Tuesday, April 1, 2008

My Housing Crisis Solution

housingcollapse.jpgCongress met today to discuss a plan to try and save owners who might be foreclosed upon because they have a loan they can not afford.  I find this somewhat laughable but then again, I find most of what our government does laughable.  This one in particular sticks out because I find it to be a strange circumstance of Congress moving too slow and too fast at the same time.

If Congress was going to do something, it should have done it years ago when it was clear to any rational person that housing prices were going up too quickly.  Of course, they wouldn't have done this, despite today's predictable situation, because too many people were getting rich quickly and nobody wanted to stop that gravy train.

Now, they are moving much too quickly.  In reality, they should not be moving at all.   People need to lose their homes.  Banks need to lose money.  Those banks that took the worse bets need to go bankrupt.  The alternative is what happened in Japan during the 90's, decade long stagnation which is probably worse than a quick correction.

Of course, our government isn't smart enough to do something like that.  They will slap together a plan that doesn't make any sense, helps the wrong people out, and in the end only makes the situation worse.  The worse part about it is that it will create incentives for the wrong people.   Think about this for a second.

There are a large number of families who would love to be first time home buyers. However, the decided, prudently, that they would only buy something they could afford.  Novel idea I know.  There is another group of people who don't do that.  These are the people who, when they want something, they just buy it and don't worry about if they can really afford it.  These are the people who have twenty credit cards and always pay the minimum balance.  Since they could do it with credit cards, these people took out two mortgages and decided that they would have it interest-only for the first few years and worry how they would pay the priciple later.  After something magical would happen to save them.

That something magical is the US government.  They will prove the idiots right.

I keep imagining the scene in Atlas Shrugged as Hank Rearden asks, "There's no way to make the irrational work.  What can save you now?" To this James Taggart cries, "Oh, you will do something!"  And he is right.  The government will save those who should have known better at the expense of those that did.


  1. I totally agree; they're bailing out the wrong people. I'm looking to buy something in the next 6-8 months and I'm curious as to how much they're going to say I qualify for. I've got excellent credit (because I stay within my means) and I know how much I want to spend monthly, but I want to know how much they're going to tell me I can "afford".

  2. I want to buy relatively soon too but I probably will continue to hold out for a little while longer than you. Considering prices went up well over 100%, I don't think we have quite reached the bottom. Not trying to bottom pick mind you, just some other factors in my life that need to sort themselves out.

  3. I discovered long ago that most people do not have any financial sense. Need an example? Have you ever noticed how many of your colleagues buy coffee at Starbucks in the morning? How many of them order a venti mocha or latte? That's $5 per drink, times 5 days a week, times 52 weeks. Grand total $1300. Now, how many of those colleagues can afford that expense? I bet you can't say all of them. If $1300 is not that much to you, consider this: how many of the same colleagues also go out for lunch every day?