The great underappreciated issue of this year’s election is the ongoing expectation of irresponsible people that they ought to be bailed out of their own mistakes by the responsible. It’s a bedrock concern that cuts clear across party and ideological lines.
A recent ABC News story on the relatively strong state of home mortgages in Texas contained this fascinating note about the late-2000’s real estate bubble:
One of Alan Greenspan’s lesser-known contributions to the annals of the credit crisis was a pair of studies he co-authored for the Fed, sizing up exactly how much Americans borrowed against their home equity in the bubble and what it was they were spending their new found (phantom) wealth on. Greenspan estimated that four-fifths of the trifold increase in American households’ mortgage debt between 1990 and 2006 resulted from “discretionary extraction of home equity.” Only one-fifth resulted from the purchase of new homes. In 2005 alone, U.S. homeowners extracted a half-trillion-plus dollars from their real estate via home-equity loans and cash-out refinances. Some $263 billion of the proceeds went to consumer spending and to pay off other debts.
In other words, a great deal of the borrowing among people who weren’t all that creditworthy in the first place was not only based on bubble real estate valuations, but the money borrowed didn’t even go towards actually buying houses. It just evaporated into buying more stuff, with overvalued low-equity homes as the only collateral.
A person who’s borrowed only what they could afford to pay back looks at those numbers and says … well, they say things like this:
So lemme get this straight. You just HAD to have that McMansion with the granite countertops and the gold-plated toilets, so you bit on the 5-year ARM thinking oh, sure, you’ll be in upper management by then and making down payments on your summer home in Martha’s Vineyard, and this 6000-square-footer will be small potatoes. In the meantime, I get the split-level built in 1989 with the peeling popcorn ceiling at a fixed rate I know I can afford even if things go south for a while. You get canned, your rate balloons, and suddenly YOU’RE supposed to get help. YOU get six months without having to pay at all, AND get to refinance at a sweetheart rate while you look for another suit job. Where’s mine, Ace? If somebody really got swindled, well then okay, let’s figure something out. I can see a tweak here and a tweak there. But what’s the reward for being responsible? I haven’t found the bank or utility that takes righteousness for payment.
That’s no slavering right-wing tea partier talking; that’s my friend Lein Shory, who among other things is an Obama voter and confirmed liberal.