I’ve been reading Megan McArdle a lot lately in an attempt to understand the current financial crisis. In one of her posts, I’m trying to decide if I’m a bad, bad person, or if I just happened to buy my condo at just the right moment and lucked out on price and interest rates.
It’s hard to tell.
I feel bad for the homeowners, and outraged that so many people got gigantic sums of money for screwing up the financial system. But that money’s gone. The mortgage bankers have already mostly lost their jobs, because their market (and often their firm) collapsed. Much of the outrageous compensation was in now worthless (or nearly worthless) company stock. And even if we dun, say, the top executives at Bear, Lehman, and AIG (I’m not opposed to doing so if it’s legal), we will get only a trivial fraction of the money lost in these markets. You know who made most of the money on the subprime bubble? Anyone who bought a house in the last ten years. Yes, that’s right, you, with your low fixed interest rate on a reasonably sized house. You’re the profiteer who laughed all the way to the bank.
I’m laughing all the way to the bank? I’m a profiteer? But—but—I saved my money, I paid down my debt, I waited until I found a mortgage I could afford, and I bought my house.
People were gambling on the housing market–nice, middle class people who would never carry a gigantic credit card balance or declare bankruptcy. In the face of the housing bubble, they took out ARMs they knew they couldn’t afford to pay when the teaser reset, in the hope that rising home equity would let them refinance. (A fair number of them got away with it, too.) When pressed on this behavior, they claimed they had to because otherwise they couldn’t afford a house–as if renting were a physical or moral impossibility.
Borrowers were not brought down by predatory lending. The terms that are causing trouble were clearly laid out in their loan term sheets, right on the top of their mortgage package. Borrowers were brought down by a willingness to gamble on rising home prices–exactly the same thing that knocked out Lehman Brothers. At least Lehman Brothers had the excuse that ten years of rising prices had completely screwed up their default models.
Bailing out home gamblers by freezing their mortgage rates, extending their loan terms, or otherwise forcing the banks to give them free money, will teach them the same thing we are trying hard not to teach Wall Street: if you gamble big enough, Uncle Sam will pick up your losses. Moreover, it’s not exactly the cleverest idea to levy a huge regulatory taking on an industry that’s already really shaky, and threatening to take the rest of us down with it in the event of a collapse.
Any bailout should not aim to help either homeowners or lenders for their own sake–we are helping them because if we don’t, the rest of us will suffer more than the cost of the bailout. The health of the Fort Meyer housing market is not the proper province of the federal government, no matter how distressing the locals may find it.
Okay, well, I don’t have an ARM, I didn’t buy a house too big for my pocketbook (though to be honest, I could have gotten a smaller condo and been happy enough in it, but hey, it was in my price range, and I really do love the extra room), and I didn’t gamble on home prices going up. So I guess she’s not talking about me after all. But that surely is an odd way of calling out the villains in this piece: People who took advantage of lower interest rates to buy a home, or refinance their higher mortgage, and had the finances to keep it. I don’t think that’s quite right. There are executives out there who have pocketed millions of dollars that are not in worthless stock options. They’re the bad guys. Not my friends who built a new home six years ago and refinanced it during the falling interest rates period.
I’m not going to need bailing out, but I will be one of the ones paying for it, I’m sure.
I kept getting calls and mail with refi now etc and either hung up or shredded them.
My mortgage is one weeks pay which was the rule of thumb years ago and looks like it will be again.
Main thing that gets me is the greed factor of some firms. If “WE” don’t write the paper, someone else will.
YO Big Shots! If you hadn’t, you would still be in business, making payroll and reporting true earnings.
One of the reasons I bought a home this year is because one of the greedy lenders tried to convince me a year and a half ago that I could buy a home with no money down, a mountain of debt, and without having a guaranteed job.
I declined to buy a home under those circumstances, waited until my contracting job became permanent, and paid down my debt. The result is that I can afford to pay the mortgage and yet still have more than enough money left over to live on.
An awful lot more of us could afford our houses if the Government wasn’t taking money to provide housing for people who refuse to work. That huge mountain of National Debt is the direct result of the so-called “War on Poverty” and the chickens are coming home to roost. Robin Hood economics have never worked, People should be able to keep their own money, spend it on their own families, and as the Apostle Paul once said: “If a man not work, let him not eat!”
Don’t get me wrong, I have no objection to a “Safety Net” for people that have worked and need help, but some people have made a “profession” out of living from cradle to grave on other people’s money, and are very good at it. For every dollar of “restributed wealth” collected, between 8 to 12 cents is paid out to so-called “beneficiaries.” The rest is absorbed by the out of control beauracracy, the Nation’s largest employer; Government.
The financial crisis is only the tip of the iceberg. If we don’t end welfare, dump Nationalized Healthcare, Medicare, and fix the gigantic pyramid scheme known as Social Security, our Economy will end up dragging us into the dust-heap of History.
No Nation has ever taxed themselves into prosperity, and it won’t happen now. Until we stop listening to the “Gimme Pigs” and end payments to the worthless, we’re spending money our great grandchildren haven’t even been born to earn yet.
Robert
I’m pretty sure McArdle is talking about people who bought during the boom, not people who bought a couple of months ago. Still, her criticism is weird coming from a free marketeer: people were reacting rationally to the fact that capital appreciation in houses far outstripped the cost of finance. In a situation like that you leverage up, buy low and sell high. It’s just that houses are a lot less liquid than other assets. Whoops! Enjoy your manageable debt, Meryl. You appear to have earned it.
The economic situation will get worse before it gets better. We are in serious trouble.
You know, upon further reflection (especially after it was pointed out to me twice in the last two days by two different people), I seem to have slid into home ownership just before the door slammed shut on getting a loan.
I sent out my first mortgage payment this week. I’m so excited about that.
Yes, I know it will get less exciting. But it’s my first mortgage payment. Not rent. Mortgage.
And may I say: Woo-hoo!
Wait until you get your statement and find out that about two bucks actually went to principal…
Robert
Yeah, but the interest is tax deductible. So you the long-term cost of that payment is about 20-30% less than the amount owed.
Compared with rent, where you get none of it back, and a landlord can (and usually does) raise the price every year.
I bought my home about 10 years ago and have 20 years left on my mortgage at 6-3/8%, and I’m quite satisfied with my situation. And if any pundit wants to call me a “profiteer”, I’ll just have to point out all the ways that he’s getting rich off of others – and I guarantee there’s dirt to be dug up on every last one of them.