On CNBC last week, talking head Rick Santelli struck a chord with much of the silent majority in America. In a rant from the Chicago Mercantile Exchange, Santelli shouted out his discontent with President Obama’s plan to use $75 billion of the $700 billion financial bailout to assist homeowners in paying off their mortgages. His basic message was “the government is promoting bad behavior!” The video has had millions of YouTube viewers and viewers on CNBC.com.
The administration estimates that 1 in 10 homeowners are delinquent on their payments and that 6 million homes are at risk for foreclosure this year. This program is aimed at keeping many of those delinquent homeowners as well as those at-risk for delinquency homeowners from foreclosure.
While the program sounds humane and compassionate, none of these $75 billion will be spent on buying me a house, nor will it help other Stanford students or millions Americans that do not own homes or pay on time. The politics of fear that the Obama administration uses is the “there goes the neighborhood effect”—the idea that when a couple of houses on a block undergo foreclosure, the rest of the houses in the block will also fall in value due to the reputation of the neighborhood.
The root problem seems to be a logic that developed as the baby boom generation grew older that “home equity equals savings.” If a home was thought of as a good to be consumed (lived in) rather than an asset, we might not be having these problems because people would not care about the listed value of their house—only that it provided shelter, heat, and plumbing. The plan, which artificially lowers interest rates for at-risk homeowners, will be paid for largely by younger Americans in future taxes. Moreover, homeowners who pay their own bills will also be paying for their neighbors. Stanford students approaching graduation, who will not be owning homes for a few years, will be paying for others to stay in their homes while they will be living in cheap apartments.
Upon expressing this anger, Santelli proposed a “Chicago Tea Party” on the 4th of July for “capitalists” to protest these “un-American” programs by the Obama administration. Many of the staff, including myself, has already RSVPed on Facebook.
Closer to Stanford, in Sacramento, the Governor recently passed a budget bill that raises taxes by $14.4 billion. For years, California spent irresponsibly, and now the people of California are going to have to pay. Washington is now no different from Sacramento a few years ago—spending irresponsibly on losing investments. Sooner, rather than later, Americans and specifically young people are going to be asked to pay for Washington’s mistakes.
What might be a better plan would be a traditional “Chicago Pay to Play” scheme—something Obama must know about: those accepting government assistance to pay off their mortgages should have to sacrifice a disproportionate amount of equity to the government. That way, delinquent payers would get to stay in their homes longer and there would be no “neighborhood effect” of foreclosure on other houses, nor would there be “free money” for those who practiced bad behavior. Furthermore, it would lower the future burden of debt that those students currently living in one-room double college dorm rooms will have to assume. The problem that many raise is that the economy is so bad that the interest rates could essentially be zero, and still millions of homes would still be foreclosed this year.
There is no perfect way out of this problem, and while it is important to not approach the housing crisis in a heartless matter, there is not an inalienable right to a home—nor should hard-working Americans be forced
to throw good money after bad investments for others to consume.
Sympathetically,
Brian