Posted by Rojas @ 7:39 pm on September 15th 2010

They have learned nothing

Fannie Mae bankrupted itself and had to be bailed out of a massive hole by the taxpayers. Now, a couple of short years later, with mortgage defaults still running in the millions, they are again offering mortgages for little or no money down. The article linked cites an example of a man with a $32,000 annual income buying a hundred thousand dollar home for a down payment of 67 cents, because the unthinkable alternative would be to have to rent for several years.

The New York Times piece is, of course, full of laudatory quotes about how This Time Will Be Different, and offering up hope that first-time buyers will reinflate the housing market if offered the right (perverse) incentives. It closes with this whopper:

“One of the great and unsung tragedies of the whole crisis was the end of the subprime market.”

No, that was not in any sense a tragedy. Interest rates are what they are because the market has determined them to be an accurate measure of the likelihood of a buyer default. Subprime loans, from both the lender and the taker’s perspectives, are very often bad decisions which exist in simple defiance of market mathematics. Remember, we are not dealing with people who would otherwise be homeless here, but with people who would otherwise be renting housing.

If we are looking for a “great and unsung tragedy” here, it is certainly not the one the article cites. The tragedy lies in the fact that the political class has chosen not to allow us to absorb the chief lesson of the housing collapse, namely: that it is unwise to choose short-term pleasure at the expense of inevitable long term pain, and that it is smarter to defer purchases until you are actually able to afford them. The less intelligent segment of the electorate has demanded something for nothing, and as always the government has given it to them. Thus begins again the cycle wherein we live high on the hog until the inevitable crash.

1 Comment »

  1. And then there’s Time

    The bottom line is so long as home ownership is considered an American value, it’s going to look an awful lot like a right to a lot of people. We do this with a lot of things – income, education, health care, etc. We spend so long marveling in how awesome it is that we forget that a large portion of the value of it is the earning of it. Somewhere along the way, people pined for home ownership, and where there’s someone pining there’s someone promising, and where there’s someone promising there are people who decide they’re deserving, and where there’s people feeling deserving there’s people feeling entitled, and where there’s people feeling entitled there’s a massive social program to make sure they never want for it again. It’s just staggering sometimes, I mean really take-your-breath-away stuff, to hear people talk about home ownership like their due, or, even moreso, to hear POLITICIANS talk about people owning homes as their due.

    This last year or two have constantly reminded me of the Alexander Fraser Tytler (or whoever) quote:

    “A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury. From that moment on, the majority always votes for the candidates promising the most benefits from the public treasury with the result that a democracy always collapses over loose fiscal policy, always followed by a dictatorship. The average age of the world’s greatest civilizations has been about 200 years. These nations have progressed through this sequence: From bondage to spiritual faith; From spiritual faith to great courage; From courage to liberty; From liberty to abundance; From abundance to selfishness; From selfishness to apathy; From apathy to dependence; From dependence back into bondage.”

    Comment by Brad — 9/16/2010 @ 11:18 am

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