Free Market Capitalism and the Housing Market
The past few weeks have witnessed an amazing turn in global stock markets. As recently as this June the Dow Jones Industrial Average reached an all-time high of just over 14,000 points, however it has since lost nearly 1,000 points.
Financial experts have pinned the losses on turmoil in what is known as the sub-prime housing market. Namely, foreclosures and late payments on these loans are reaching historic highs and that is having an adverse effect on the banks that issued these loans and, perhaps more importantly, on those investors who bought the divided packages made from these loans–known as “mortgage-backed securities.”
So, you may be wondering, what does this have to do with me or humanism? Maybe your IRA has dropped a few points, a temporary blip in an otherwise healthy market. But is it? Recently, prominent Democratic senators such as Chris Dodd, Hillary Clinton, and Charles Schumer have suggested that they intend to allow the Federal Housing Agency (FHA) to take on the mortgages of those who are at risk of defaulting in order to preserve the “American Dream.”
Is this right? Why should the government be responsible for protecting people from foreclosure? It seems to me that many of the people who were buying homes in the past three to five years were doing so because they thought that home-buying was the ticket to getting rich quick. I understand that it’s possible that some people were victims to predatory lending, but I believe the overriding responsibility of the government is to allow people to suffer for their poor decision making so as to prevent it from happening again.
What do you think? Is this a cold-hearted, conservative position at odds with a Humanist philosophy, or is it a rational, reasonable response to the excesses of the past few years? Let me know.
Subscribe to Feed
No, your position is not cold-hearted, it is just. I personally know scores of people whose greed prompted them to take on high-risk loans much beyond their earning power. Most financial advisors say you shouldn’t buy a home worth more than three times your gross annual income. For an individual or family making $100,000, that means a house under $300,000. Yet I saw many here in the San Francisco Bay Area buying houses in $700K to $1 million dollar range — 6 to 10 times their income. Such foolhardiness cannot be excused. I do not want my caution and hard earned tax dollars bailing out these reckless individuals. I’d rather the government spend its resources on providing health care insurance to the poor and strengthening education — so that our future generations won’t be so dumb and foolish to repeat this mistake.
The market is a coldhearted mechanism, and it would be a grave mistake to throw away reason and go with emotion. Sure, you can have compassion for the people who made a mistake and got into the housing market over their heads. But there is no good rational reason to bail them out with tax dollars of others.
If the government has some kind of responsibility to pamper the people who make unwise choices, and cover for their errors and losses, then hey, I will buy that Harley Davidson I always dreamed of, then when I can’t keep up the payments I’ll sob and weep for intervention by the state to salvage my American Dream. And thanks, you guys, you will be paying for it.
Well I’d have to say yes and no. We need shelter as much as we need food and water. We also need better loan practices in general.
Perhaps it’s just that I don’t think in a housing market where I’ve not seen a house for $300,000 (I’ll grant you I’m in DC not the Bay Area) that I would say was fit for humans to live in that was also say close to transportation etc etc. This might lead me to go higher than I wanted on a house especially when loans are cheap and credit is being thrown at me. I can’t categorize that as greed, per se but just human nature.
Why don’t we express anger at the loan companies greed and foolhardiness in passing out so loans to at bad rates and to people who were bad risks?
We’ve already made it very hard for people to declare bankruptcy, as if that was a joy to do and people were doing it at the drop of a hat instead of as a last resort.
Did the loan companies think they would get their money because of the new bankruptcy laws? Or did they just plan on foreclosing and selling the houses again? Maybe its human nature again but the governments got to do something somewhere and the money’s probably better spent regulating loans then bailing bad loans out.
Certainly we need to implement an economic conservatism so that we can pay for the things the really important things in life. Shelter is really important, though.
Now if they would right a bill to prevent subprime lending and predatory practices and actually work on consumer issues instead of bailing out lenders. That would be something. Then I’d be for the Democrats
yes - conservative, thus cold-hearted.
as for any bailout, i don’t know the details, but i would not be surprised if it either:
a) did nothing, or
b) primarily helped rich Republican donors and corporations.
Shelter is important (vital, actually), but what is more important is that each person approach the problems and opportunities of life with forethought, adaptability, and ethical restraint. These are features of human sort of mind, if we will only make a point of developing them. We can compel lending institutions to fully inform prospective borrowers of risk factors and the potential losses when they invest, but in the end each individual must arm himself with knowledge and calculate whether he can handle the risks he undertakes. Sometimes people must learn things the hard way.
Now, if the borrowers had in any way been misled by the lenders, which would set them up for failure in an unethical manner, then the lender is at fault and should be legally censured, including the blocking of the foreclosure process. But if an informed but incautious borrower overextended himself, taking inordinate risks in hopes of inordinate gains, well, that really is his own responsibility and taxpayers are not obligated to bail him out. In fact, to do so would encourage future borrowers to repeat the whole scenario. As a practical matter, that can’t be regarded as good for the economy or those who want to engage in the risky venture of investment, whether in a home or any other valuable property. Humanists should uphold the ideal that part of having a human style of mind includes the presumption that everyone can and should learn the features of the terrain they are about to enter, including a realistic assessment of the risks of entering it.