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.
A variation on the same question can be asked regarding the massive 2009 “stimulus” package, most of which has been routed to propping up profligate state and local governments: why isn’t the so-called public sector cutting back along with the rest of the country? Almost all of the job losses since the late-2008 crash have been in the private sector. States and localities are literally going broke because of irresponsible promises politicians made to government employees. Why should their financial status be any different from, say, construction workers whose jobs dried up in the real estate collapse?
The Obama administration’s 2009 takeover of General Motors and Chrysler, largely to the benefit of the United Auto Workers, was spectacularly unpopular among the electorate at large, despite being billed as an effort to stave off even more unemployment. But what was that buyout if not a transfer of money from the productive businesses and individuals in the country to a union and two companies that had just plain failed to find enough customers? No one in Washington had a good answer for why a pizza store owner in Denver ought to have to pay for cars he didn’t want to buy from Detroit. Heck, even a UAW member at Ford is probably wondering just why his taxes are going to support his competition.
The more you look at the economic situation, the more you see the pattern. Take the banking crisis: irresponsible banks loaned money to irresponsible people, backed by an irresponsible government that’s trying to make up for the whole thing by borrowing and spending more and more money … irresponsibly.
And everybody who didn’t do stupid things with their house or credit or business? We’re being asked — no, that’s not right, we’re being ordered — again and again and again to pay for the bad decisions of the people who did.
Most politicians, fearing media sob-stories about people being evicted, have jumped automatically to George W. Bush’s unfortunate mantra of “when somebody hurts, government has got to move.” The majority who pay their bills on time and didn’t act irresponsibly are saying, very clearly, “The hell it does when your problems are your own damn fault.”
Several trillions of dollars later, a whole lot of politicians are going to reap the whirlwind courtesy of the ranks of the responsible. Unfortunately, though, the money is spent, and the most that we can accomplish at this point is to stop the bleeding.