mad anthony

Rants, politics, and thoughts on politics, technology, life,
and stuff from a generally politically conservative Baltimoron.

Tuesday, March 04, 2008

He's no Alan Greenspan...

Steven Green, AKA VodkaPundit, has a short but to the point post on the stupidity of Ben Bernake's recent suggestions to banks that they forgive part of the debt owed to them by people who can't or won't pay their mortgages.

Stuff like this, or Hillary's proposed 3 month freeze on foreclosures, or suggestions that banks be forced to make permanent temporary "teaser" rates on mortgages bugs the hell out of me.

I bought my house in the summer of '06, when prices were high, in part because people who would never actually pay for their houses were driving the price up. I had to make a number of changes to my plans - buying a smaller house than I wanted, waiting an additional year in order to save up a bigger down payment, cutting spending in other areas, and taking out a 40-year fixed rate mortgage, because I didn't want to deal with an adjustable-rate ARM or interest-only IO - because I knew that at some point these would readjust and make it harder for me to budget.

And as a reward for being fiscally conservative and intellegent, I get nothing (well, except my house) while people who made bad choices get lower interest rates, debt forgiveness, and the like.

That annoys me a little, but doesn't leave me any worse off directly - my mortgage payments remain the same, and remain within what I can afford. What does affect me is the long-term implications of policies like these. If banks end up being forced by the government to forgive debt or lower interest rates on loans, they are going to be a lot more careful about who they loan money to in the future. That means a lot fewer loans, and that means a lot fewer people will be able to buy houses. Fewer people buying houses means less demand, which means lower housing prices. Which means that when MadAnthony goes to sell Casa De Mad, he won't be able to get as much for it, because banks won't be willing to loan as many people money. Instead of being too free with credit, they will err on the side of caution, and lots of people who should be able to get mortgages won't.


At 11:11 AM, Anonymous Anonymous said...

You hit the nail on the head regarding punishing those who made wise decisions and helping those who made imprudent ones. It sounds nice to say we will help people who are about to lose their homes, but the effect down the road is that someone else can't buy a home in the first place since lenders will be forced to require a higher interest rate.

The other problem with bailouts such as those being proposed is that the next era of a rising asset class (homes, stocks, bonds, whatever) will include just as much bad behavior or more because history instructs everyone that the Federal Reserve or Federal government will bail you out no matter how reckless you are.

Those who were genuinely mislead or lied to about the terms of their loans should have some recourse. However, in general letting people learn from their mistakes is a good thing.


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