My bad, not yours
Thursday, February 26th, 2009In his column yesterday at Time.com, Joel Stein explains exactly why so many people are angry about President Barack Obama’s Homeowner Affordability and Stability Plan.
A lot of optimistic people bought houses near the historic height of the market, say November 2005, for absurdly high prices, say $1.12 million, in places like the eastern Hollywood Hills section of Los Angeles. These people are very, very sad. Trust me on this. But the sudden drop in housing prices hasn’t made it any harder for these people to pay their loans. That’s because your home’s value is utterly irrelevant until you want to sell it…
…The only people affected by plummeting real estate prices are the ones who bought a house that cost more than they could afford, hoping for a spike in value so they could sell at a profit or take out a new loan based on an increased value. Their home wasn’t just a place to live; it was an investment they thought they could liquefy at will. If we’re saving these poor souls from the 26.7% drop in their investment, we should give twice as much aid to everyone who has lost approximately 50% in the stock market since its peak.
My wife and I bought a house we could afford, we drive pre-owned cars, we perform in depth price comparisons while shopping for anything, and then we wait for the item to go on sale before actually buying it.
Due to massive amounts of underemployment/unemployment, we’ve been forced to work with roughly half our regular income for the last 3 years. We made adjustments, cut expenses, and somehow managed to not make any late payments. But we’re now deeper in debt than we were, and even though we did the right thing and managed our finances responsibly, there’s not much we can look forward to receiving in the way of relief.
If we reimbursed people who lost cash on risky investments — or “subsidize the losers’ mortgages” — we’d create a moral hazard, telling everyone there’s no risk to gambling. It’s why parents fight their instinct to save their kids from the consequences of their mistakes.