Tuesday, August 7, 2007

More Real Estate Woes

A couple of days ago I posted about how hard it can be to get a mortgage. Sadly, this story is only going to get worse. For the past several years, buyers have bought homes with zero down on adjsutable rate, interest-only notes, because "everybody knew" that the housing market was going to expand forever and anybody could just cash out and "flip" 2 years later, pocketing the huge equity run-up. Now that the market is finally contracting, there are going to be way too many people who bought more house than they could afford facing foreclosure. It's not going to be pretty. (Indeed, today's paper showed a top-10 national lender has declared bankruptcy.)

I'm not sure where my sympathies lie here. To a certain extent, it's natural to say that if somebody borrows money, they are morally and legally obligated to pay it back, period. If they are not responsible enough to do so, they ought to be in trouble. On the other hand, banks and other lenders (especially these predatory sub-prime places and credit cards) have been giving loans to people who should never have qualified for them. There is an old, old joke that defined a bank as the place that will give you a loan if you can prove you don't need the money. Those days are long gone. I don't want to be in the position of excusing irresponsible borrowing, but at the same time, there is more than enough irresponsibility on the lending side to at least share in the negligence.

Regardless, this is one of the areas that itches me. My wife and I would have liked 4 children. We have three, because we knew we couldn't comfortably support a 4th. We would like new cars. We make do with (very) used ones. We had a decent-sized, brand-new house. We downsized to a 40+ year-old, 1600 square-foot ranch--you guessed it, because it was the "wise" thing to do. We do without certain luxuries so that we can maintain adequate health, life, disability, auto, and homeowners insurance. And it's still tight, each and every month. So whenever I hear about the poor schmo whose house blows away who had no insurance (or the 50 million uninsured for health care), or the people who are being beaten to death by an excessive mortgage, or are upside down in their new car and can't get out, I have to wrestle down the impulse to scream, "Be a man! Think long-term! Make a decent decision, for once!" Then I feel guilty for being so heartless. In general, I think that when we insulate people from the consequences of bad decisions, we remove the incentive to learn and make good ones down the road. On the 0ther hand, many people are never going to get it, and we don't want to pile on and make it worse.

Oh, well. If anything, I guess I should just be happy that when the housing bubble does burst, at least I will hopefully not be one of the victims.

1 comment:

bekster said...

I have to agree with your statement that “when we insulate people from the consequences of bad decisions, we remove the incentive to learn and make good ones down the road.” As for the people who make bad decisions anyway, they are still going to make bad decisions anyway. If they aren’t getting beat up about their money, they’ll find some other way to make their lives harder. Still, you never want to be cruel if you can help it.

I think the overall problem is that we as Americans have become way too dependant on the systems we have set up that we no longer bother to think for ourselves. Of course, this is a very generalized statement, but I think it is mostly true. We TRUST that the bank would not give us a loan if we could not afford it, so we leave the decision up to them instead of using our own brains. I’m not exactly sure what the bank people are thinking, but I’d like to think they’re just trying to be “nice” and giving people the chance to “fulfill their dreams” or something. Well, we’ve seen how that has worked out, so obviously they are not using their noodles either.

Going back to what you said about insulating people from consequences, people automatically assume that if they are doing the wrong thing it will be immediately apparent because there will be some immediate consequence. However, when we remove those consequences, people--who we have already established are not thinking for themselves--assume that what they are doing is okay, so they do it, even if it is actually wrong. I admit, I am the same way. I tend not to bother doing something remotely unpleasant--even if it is a really good thing to do--unless I know that I really HAVE to do it or something bad will happen. However, what I really should do is do it anyway because it is the right thing to do.

I think the American people need to adopt a similar attitude and GET EDUCATED so that they can make proper decisions without relying on social buffers that may or may not be there. Also, it would help if they would stop relying on “man’s wisdom” in the form of the systems of our American culture (such as using debt) and endeavor to get real wisdom from God. But, that’s another issue altogether...