When it Comes to Free & Reduced Mortgages, I Want Everyone to Know That it Took Me Like 5 Years to Pay Off My Goddamned Honeymoon
Back before I started working at Reason, when I was in graduate school and broker than Amtrak, my soon-to-be wife (and, alas, now ex) and I splurged for about 10 weeks of pre- and post-wedding travel, here and abroad. We financed the fun via credit cards and it took us, all told, five or more years to pay off the goddamned balance. (And don't even get me started on the cost of our wedding, which we paid for too.) The thought of not paying it off never crossed our minds, even though we literally had no disposable income once the trip ended. We kept switching the balance to new cards that offered free or low-interest transfers and carried the debt until we both started working full-time and threw that particular monkey off our backs.
I mention this because that's how credit is supposed to work: You buy something with somebody else's money and then you pay them back, typically with interest. The risk you take in borrowing helps you to make a wise decision (my elongated honeymoon might not qualify as such but fuck it, you're only young once and only horrifyingly in debt about six or 10 times in your life).
And chew on this: The more you borrow, the harder you work because suddenly you're on the hook for all sorts of shit that needs to be paid for or it will be taken away from you. I call that The Flintstone Model of Capitalism. Contra Max Weber, who thought capitalism was based in protestant thrift and accumulation of savings, Fred works hards because it's the easiest way for him to get a cave jam-packed with modern appliances, a pedal-powered automobile, and slabs of bronto ribs so freaking excessive they flip said car. He's not breaking rocks at the quarry every day for the fun of it. It pays the bills that keeps the lights on. Check it out: As soon as the whistle blows, he slides off the dinosaur's back and hustles home to take the family and friends out to the movies and a meal. I'm betting Fred and Wilma were up to their bearskins in debt and it clarified their priorities just fine. It's not complicated: If you don't pay your bills, the goods stop coming. That's pretty much the basis for vast amounts of economic activity and exchange.
Unless you're talking about the goddamned housing market, where for whatever reason, the government is absolutely convinced that every idiot who bought big just as the market tanked should be bailed out. And that everybody who rents really wants/needs to buy buy buy (it's always a good time to buy a house!). And that the answer to a government-enabled economic crash based on a bubblicious housing market propped up by free and reduced government mortgage subsidies is…more of the same. It's like economic homeopathy and about as effective as inoculating yourself from lead poisoning by…eating lead.
Reuters' James Pethokoukis yesterday reported on the glimmerings of a massive August surprise, in which the Obama administration would simply write off billions of dollars in underwater mortgages. Treasury spokesfolks have said that ain't gonna happen, which is good to hear. But Pethokoukis reports on another possible action: A Morgan Stanley economist has floated before a Senate committee the idea of creating a new "stimulus" by loosening refinance rules for the 37 million government-backed mortgages, which would allow underwater homeowners, unemployed homeowners, and credit-unworthy homeowners to lower their payments, thereby stimulatin' the economy by putting more moolah in the pockets of these dummies rather than the pockets of the banks and GSEs.
The logic is that with the government already on the hook for these loans, there's nothing to lose from dispensing with any creditworthiness criteria for refinancing. The median interest rate on the mortgages concerned is 5.75 percent. These loans, the thinking goes, could be refinanced to around 4.50 percent. The 125 basis-point reduction would leave a borrower with a typical $200,000 mortgage better off to the tune of $2,500 a year. If, as Morgan Stanley guesstimates, half the affected homeowners took advantage of this, they would collectively have an extra $46 billion a year burning a hole in their pockets.
As Pethokoukis notes, this is a foolish idea for at least a few reasons. Such as:
One problem is that the government has already tried to streamline the refinancing process with little success. Another is figuring out who would pay any associated fees. But most importantly, the whole idea seems like a deliberate re-creation of the super-cheap credit and lax lending standards that led to the financial crisis in the first place. That's counter to the White House message that America needs a "new foundation" built on fiscal prudence.
He also cautions that as the Dems' prospects deteriorate even more before the midterms, anything is possible. Or even probable.
And let's face it, Obama was never credible, even when he first took office and started yammering on about how "Tomorrow We Scrimp, But Tonight We Spend Like There's No Tomorrow." Bonus memory from January 2009: The great Wash Post headline, "Stimulus aside, Obama vows future budget restraint."
If only. I like to look toward the future, but one thing that seems to have gone missing from even the recent past (much less prehistoric Bedrock) is the sense that, with apologies to Spider-man, with great debt comes great responsibility to pay it back. Or even any responsibility to pay it back. Jesus H. Christ, the whole point of flop sweat when you sign a housing contract or a car loan or a student loan is that you know you're signing on for a potential world of hurt. The minute you stop thinking about that is the minute you start making really goddamned stupid decisions.
You get one bailout too many - that includes car companies and Wall Street banktards along with home buyers who stretched like Plastic Man to move into that dream house on an ancient Indian burial ground - and suddenly you start feeling really pissed that you have to pay for anything.
Which is no way to restart an economy.
Take it away, Fred:
