Saturday, March 14, 2009

Foreclosures

The argument about who to fund, the banks or the people being thrown out of their homes, comes down to what sort of blame is more important. Lots of people applied for mortgages that in any other time besides that of a housing bubble they couldn't have afforded, and that in any other time the banks wouldn't have approved them for. Banks in turn stacked and resold the mortgages for profit, investing more and more of their money in risky bubble based money making schemes. The problem in picturing the whole situation is that it's easy to find examples of people who more or less, sometimes much more than less, defrauded banks in picturesque ways in order to get mortgages while what the banks did is harder to picture because it's more abstract.

I think that in this case, it's really the banks' fault that people got bad mortgages that they can no longer pay for. The drum beat for years, on television and elsewhere, has been to get a second mortgage on your home and refinance your existing one to get money for stuff like vacations, which was literally one of the suggestions in an add I saw a while ago. No matter how much people out there intended to defraud the system, none of it would have happened without the banks' permission. Regular people cannot give out thousands, hundreds of thousands, in loans: it takes a deep reserve of capital to make that work. So bailing out people who can no longer pay their mortgages isn't really giving approval to dishonest behavior; instead it's a recognition that there are different levels of guilt here and that keeping people from getting thrown out of their homes is more important than saving the banking system as it is. Instead, a reorganization of the banking system plus help in paying mortgages, or even better a readjustment of mortgages to fit current rates, would address both sides of the problem, and a corresponding system of regulations on the bottom rung to keep mortgages and loans like the ones that fueled the crisis from being approved in the future would balance things out.

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