The idea of helping Main Street has an undeniable appeal. Housing is at the root of the financial crisis, and preventing foreclosures could bring a double-barreled benefit. It would allow families to remain in their homes and could also help keep the housing market from spiraling out of control. The more foreclosed homes that are dumped on the market, the more home prices will fall.
But before any of the various rescue plans reaches the point of inevitability ”” and these days, ideas can go from unlikely to inevitable in about 48 hours ”” I think it’s important to stop for a moment and consider how complicated any such plan would be. Every one of them, in fact, faces an inherent conflict: coming up with a large-scale homeowner bailout without also helping millions of people who don’t need help is almost impossible.
That’s a big reason that the various efforts to stem foreclosures so far, both from the Bush administration and Congressional Democrats, have been so modest. You just can’t solve the foreclosure problem without causing a lot of collateral damage ”” in the form of lavishing money on homeowners who can stay in their homes without assistance.
[blockquote] And it’s not at all clear why such people should be at the front of the line for government help. Why are they more deserving than, say, the growing number of unemployed, many of whom rent their homes? [/blockquote]
And here is another twist to the question: Why are either more deserving than people who are approaching retirement, want to remain in their paid-off home, but have had part of their retirement stolen through what was considered responsible Lehman Brothers and Washington Mutual investments in their IRAs?
Nice to see the rare acknowledgment of the Renter, even if fleeting. We get burned three ways in a bailout. (1) We were priced out of the housing market by the unrealistic rise in prices caused by investors, speculators, and people who lacked either ability or desire to honor their debt obligations. If you think that’s not a “cost”, you should hear my daughter cry about not having a yard to play in. (2) We and our tax dollars are on the hook for aforementioned… persons. (3) Our neighbors and our government teach our children that our values – hard work, sacrifice, wisdom, self-restraint, deferred gratification, and honoring one’s obligations – are completely laughable, and only result in us being ‘losers.’
Here’s a bailout idea I’d like to see: Let the market correct itself, let house prices return to their real values, let the speculators/flippers/investors take their bath, and let those of us priced out of the market enjoy the benefits of an open market. For the homeowner who sees their house as a home, the prices will eventually come back.
On the other hand, maybe the gov’t should bail me out of my car loan (we’re all automatically “under water” on day 1), and bail me out of my poor mutual fund performance, and they should pay back my neighbor for the $1000 I borrowed from him and then lost at the casino, since I don’t think it’s in my financial interest to pay him back. 😉