I want the price of my gas to be frozen for five years. I don't care if everyone else pays more later on. I deserve this break! My neighbor got his interest rate frozen, and now I want something. I bought a large vehicle several years ago, and nobody told me I couldn't afford to fill up my tank. It's not my fault. It's the gas stations' fault. The oil companies' fault. The government's fault. The automaker's fault. It's everyone else's fault that I can't pay! This is America; I have rights!
What really bothers me are the talking heads on television who say that the President's gift, I mean "mortgage relief," does not go far enough. Perhaps, though, I should tone down my satire. After the silliness about freezing people's adjustable rate mortgage payments for five years, crazy ideas like freezing gas prices just might make sense to the affordability whiners of the USA.
How much, really, was fraud involved in selling people these (upwardly) adjustable rate mortgages? Did the customers not receive an amortization schedule? Were not the rules provided in writing in plain English? Were the numbers misleadingly buried in paragraphs of financial gobbledygook? If so, lender fraud must be prosecuted. However, salesmanship to the tune of "you can always refinance later" should be taken with the same skepticism as with car dealers. Selling a dream does not count as fraud. I do not think, however, that malfeasance is at center of the problem with ARMs. The far greater percentage of the "sub-prime" problem is with poor choices.
People who signed on the dotted line for a house they couldn't afford should lose their house to foreclosure if they can't make the payments. It's that simple. They probably won't make the same mistake twice. America needs some people to lose, or else there can be no winners. Imagine, at the end of the National League Football season, the commissioner proclaiming, "No need for playoffs! No Super Bowl. No team will lose! Everybody is a winner!" Actually, there are places in the world where the government decrees that there will be no economic losers. In Communist Cuba, the collective good supersedes private enterprise and consumer decisions, thus making winning a criminal offense. The whole country loses.
Nor should bankrupt mortgage companies be bailed out for bad lending decisions. "No documentation" ("liar") loans do not constitute prudent business. I adore the genius of the acronym artists. NINJA loans: no income, no job or assets. What? Two years later they can't pay their note? No investors will buy the sub-prime products? Irresponsible financial institutions should be allowed to fail as well. The responsible ones - the ones that should survive this housing fiasco - would take note and rededicate their commitment not to make the same goofs.
I don't put much stock in the argument about lenders, responsible or irresponsible, not wanting to sell adjustable rate mortgage products in the future for fear of government intervention. I know, the supply of mortgages will go down, thereby driving prices (i.e. interest rates) up. This kind of thinking belongs to another group of price whiners. They think it's OK to sell anything to anybody, regardless of whether it makes sense or not; inappropriate financial products and lead-laced toys are all OK - the unregulated free markets will determine price. I counter that there is a price in preventing a self-reinforcing greed and stupidity epidemic. There must be some set of standards. If private organizations do not create and enforce standards, then government must.
However, the real issue is more fundamental than free markets with rules. What should be done is to affirm personal responsibility. These politically incorrect words, though, won't get much play as elections draw nearer.
Copyright © 2007 Chuck DiFalco
