Thursday, February 26, 2009

I got your mortgage support right here!

Last Wednesday, the President announced a $75 billion program to slow the rate of foreclosures in the US. Within a day, the price tag for the program was up to $275 billion. That's an overnight increase of about 300%.

That got me wondering what the multiplier might end up being on the rest of the spending. And finally got me riled up enough to start this blog and write to the Instapundit. The following instalanche got the tax protest movement rolling in Atlanta.

But, back to the mortgage program.

I live in a nice part of Atlanta. In the last few years it's been getting nicer and nicer as million-dollar house after million-dollar house began replacing the 1960's split-levels. Take this, for example. Yes, that's a house in my neighborhood.

A couple of years ago, I found myself looking around the neighborhood, and thinking to myself that I must be living wrong. There I was in my split-level - nice, but not too nice - and schlepping a largish amount of my income over to WAMU every month in order to keep a roof over my head, while my neighbors were moving into decent facsimiles of French Chateaux.

I now know my neighbors were most likely bad credit risks, helped into their houses by an unholy alliance of government altruism and investment banking greed. Please read and grok that Michael Lewis article.

So, where do we find ourselves now? Well, if you're a profligate person, your profligate government is willing to swoop in and help you. If you're careful about your obligations, thrifty, and self-reliant, your profligate government swoops in and rifles your wallet to support your profligate neighbor.

Quick question: why don't *I* go into default and beggar my neighbor? Right, because I have principles, chief among which are the notions of thrift and self-reliance.

If my profligate neighbor made a bad decision about a home, and can no longer afford it, let that neighbor leave that house and find something affordable. Foreclosure may be rough, but look at it like this: my neighbor got to live high on the hog in a French Chateau for a few years. Now it's time to learn thrift and self-reliance. Or maybe not.

Megan McArdle points out another issue: government intervention to prevent foreclosures keeps prices artificially high, thereby keeping renters from becoming owners. This is the perfect government program: the thrifty are punished, the profligate are rewarded, and those trying to better their station are oppressed. Oh, and all this for the sake of five states.

So, for destroying the notion of moral hazard, for locking renters out of the housing market, for beggaring me, I oppose this program.


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  2. Yes, it is so lovely to look down the street at my 'neighbor' who refinanced his old house to pay the build of his new abode. Once the new residence was 'move-in-able', he promptly defaulted on the original.

    How convienent. A new paid for home, while the bank (or Fed Govt - read taxpayers) eat the one he refianced.

    This may be legal, but in my book it is theft.


  3. Hi Mike,

    Pretty much that exact scenario happened on my street.


  4. Great work you're doing here.

    We are also thrifty and self-reliant (or as it's coming to be known, deeply insane). We bought a home last summer, and put 40% of its price down in cash. So.. we may never be upside down (I mean, I sure hope not), but if we sell it anytime soon, we'll be out that cash. Who is going to bail out my equity loss? Well, no one of course. Nor should they.

    But at the same time, out that equity, I'm going to pay for a cramdown on some sleazeball who bought a similar home on a no doc interest only five year ARM and finds himself owing more than his property is now worth.

    I don't think so. Not without a fight.