"I have a moral (and decidedly politically incorrect) problem with bailing out homeowners whose interest rates have risen beyond where they can pay. I know that a lot of innocent people were the victims of predatory lenders -- just as many people with credit card debt are -- and I hope the bad guys are punished and, in the future, regulated. But I pay my credit card on time, and I took out any number of fixed-rate mortgages over the past 20 years, paying a higher rate than I could have had I gotten short-term rates that would later rise if overall rates rose. In other words, I paid tens, possibly hundreds of thousands of dollars to ensure that this entirely predictable development would not bankrupt me or my family. These people didn't. They took the easy way out, and now they are being forced to pay for it. Why shouldn't they? Why should this good, responsible citizen with his relatively high mortgage rate be asked to bail them out? Am I responsible for their credit card debt as well?"
It sums up my own ambivalence about bailing out anyone (homeowner, bank, whoever). Unlike Alterman I can't point to a string of good decisions I have made in the past. I have made a number of bone-headed choices, rotten assumptions, and just plain silly decisions. Some of this I realized only in hindsight because the options seemed well thought out and logical at the time. I have paid for some of them. I am still paying for some of them and expect to pay for one for the rest of my natural life, barring some unforeseeable lightning stroke of good luck. And I have come out of one, at least, by the grace of whatever deity without major harm. I fear that bail outs will only reinforce the most negative tendencies in our modern society--greed, selfishness, thoughtless and wasteful accumulation. We need a really strong purgative and, perhaps, refusing to bail out anyone is the right medicine.
Having said that there is another aspect which should be dealt with--the fraud that was involved in so many of the sub-prime mortgages. TPM Cafe has an article citing a JP Morgan/chase memo to brokers with tips on how to make sure their applications got approved by the bank's automated approval system. The memo is quoted as "explicitly suggesting that brokers inflate borrowers’ income or otherwise falsify loan applications". Once upon a time, I do believe that was called FRAUD. And that memo would have been a 'SMOKING GUN.' I wonder if anything will come of the FBI investigations into Countrywide. How about investigating the practices of some other banks? This 'prosecute the bastards' policy should be the flip side of the 'no bail out' proposition. It is one thing to suggest, as a realtor I once dealt with did, that one cherry pick the largest of the last six or twelve pay stubs to get the largest estimate of one's income and another to make up what ever numbers will ensure the approval of a mortgage. The first has at least some tenuous link to reality. The other is a LIE. Even though the JP Morgan/ Chase claims the memo doesn't reflect their policy, I don't think I can sum up the matter any better than the author of the blog:
"The bank says that although the memo bears a Chase corporate logo and was emailed from Chase, it does not reflect the bank’s corporate policy.
The Oregonian, reporting on the issue, commented: “Even if the memo was penned by a single employee, it illustrates an attitude prevalent in certain corners of the mortgage industry during the boom years. In the face of sustained and significant home price increases, much of the industry veered away from traditional notions of safe and sound lending. Loan volume became as important as loan quality, particularly for the rank and file typically paid on commission.”
After being forced to write down $1.3 billion in nonperforming mortgages at the end of 2007, Chase no longer makes the stated income loans (also known as no document loans and liar loans) to which the memo was referring. But while Chase waited for this inevitable lesson, thousands of families were induced to take bad mortgages and the taxpayer funded FDIC was tricked in to insuring a bank making consistently bad loans.
The existence of the memo is a powerful reminder of what many advocates have been saying for years: we need regulation that anticipates that even the nation’s largest and most respected lending institutions are all too capable of systematically manipulating their customers and lying to the federal government, which not only insures them, but is certain to bail them out when times get tough. They face unchanging and powerful incentives to be profitable; they need equally powerful incentives to be honest and ethical."
I was going to get into Obama's campaign but I think I will put that off. I just downloaded his 'Blueprint for Change" pdf and will spend some time reading it today. I did notice two things: first that the top of the agenda in the Blueprint (or at least the first point listed) was Civil Rights; and, second, that the majority of his points on issues, especially those first listed, seem to speak to ordinary folks. That is a positive thing. But I will come back when I have a better handle on the details.
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