I had a friend when I was growing up that constantly got help from others to make it through the trials of life. No matter what the situation, he could find a way to get someone else — family, friends — to do the ‘dirty’ part of it, the hard part, the unpleasant part. In short, he ended up avoiding nearly all major responsibilities and consequences, or at least he had help in them and so he didn’t hit the ground nearly as hard when he fell.
No doubt a lot of you have heard about President Bush’s latest dubious action, which was to strike a deal with the mortgage market and attempt to freeze some interest rates from climbing so people didn’t have to foreclose and lose their houses. The essential idea behind it is this — during the housing bubble of the past few years, a lot of people either bought their first house or upgraded. Because interest rates were so low and lenders were giving out mortgages left and right for great terms, a lot of people bought a bigger place than they could really afford. They could do that because lenders gave out a lot of ARMs — Adjustable Rate Mortgages. It essentially means that for the few few years, your payments are low and your interest rate is, too. After that, however, the interest rate readjusts, usually higher, and your payments go up steeply.
Well, three or four years later, here we are, and a lot of homeowners are finding themselves in dire straits. Their ARMs have readjusted and, because interest rates went up, so did their payments — significantly. Suddenly that $350,000 house in Orlando is sucking up all of their income and they’re eating ramen to make it. If borrowers can’t make the payments, the lenders foreclose on the property and take it back and they lose their house as well as getting a black mark on their credit history.
So, the government is stepping up and saying, “Hey — a lot of foreclosures are bad for people and bad for the economy, so we’ll help you folks out and here’s some programs to assist you through this tough time.”
Excuse me? Since when
was
this a
good idea?Since when was this a good idea?
Frankly, I’m miffed. By doing this, the government is basically condoning the actions of stupid people. Just like investing in Internet startups in the late 90s, everyone got too excited and did dumb things that they’re now regretting. Feeling a bit bad about buying a house that cost you $600/month for the first few years and now costs you double that? Want me to call the waaambulance?
As I heard one financial analyst say on the BBC, people are financially motivated in two ways — the pursuit of gaining wealth and the fear of bankruptcy. Both features exist in capitalism to balance the system out and make it dangerous to be reckless with your money. Sometimes that risk pays out — and sometimes you hit snake eyes.
I feel bad for anyone who had the wool pulled over their eyes about a bad mortgage, but only a little bit. Buying a house is not a trivial matter — you’re are making a huge purchase that will extend over years of repayment and financial situations — it behooves you to know exactly how your loan will behave at any point and what your risks are. Assuming everything will be fine because the banker says so is stupid. Failing to understand the risks you are taking is also stupid.
Call me cold-hearted, but I think this sets a bad precedent. Just like my childhood friend, this basically says that being idiotic with your money will result in the government stepping in to make sure you don’t suffer from it. If they do that now for mortgages, do we get a slippery slope to other risks in life? Oh, you made a bad choice by jumping off a roof — let us help you pay for that. You bought a huge-ass SUV and can’t afford the gas now to drive to work? Let us help you subsidize that. A bad hand at poker? You didn’t mean it, did you — here’s a Benjamin to keep going.
A bankruptcy would suck — but life isn’t all tea and sandwiches, either. Sometimes the only way people learn is by making mistakes, but apparently letting people make them isn’t ok anymore?
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