Below The Beltway

I believe in the free speech that liberals used to believe in, the economic freedom that conservatives used to believe in, and the personal freedom that America used to believe in.

Bush’s Mortgage Bailout Creates Resentment

by @ 11:43 am on December 7, 2007. Filed under Economics, In The News, Real Estate, Sub-Prime Mortgage Crisis

Among those who aren’t going to benefit from it:

The agreement has sparked bitterness and anger among those who either sat out the housing boom or endured friends’ snickers when they stuck with a traditional mortgage and a smaller house. To some who watched prices rise out of their reach or who moved to cheaper cities, the agreement looks like a penalty for those who didn’t gamble.

“What about those of us who played by the rules? Can we get six months of free gasoline? Isn’t there something for the rest of us?” asked Tim MacKinnon. After watching a friend use his home as an “ATM” for years, MacKinnon left Washington for New Jersey, where the $25,000 he had socked away went further.

This creates political risks for Bush, and anyone else who gets behind the idea of a subprime bailout:

Politicians need to appeal not only to people at risk of losing their homes but also to those such as Ben Sullivan, who sees the agreement as a undeserved bailout. After the 2001 technology stock bust, many people lost significant value in their retirement plans, Sullivan said. “No one was offering to pay for their 401(k) losses. Why should they do it for their housing losses?” said the 28-year-old commercial banker.

Sullivan lived in the District for years and watched as his friends flipped condominiums and investment properties. “I think we shouldn’t be bailing out the homeowners that got greedy buying homes they couldn’t afford,” said Sullivan, who moved to Atlanta nine months ago.

Over at The Liberty Papers, Brad Warbiany explores this same issue and asks a question:

It’s not a good situation. But why do so many people want to see punishment, rather than see voluntary agreements between borrowers and lenders that might allow lenders to stay afloat and families remain in their homes? I realize that we are conservatives, and we don’t want to see people insulated from the consequences of their actions by government action, but so much of the reaction that I see seems to be a desire for punishment, rather than understanding. America is a land that values fairness, but it is also a land that values compassion. Why have we swung so far away in this case?

The answer, I think, is two-fold. First, we’re talking about people’s houses here, one of the biggest and most emotional investments anyone can make. From the article and from some of the other coverage that I’ve seen on this issue, there are a sizable number of people out there who are resenting the fact that people who bought houses they a really couldn’t afford under terms they really shouldn’t have agreed to are going to be spared from the consequences of their bad decisions. Second, the involvement of the government in this entire deal changes it’s entire nature. If the lenders themselves had decided, either individually or collectively, to give homeowners in risk of default a break so that they could avoid foreclosure, which is something neither side really wants, I don’t think the reaction would be quite as visceral as it’s been. With the the Bush Administration involved, any aspect of voluntariness, or any idea that this was a decision that the lenders, investors, and debtors reached freely and without coercion, went out the window.

To a lot of people, myself included, it looks like the government intervened and forced the parties to reach an agreement. And that’s why it stinks.

3 Responses to “Bush’s Mortgage Bailout Creates Resentment”

  1. I feel resentful, I ain’t gonna lie. Just doesn’t seem fair that the people who struck out by trying to slam the ball out of the park are now getting another chance. Obviously we’ve known for years that the ARM’s were going adjust! Can’t imagine how up in arms the Republicans would be if the Dems tried to pull this off. Kind of ridiculous.

  2. O. Oca says:

    These resentful people are missing the eventual result of this so-called bailout. The debtors are not being bailed out, the bankers are. As these debtors continue to make payments, two or three years from now, the bankers would have got back some returns on their investments while the same debtors will still be in debt and would need to continue making payments beyond their retirement age. By that time, these debtors will be hooked as addicts are on a certain drug. Picture a gambler who is hoping to recover some of his losses by continuing to bet on a deal that favors the house, the bankers, in this case. The only way you can get back at these greedy bankers and real estate brokers is by letting these foreclosures happen. Make them pay!
    Pessimistically, when that property gains equity, it will then be the target of the health providers when the medical bills cannot be paid by those who got sick working all those hours to pay for their house.
    In the past Clinton era, the R.E. speculators benefitted because $250k of capital gains would not be subjected to tax. Due to the overpriced housing market, people searching for that dreamhouse had to move to locations where there is no civilization, ergo no jobs.

  3. Katherine Mitchell says:

    I agree! I’ve listened for years as conservatives have abused the government and declared it evil and incompetent. But the minute the big investors need it to keep the value of their money, they march in the government. And it isn’t for the benefit of little people who might lose their homes, either. This is the same president who vetoed s-chip and didn’t care much about Katrina. This is not a president who cares about the poor. The problem is that they cannot have the economy tank right before the election, and they cannot have big investors hurt too badly.

    We’ve been told to simply worship the great god of market forces and all will be well. But now, suddenly, government is going to intervene. Apparently, government intervention and largess is only good when it works to the advantage of the powerful.

    Also, as a person who got a 30 year fixed interest rate and has paid more for it, I am angry that people who got good “teaser” rates are going to get to keep them while I continue to pay my higher rate. There is a tremendous moral hazard in teaching a lesson that runs, essentially: If you do something stupid all alone, you’ll suffer. But if sufficient numbers of you do something stupid all together, we’ll fix it for you. This is fundamentally unfair to the many of us who did not gamble. I resent it heartily.

[Below The Beltway is proudly powered by WordPress.]