I was on Editor’s Roundtable on Friday. In one segment of the show, we talked about the explosion in home foreclosures and governments’ coming effort to stave them off. I stumbled trying to think of a phrase to illustrate a point. The show replays on Sunday morning and Sunday I received this e-mail from reader CP with some help.
Moral Hazard.
That’s the phrase you were trying to come up w/ on the editors show today. It allows people to act w/o the normal degree of risk. But a major point in the discussion is that the widening division between the rich and the rest of us has made the purchase of housing so difficult that desperation drove people of moderate means into the unfair and doomed mortgage agreements. I suspect the normal lack of class consciousness displayed by media people often is the result of growing up in comfortable circumstances. All this blather about “personal responsibility” particularly from Ruben Navarette on this program shows me ignorance or perhaps willful disregard of the problems facing so many of us as the gap between the haves and have-nots inexorably widens. I was a bit disappointed that you reps from two progressive media did not pick up on this in your discussion.
The natural reaction of progressives to what’s happening in the housing market is to rush to the aid of those losing their homes. Even conservatives like the president have seen what’s happening and interpreted it in the same vein as some kind of natural disaster. And they are responding the only way they know how: with money. And it’s not a just a national phenomenon with the economic stimulus package. Right now, local officials are busy thinking of ways to protect people from foreclosure as well through the City County Reinvestment Task Force.
But all this effort to protect the market from a harsh correction flies in the face of another progressive and liberal goal: to provide more affordable housing. If governments scramble to insure lenders from risks of large loans, to ease the burden of some homeowners’ massive debt and to protect extreme lending practices, it will only serve to validate and solidify the current price levels of homes.
Rich Toscano makes the point well here.
Ridiculous lending practices drove home prices through the roof. If we bail out the people who cultivated that system, we are collectively accepting that this is indeed how much homes should cost. How does that compare with our other collective decision, made years ago, that homes cost too much? Remember, San Diego’s City Council declares a constant state of emergency because of that housing crisis.
Funny how you can have a housing crisis when homes are too expensive, and another one when the prices of homes drop.
But what else comes with that collective decision that homes should cost this much and the government should do everything it can to ensure they do? It forces another collective decision: that buyers should take on an extreme loan if they want to buy these homes.
This then artificially props up the market, protecting those who are invested in it. And that is why the captains of the local building and mortgage industry were so enthused about the relief package.
This isn’t an issue of a lack of compassion for those who are having trouble with their mortgages. Many of their mortgage brokers promised that when this day came, they’d be able to refinance or sell. If that was fraud, it should be prosecuted. If families need some assistance reentering the rental market, maybe there’s something to be done.
But we should realize that the government is deciding that homes should remain too expensive for people of moderate means. And that doesn’t seem like a very progressive decision to make.