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Tilting homeowner rules seems unfair
Commentator Will Wilkinson
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TEXT OF COMMENTARY
Renita Jablonski: This week, President Obama also revealed more details about his housing rescue plan. It provides subsidies to financially troubled homeowners. A recent poll found 55 percent of Americans think the plan rewards bad behavior.
The poster boy for that sentiment might just be CNBC's Rick Santelli. A recent tirade against what he calls "subsidizing the losers' mortgages" is still making the rounds on the Internet. Commentator Will Wilkinson isn't surprised.
Will Wilkinson: Love him or hate him, Rick Santelli's now infamous on-air rant has touched a nerve. Shouting from the trading floor of the commodities exchange in Chicago, CNBC's Santelli asked: "How many of you people want to pay for your neighbor's mortgage that has an extra bathroom and can't pay their bills?" The traders behind Santelli lustily booed, and I'm sure some viewers watching at home booed along with them.
Small protests have cropped up in Seattle, Denver, Kansas and elsewhere as groups of disaffected taxpayers gather to decry the Wall Street bailouts, the stimulus package, and the newly proposed housing reforms. Maybe these are a bunch of ideological spoilsports mad they lost the last election, but I don't think this small flame of populist resentment should be so casually dismissed.
Fairness means a level playing field and a stable set of rules. The rules structure our decisions. They're inputs to our strategies in the game of life. Changing rules mid-game tilts the playing field. Those who planned around the old rules aren't wrong to feel the change is unfair.
The housing bill, for example, would help homeowners with negative equity by reducing their mortgage payments. This has left many who settled for something smaller and more affordable, or those who decided to rent rather than take a risk on a house, feeling a bit ripped off.
It's not just that some of us get bailouts, while some of us don't. It's that millions of Americans who played prudently, according to the old rules, end up footing the bill. And that really does seem unfair.
It may be that trying times call for extraordinary measures that are bound to leave some of us unhappy. But the more dramatic an intervention into the economy, the more it rewrites the rules and the more it tilts the field. Some people will be thrown off their game. Some people are going to cry foul.
Jablonski: Will Wilkinson is a fellow at the Cato Institute.
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I, too, am one who has always lived within my means and has a small home because of that. I agree that all of this is very unfair, but I don't believe the government is favoring one homeowner over another ... at least not deliberately. If there were a few thousand foreclosures, the government would not give a rat's rear. All of this is being done to save the banks, not the individual homeowners. It's still grossly unfair.
Thank you, Will Wilkinson at the Cato Institute! I agree with you about how economic and market rules shape our financial decisions. I have been a renter and a saver all of my life. For ten years now, I have been saving for a home of my own. I really don't want a mortgage. I would love to buy a home outright, and am waiting for the prices to correct a little further before doing so. When I hear and read about taxpayer bailouts to irresponsible lenders and irresponsible borrowers, I become infuriated because I held off on buying a home for the last five years because homes were so overpriced. Now, I feel like all the people who borrowed huge sums of money to price me out of the bidding war on homes are getting bailed out with my tax dollars, while I am still without a house and still rent an apartment. All government bailouts are unfair to people who believe in personal responsibility and have never been bailed out.
How does the government decide who deserves to be bailed out? If I didn't pay my rent, who would bail me out? Why do people facing foreclosure on a house get bailed out or get moratoriums on foreclosure, but people facing eviction from apartment rentals get evicted within 30 days of notice? When I was having trouble paying my medical bills and had to move in with my parents so I could pay off my medical bills, where was my bailout? I never expected a bailout, and I never got one. Was this just because I didn't whine, complain, and cry loud enough? I did eventually pay all of my medical bills all by myself through lots of hard work and even more self-sacrifice, and I feel now like all my sacrifice was for nothing, because people who sacrificed nothing and engaged in overindulgence are getting my tax dollars to continue living a life that they cannot afford on their own. The government acts as though people who live responsibly are the chumps for not asking for other people's money. I feel very ripped off!
The movement that Santelli's rant sparked (or just launched..) is, panned or otherwise, a great example of what John Tantillo referred to as "brand people" on his marketing blog. "Fact is, we’re going to see more of this as politicians recognize that they will have to be ever more accountable to a well-informed and motivated brand that will demand results instead of ideology."
http://blog.marketingdoctor.tv/2009/02/23/brand-winners-and-losers-the-p...
There are idiots and thoughtful people on both side of this issue. In economics, there is never a way to 'prove' one theory over another, as the variables can't be controlled. I think that the stimulus plan is the best of a set of bad options we have before us; and I think that 20 years from now, we'll still be arguing about whether or not it was the right thing to do--and whether it was responsible for the economy getting better and/or worse (likey to do both within a 20-year span...)
I do see this movement as a very positive thing, though, because inflation is a major concern, and a sharp line should be/should have been drawn between "stimulating" those sectors of the economy which could, a la Keynes, in turn stimulate other part of the economy, and propping up failing companies (auto industries) and subsidizing people's poor choice to overextend themselves on mortgages they couldn't afford. I think that some help for the housing market is in order, because the weight of these negative decisions has affected everyone. But I think that allowing the prices to continue to fall is the best way to fight inflation and is fair to would-be home buyers who might yet buy if the prices drop low enough (which ultimately is also good for the economy).
I voted for Obama; I was an early Obama supporter. I support welfare, unemployment, universal health care, etc. I also don't support the notion that everyone 'deserves' to live in a home that they own. I've lived in a shithole apartment with several roommates in each of the 5 years since I graduated from college. It's disheartening to think that maybe I should have opted for a higher standard of living, since help was on the way..
There has to be balance in this plan. But I agree that rather than giving homeowners who are treading water a total break, they should instead be given more time to pay back their loans. Maybe even a break all together for a while--but if 10-15 years from now, things are back on track, and they're still not asked to pay back the money that they originally borrowed... yes, that is moral hazard.
My attorney's favorite phrase is - fair is where you go to see the pigs race. My own kids are tired of hearing it whenever they protest that something is not fair.
The fairest we're going to get, in my opinion, is for everybody to chip in. banks will have to lower rates and/or lengthen loan terms, owners will have to keep meeting their reduced obligations and taxpayers will have to chip in as well. This should not be yet another infusion of taxpayer cash into the irresponsible lenders, but I don't want my home value lowered by foreclosed houses in the neighborhood.
PS I sell supplies to homebuilders. My business is down significantly. The last thing I want to see is more empty houses clogging up the market. I'd like another 5,000 aliens in my community so they could buy the vacant houses we have now.
There is a difference between helping people who were unfortunate situation because of totally unforeseen situtation. These include accidents etc.
I have to say the irresponsible borrowers dont follow into unforeseen situation.
When they borrowed, they had all the facts available to them:
1. house price
2. interest rate on 30 year mortgage
3. What ARM meant
5. what liar loan is
They gambled and lost and now they want to be bailed out. They dont deserve any compassion.
Even losing a job does not fall into this situation. People loose jobs all the time. This is nothing new, now. That is the reason you need to have Emergency fund for those situation. I am sorry, but if you didnt plan for that they you should not have bought house. You could have rented. It is not the end of the world.
I make decent money in silicon valley and still rent because i know i can not afford a house here. So why should i be penalized but these irresponsible be rewarded for their bad decision.
If anybody says, these didnt know how to do reasearch do the following experiment: Ask anybody who in trouble with their house "If they had 100k, would they lend you the money for 30 years at 4%". They will laugh in your face. They are not that dumb as you think. They just gambled on the notion that housing prices go up forever and they thought they were geniuses and renters were idiots.
For all the compassionates:Do you know how rare the bubbles were before 1998. In a matter of 8 years there two monster bubbles. And do you know consequece of bubbles? They are not pretty. I ask you one question: Has anything been done to prevent bubbles in future. NONE. Infact the same solutions THAT CREATED bubbles are being tried again. FED is priting money like there is no tomorrow. They are desperately trying to create another bubble.
The housing prices have to go to a level where incomes can support. It is that simple. There is nothing wrong for people who made mistakes to move on and rent. It is not the end of the world.
I agree that the risk on these failing mortgages should be born by those in the contract: the lender and the homeowner. If they decide to adjust these mortgages, they could give them fixrd rates on 45 to 50 year loans, or give the government (the taxpayers who will be paying for it) some equity in these homes. If they gain value in the future I would like to recover some of that value. I have played by the rules and put 30% down, and my home values are down as well. We have lost 35-50% of our 401k, our savings, our home value, and our college funds for our 3 kids. At just over the threshold where the FAFSA (govt financial aide college form) thinks we should qualify for help with college costs, we are running out of hope. Perhaps we are not losing our small home,yet, as we still have jobs, at this point. But as the FAFSA doesn't look beyond your income, it doesn't see that without pensions we don't have any retirement savings to speak of anymore. Since we can't help our kids pay for college and they don't qualify for anything but market rate loans, they may not get a college education. It will make it more difficult for them to support us when we are retired. That will be the next big crisis! Sorry if this seems off topic, but these are the reasons why I don't want to pay for my neighbors mortgage. I have young relatives who bought homes way over their heads, bought new cars, new electronics, spoiled the kids with expensive toys and trips...now they are in foreclosure. But no, they qualify for the bailout. In one case, her husband is layed off, not fired, but if they get the bailout to stay in a home they never should have bought in the first place, they are not learning the lesson they and their kids need to!! I do not want to bail these people out. I would be more than happy to help out the elderly and retired who were duped, but Jumbo mortgages should not be part of this plan.
So many, many excellent comments, most better than my early note written quickly and in something close to anger. A special heads up and thanks to Ryan Wheeler, Harold Satterlee, Julie Spencer, Tom Hackett, Payam Minoofar, Sharon W. and David Grimes for their comments.
If Marketplace wants to be considered something other than unfair and unbalanced then perhaps they should consider demanding a higher quality of commentary from their commentators. It is certainly possible to make a well-reasoned case against the government's efforts to fix or at least mitigate the rather dire mess we're in. I would almost certainly not agree with such a piece, but I could at least appreciate a coherent argument, a different point of view. But Wilkinson's piece so clearly falls well short of that mark that it doesn't justify the air time Marketplace saw fit to give it.
In response to those who have indicated that Americans should be willing to approve government assistance to those in bad mortgages: I personally agree that individuals should help out others that are in dire situations; my reservation with the plan is that the <em>government</em> is heading the initiative. I don't believe it is the government's responsibility to make interventions of this sort, and I object to the government imposing taxes on me and determining how I show my charity. To the person who wrote about people rescuing others from a fire: To reconcile your example with the debated government action you would have to note that the government would be requiring people to rescue those in the fire, and manage <em>how</em> they do the rescuing. Again, I really don't think that's the proper role of government.
You've got your spending bill passed so shutup. Ignorance of economic consequences run wild on this forum. History has shown that governments interference in the markets with spending program during times like this only leds to a lenghting of the recessions. Hoover, Roosevelt and Carter are perfect examples. The markets will correct themselves regardless of government trying to keep these bubble in place. The bust will just be long and painful, and not short and painful. We all are going to pay the price with another great depression.
Oh, and I'm surprised to see all of the liberals and socialist knocking a guy referrng to fairness. You are all the biggest hypocrites on the planet.
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