Wednesday, March 11, 2009

Bad Economics on Mortages

There is line of thinking gathering steam among the chattering classes that goes something like this: the government is using tax dollars to bail out the mortgage holders who made all the bad decisions. And guess who's getting screwed? The people like you and me who didn't make bad decisions, who haven't been late on their mortages etc. etc. One such article on RCP is Subsiding Bad Decisions.

There are a number of problems with this argument:

1) The goal here is to stabilize the housing market. If the housig market collapses, many of you who "made all the right decisions" will have houses worth a lot less than they are now, so perhaps they should think about how "a bailout" might help "the good people"

2) People who got into mortgages over their heads were supported by huge armies of bankers, mortage brokers, housing developers, town planners, and lawyers all of who were very willing to ensure that many Americans took on more debt than was prudent. Credit card companies and home equity loan officers in particular aggressively pushed their products on us all. Everyone is responsible for his own actions, of course, but a lot of these people need to accept their own part in this mess.

3) Mortgage holders and taxpayers are one and the same. Currently, one in 8 mortgages in the US is deliquent or in foreclosure. That number will grow.

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