Taking Responsibility for the Mortgage Mess

From trustworthy publications like the august New Yorker to the journalistically sound Los Angeles Times, and from just about every other mouthpiece on the respectability spectrum, we’re learning that the Big Mess in our economy is largely the fault of Wall Street fat cats who helped bundle terrible housing loans into decent-looking packages that are now going into default quicker than a Congressman can accept dirty lobbyist money. 

The so-called sub-prime meltdown has gutted the stock market, slashed interest rates for savers, and turned the housing climate into foreclosure central, forcing the government — you know, the one that believes religiously in the power of free markets to sort everything out — to try a bail-out in the form of cash give-backs and Fed rate cuts, which, the thinking goes, will “stimulate” our moribund economy. It’s ugly.

Blaming Wall Street is a good place to start, since the sin of greed is easy to recognize and fun to despise. The fellows who play casino games with other people’s money do a spectacular job of living up to their stereotypes. When yet another one of the bubbles they consistently create goes a-bursting, we the suckers like to point fingers and deride their fiscal foolishness. But this is like blaming casinos for putting larcenous slot-machines on their floors. Every con requires a mark, and in the case of the sub-prime mortgage fiasco that would be the borrowers.

The newspapers are full of representative stories: Cindy, a single mom who works as a sales executive at an Orange County plumbing supply company, bought a three-bedroom townhouse in 2002, for no money down. The first five years of her mortgage were locked in at 8%, with a monthly payment of $2,400, which left her just enough for groceries, utilities, and the lease payment on her Chevy Tahoe. But this year, the “adjustable” portion of her loan went into effect, ballooning her monthly payment to $3,600,”which I can’t afford,” she reports, tearfully. To make matters worse, Cindy required emergency jaw surgery after a skiing accident. “I don’t have the kind of insurance that pays for that,” she reports, tearfully. Her bank has initiated foreclosure proceedings. “I don’t know what I’m going to do,” she reports, tearfully.

What none of the publications rigorously investigates is this: What did all the under-qualified borrowers like Cindy plan on doing when their mortgage payments were scheduled to jump? Did they all hope that their property would rise steeply in value so they could flip it to the next under-qualified buyer? Did the siren call of cheap money cloud their long-term judgment? Or was this whole sub-prime mortgage meltdown the fault of irresponsible lenders making money available to borrowers too stupid or near-sighted to understand the terms of their (generous) loan?

Those of us who saved for many years to amass a large down payment — so we could borrow less money on our mortgage — and who assiduously tended to our personal credit so we could earn a loan the very best interest rate –and who forswore the new car and giant plasma screen and bathroom remodeling — all so we could meet our repayment obligations religiously, are now sharing the misery of all those who leapt at the prospect of short-term bargains.

If America was truly the magic land where the marketplace healed itself, as our supply-side Republican friends would have us believe, then socialist Government to the Rescue wouldn’t be necessary. Alas, the trick these days is to behave like the smarties on Wall Street: Go ahead and gamble; some fresh sucker will always be there to bail you out when the deck runs cold.

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