Monday, April 5, 2010

Issue of the Year: Responsibility vs. Irresponsibility

From an interesting (no, really) piece about mortgages in Texas:

Subprime cash-out refinancings became a standard way for borrowers drowning in credit card debt to pay it off, boost their credit scores so they could qualify in a few months to refinance into a lower-rate prime mortgage, and get a big tax deduction in the bargain. Ex- New York Times Federal Reserve reporter Edmund L. Andrews recounts in his underappreciated book Busted how he conjured $50,000 this way via a mortgage from Fremont Lending & Investment.

Homeowners and mortgage brokers weren’t alone in their addiction to the cash that flowed from homes-as-ATMs. The entire U.S. economy was right there with them. One of Alan Greenspan’s lesser-known contributions to the annals of the credit crisis was a pair of studies he co-authored for the Fed, sizing up exactly how much Americans borrowed against their home equity in the bubble and what it was they were spending their newfound (phantom) wealth on. Greenspan estimated that four-fifths of the trifold increase in American households’ mortgage debt between 1990 and 2006 resulted from “discretionary extraction of home equity.” Only one-fifth resulted from the purchase of new homes. In 2005 alone, U.S. homeowners extracted a half-trillion-plus dollars from their real estate via home-equity loans and cash-out refinances. Some $263 billion of the proceeds went to consumer spending and to pay off other debts.

And everybody who didn't do stupid things like that? We're being asked--no, that's not right, we're being ordered--again and again and again to pay for the bad decisions of the people who did.

If you ask me, the great under-appreciated issue of this year's election is the ongoing expectation of irresponsible people that they ought to be bailed out of their own mistakes by the responsible. It's an issue that cuts clear across party and ideological lines.

Most politicians, fearing media sob-stories about people being evicted, have jumped automatically to George W. Bush's unfortunate mantra of, "when somebody hurts, government has got to move." The majority who pay their bills on time and didn't act irresponsibly are saying, very clearly, "The hell it does, if your problems are your own damn fault."

Several trillions of dollars later, a whole lot of politicians are going to reap the whirlwind from the ranks of the responsible. Unfortunately, though, the money is spent, and the most that we can accomplish at this point is to stop the bleeding.


  1. Irresponsible companies have been bailed out many times now. It's like throw someone a piece of bread, then that someone comes back to you saying can I please have some more, without even saying thank you. The whole Bush methodology at that time was spoon-feeding lazy and irresponsible entities. I think if we're going to bail out these companies, they might as well offer payment plans and incentives to on-time and responsible tax paying citizens.

    If you're interested in either Calgary mortgage brokers or Fort McMurray mortgage brokers, or just the McMurray mortgage system and laws, you can look into the links that I've provided. Thanks for adding my post and hearing out my opinion on this topic.

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