An Experiment in Scotch

There’s noth­ing like hav­ing the Euro­peans tell us how to han­dle our hous­ing cri­sis. “But as the hous­ing bub­ble deflates, it also drags inno­cent vic­tims into a wave of fore­clo­sures” they crow! Please. What inno­cent vic­tims are being dragged into a wave of fore­clo­sures? Either you can afford the house you live in or you can’t. If you have a house pay­ment that’s more than 28% or so of your monthly income, you’re prob­a­bly not so inno­cent. You bought a house you can’t afford. Just because you now lost your job doesn’t make you any less innocent.

If you don’t have a rainy day fund of around 6 months expenses, you prob­a­bly aren’t so inno­cent. You prob­a­bly spend more than you save. That arti­cle makes it seem like thou­sands of peo­ple who are the epit­ome of finan­cial purity are about to be fore­closed upon and I find that ridicu­lous. Sure there are some out there who played by the rules and just have had a string of bad luck. But $275 bil­lion worth of mort­gages in that cat­e­gory? I seri­ously doubt it.

This bill plunges $200 bil­lion back into Fred­die and Fan­nie who have already proven to be poor stew­ards of the public’s trust. They are allowed now to finance up to 105 per­cent of a home’s value. That sounds like a fan­tas­tic idea. Really it does.

“But the plan is well tar­geted: the admin­is­tra­tion aims to con­tain the fall­out, not to keep every­one in their home. The plan helps only those with a rea­son­able chance to retain their house.” How can peo­ple who have a debt-to-income ratio of more than 38% real­is­ti­cally have a chance of keep­ing their house? That’s a full 10% over the accepted norms and doesn’t even begin to take into account the over­all debt ratio that includes other debt pay­ments like cars and credit cards. These peo­ple don’t have a rea­son­able chance.

Most cru­cially, fight­ing fore­clo­sures is a polit­i­cal imper­a­tive. The admin­is­tra­tion needs a lot more money to save the US bank­ing sys­tem – money that will be forth­com­ing only from vot­ers who feel they, and not just Wall Street, are being res­cued. This plan may help win them over. At $275bn, that seems like a bargain.

Finally we get the real meat. Like all gov­ern­ment hand­outs, it’s a way to slip future ones by us with­out us notic­ing. For that, the Euro­peans prob­a­bly are the ones that ought to be giv­ing us advice.