The first problem is one which is very emotionally appealing, but doesn't ultimately mean very much. Sure, some people made a mistake and have been inconvenienced. But contrary to the claims of alarmists, these folks aren't being thrown out in the street or bankrupted in large numbers. Their liability for walking out on a mortgage is limited. In most cases the lenders will have made them take out Private Mortgage Insurance because the loans were high risk and that absolves them of any financial responsibility. In some cases they might have to declare bankruptcy, but this doesn't seem to be happening. There's been no significant increase in personal bankruptcy since the 'crisis' started. They likely don't even face any tax liability because the debt they owe on the home renders them temporarily 'insolvent' in the eyes of the IRS.
These are people who were renters before, had a chance at a house and ultimately blew that chance, but usually at little or no real cost to them, and they can just go back to renting and buy a house ten years down the road as should have been their goal in the first place. The only price they pay is a hit on their credit, and forclosures are discounted by credit agencies remarkably quickly. Plus they're probably better off not going into too much debt and learning a lesson from their homeowning experience. And don't forget that the glass is half full. For every person who lost their cheap entry-level home there's another person who still has theirs and with any luck they took advantage of the low interest rates from two years ago to refinance at a better rate and with more normal terms. Plus all those repo homes are now selling at discount prices for those who waited and are ready to buy a slightly used entry level home. So don't shed any tears for the supposed victims.
The banks are a different story. On one hand, they're the villains of the story, taking advantage of the poor little, ignorant consumers. But on the other hand, they're the real victims. It's their money that financed building the houses and they're stuck with collateral with a reduced value that's hard to sell quickly. Eventually they'll be okay, but if they didn't have sufficient cash reserves to carry those empty houses for a while, they're in some trouble and that's bad for everyone who wants a loan or owns stock in a bank or a business that operates on credit. There's no reason to feel sorry for the banks, because they made these high risk loans and deserve to suffer for it. But we certainly can be pissed at them as stockholders and business people and taxpayers, because their high-risk behavior is slowing the economy and probably costing us money. It's not going to devastate most of us, but it was their greed and we're all paying for it. Let's hope they learned a lesson.
Article comments
1 - Lumpy
It really is shocking how ignorant most people are about personal finances and basic business practices, even college graduates. They can't even balance a checkbook much less handle anything involvimg credit. And so many of them are carrying huge student loan debt. It's ridiculous.
2 - Dave Nalle
I need to write an article about student loans and college costs in general - the one thing in the economy which has exceeded the rate of inflation every year. I'm particularly sensitive to the subject because I've got a teenager headed off to school in a couple of years and she's looking at colleges that cost $40K a year - how the hell is anyone supposed to pay that?
Dave
3 - Nancy
The colleges are also sinks of uncontrolled, unregulated spending. Talk about throwing money down ratholes, or good money after bad, IMO-! The irony is, they're notorious for not paying any but the top echelons of faculty (the "names") decent wages - & the Names are 'way overpaid, like all CEOs.
In any event, good article, & for once I agree w/your economic analysis & proposed solution, Dave. A combination of stupid, ignorant consumers & greedy, irresponsible sellers is a baaaaad thing. Very.
Speaking of education, they USED to make all of us (back in Neanderthal days when I was in school) take a semester of basic living skills, which involved balancing checkbooks, reading a bank statement, reading labels, basic consumer legalese, etc. Obviously they don't do that anymore, or are today's kids just too dumb to learn?
4 - Dave Nalle
I think it's been a long time since they had a practical skills class like that, Nancy, but apparently some effort is being made to bring them back.
As for college pay, I sure know what you're talking about. As a junior faculty member I had to teach all the most boring classes and got paid less than half what someone with tenure would get.
Dave