The Idiocy of the Mortgage Bailout

I’m sorry for the people who are losing their homes. Most of them, however, are losing their homes because they made a mistake, and, to be honest, they were foolish. I knew enough to get a 15-year fixed rate mortgage. A balloon mortgage is idiotic. A few points lower for three to five years doesn’t make up for boundless increases for the next 25 years. How many people who now have homes they can’t afford watched any number of those house “flipping” shows on The Learning Channel, DYI, Bravo, etc. and thought they were going to make a ton of money in a rising housing market? This is speculation. At the least, it is like buying commodities, and, like they tell you in the commercials for commodity brokerages, “you can lose money.”

My 401(k) is in the crapper. My investments are losing money. Is the government going to bail me out? Don’t tell me it’s any different than those who were investing in their homes. They decided to make an investment of their own free will as did I. It’s not working out for either of us. I just didn’t invest more than I could afford to lose. Gasp, I was being responsible.

I don’t mind the government helping my fellow Americans who, through no fault of their own, are in trouble. The folks in New Orleans didn’t ask for Katrina and weren’t responsible for the catastrophic levels of idiocy at all levels of government. They deserve government help (which they’re still not getting, but I digress). Bailing out those who bought houses they couldn’t possibly afford comes down to the American belief that nobody is responsible for their actions or inactions. It’s always somebody else’s fault.

The fall in housing prices is a correction. Housing prices in this country have gotten out of hand. The traditional rule of thumb had been that you could afford a house that was twice your yearly salary. Then, about ten years ago, with house prices rising faster than wages, the amount was raised to two and a half times your yearly salary. The median price for a home is now much greater than 2.5 times the median income. For example (figures are from http://www.city-data.com/),
City .............................Median Income ($) ..Median Home/Condo Value ($)
San Diego, CA ............55,600 .......................566,700
Boston, MA ................42,600 .......................420,000
State College, PA ......22,500 ........................194,000
Houston, TX ..............37,000 ........................113,000
Tuscaloosa, AL ..........24,000 ........................127,000
Rome, GA ...................31,200 ........................109,000
Naperville, IL ............93,000 ........................382,500
Greenfield, MA .........36,000 .........................157,500
St. Augustine, FL ......37,000 .........................193,000
Midland, MI ..............49,000 .........................148,000
These figures, however, are for 2005, before the bubble in housing prices reached its peak. Craig Guillot, “Homes Still Too High for `Average’ Family,” clearly demonstrates that “even with homes more affordable, the median price is still out of reach for a median-income family in many markets …” (http://www.bankrate.com/bosre/news/realestateguide2008/median-income-buy-house-a1.asp?caret=2a) Guillot goes on to say that between 2000 and 2007, “the median price of homes had risen 64.8 percent, while median incomes had only risen 16.6 percent.”

The mortgage bailout is really just a bailout of the banking and housing industries. The bailout will keep prices so high that most low income and lower-middle class families still won’t be able to afford a house. In the words of President Woodrow Wilson (at least what he really meant when he took us into World War One), we are making the world safe for bankers.