCS and go on spending sprees. In most areas these folks are OK unless their purchase timing really sucked. But they are generally better off than the rest of us, so how is it that the government should bail them out at the cost of apartment-dwellers without a mortgage interest deduction? So - maybe, in some cases we should grant statutory relief & set up mechanisms to allow the mortgage to be reduced (with a mechanism to recapture part of any future equity increase on the house, perhaps in the form of a lien on the house) which has to be paid at closing.
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