I’m so disgusted with the $150 billion “economic stimulus package” that I’m choking on my own thoughts, unable to express them coherently. First there are the rebates. But wait, I’ll save that for later because everybody’s blogging about that and, no doubt, everything I have to say has already been said and said again. (Not that our oh-so-wise policy makers are listening, of course…) But there’s another part to this package that’s tucked away discreetly beneath all the fanfare over the rebates. And that’s the part that addresses the subprime mortgage crises. After all, it’s the mortgage crisis that got us into this mess.
There are two contributing factors to the subprime mortgage crisis.
- Fiscal irresponsibility on the part of borrowers.
- Fiscal irresponsibility on the part of lenders.
The Democrats want to ignore the first factor, and lay all the blame on the lenders. They call the lenders “unscrupulous” and the borrowers “victims.” But the fact is that record numbers of Americans are going bankrupt and losing their homes because record numbers of Americans overextended themselves during the real estate bubble, taking out variable rate loans with low/no downpayments on houses that were well beyond their means, or taking out second and third mortgages to finance their whims and treat themselves to luxuries they couldn’t afford. They are not the blameless lambs the Democrats croon over. And, if they really were that financially naive, they had no business buying a house in the first place.
Owning a house isn’t a right; it’s a responsibility. A house is the largest investment most people make in their entire lives. Many people never own their own house. Anybody contemplating such a significant, long-term financial commitment ought to have the sense to do a little research and understand what they’re getting into, because they’re betting their family’s future and financial security on their ability to meet this commitment. This is truly a situation where, if you don’t know what you’re doing (and you’re too lazy or complacent to learn), you’d best not do it.
The lenders were irresponsible, too. They should have known that lending more money to people than their credit rating would justify was a stupid thing to do, — especially people who were such bad credit risks that they could only qualify for subprime mortgages. Whatever were they thinking? IMHO, if the lenders were actually putting their own money on the line, they would have exercised better judgement. But, under our current system, the natural incentive to protect their interests is mitigated by the fact that they’re not actually lending their own money. All loans get bundled and bought up by larger financial institutions, so the original lender who makes the decision to lend the money isn’t the one at risk if the borrower defaults.
And who’s at the top of this lending pyramid? Fannie Mae and Freddie Mac, sponsored by the U.S. government, are by far the largest mortgage loan aggregators. And then there’s the FHA, whose role it is to insure these loans and guarantee that everybody has an opportunity to buy way more house than they can afford (backed by the full faith and credit of the U.S. taxpayer).
So that’s how we got here. Now that we’re here, the Fed has come up with a plan to “fix” this mess, as part of the economic stimulus package. How are they going to fix it? By doing more of the same, of course. Here are two interesting articles, published three days apart.
Reuters, January 22, 2008
The largest U.S. housing finance companies, Freddie Mac and Fannie Mae, may report $16 billion in write-downs for the fourth quarter due to the falling value of their subprime mortgage investments, according to Credit Suisse analysts.
Chicago Tribune, January 25, 2008
The stimulus package contains several features designed to improve the troubled housing market.
It would increase the Federal Housing Administration’s loan limits from $362,000 to $729,750 and those of two federally sponsored entities, Fannie Mae and Freddie Mac, from $417,000 to $729,750…
The measure would also enable the FHA to become more active in dealing with the direct impact of the housing crisis, permitting more borrowers facing defaults to refinance subprime loans through the federal agency.
Is it just me, or is there something really wrong with this picture?