Tuesday, February 24, 2009

"Losers" Was An Unfortunate Choice. But, Still...

(This is in partial response to Josh's comments on my last post. I thank all of you who responded and who continue to read this space. I appreciate even more when I get to respond to criticisms of what is written here. It keeps me on my toes).

O.K., Rick Santelli should not have called people "losers." That was a bad choice.

I also realize that his lively personality is a mix of trading floor bluster and the sort of invective that makes for entertaining television. Bearing that in mind...

While I agree that the "American Dream" has, for some time now, included home ownership, I guess I see it a little differently.

I focus on the "Dream" part of it. It is an aspiration, something toward which people strive. It does not equal the right to own property. Property ownership should, naturally, be absolutely guaranteed by our laws. What they should not do, however, is guarantee property ownership to everyone.

Is there a component of home-ownership that goes beyond rational self-interest? Sure, I suppose there might be, something tied in with sense of home and place. This is surely, though, a higher-level concern when property is involved. At the base, a person's relationship to property is an economic one. People should be able to buy property if they can reasonably afford to do so.

At the core of this must be a frank honesty with oneself about one's limits and expectations. If we are honest about our financial situations and our likely prospects, the ability to own and maintain property should be clear. If we cannot afford it, we should not be blinded by some ideal vision of property ownership. It is this sort of thinking that led people into the difficult situations that we see today. At the heart of every forclosure is someone not willing to be honest with themselves.

While I also agree that the housing issue goes to larger issues of public safety, health and welfare, I cannot agree that these issues are dealt with merely through having a big house. There is plenty of housing stock available, older but serviceable homes and rental units that would be ideal for people starting out their lives or suffering some economic hardship.

This is not what people wanted during the housing boom. Against better judgement, people could borrow more so they did. Not being able to fight this urge, people took on more debt than they could reasonably handle. Thus the Santelli remarks of last week.

Another thing that I cannot forgive is anyone who thought that they were safe because the housing market would keep going up. Give me a break. You don't have to know much about finance or economics to realize that the value of anything is not stable - prices always fluctuate.

To the issue of people being thrown out of their houses and then showing up on the dole later, I say that I would rather pay for their unemployment and welfare benefits (which are temporary) than to pay off an underwater thirty-year mortgage. I have not run the numbers on this, but I suspect they may bear me out.

To the point on the government actually helping people take risks, there are two sides to this issue. In the short term, moves by the government might help to restore confidence and get those capital flows out there again. More generally, though, these moves by the government will hurt risk-taking and speculation.

How? By constantly changing the rules of the game, the government is making it hard for the investing public to say anything definitive about the direction of markets. One look at a one year chart for any market index shows the reactions of the market to this ever-changing landscape.

Oh, and one final thing about Frontline and Paulson. I think it was specious to suggest that the decision to let Lehman Brothers fail had anything to do with a personal vendetta of Paulson against Dick Fuld. Did the two guys hate each other? You bet your ass they do. Enough to do a thing like that? Please.

Thanks again, Josh. I hope that I have spoken to your objections and concerns. I appreciate anything that sparks discussion and keeps people talking. That's the only way we will come to figure these big things out.

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