For all of those politicians considering a bail out
- 8.11.2007
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For all of those election-year power-hungry politicians that are kowtowing to the proletariat with visions of mortgage loan forgiveness and impossible low-rate fixed forever mortgages I recommend reading this article in the New York Times: Homeowners Feel the Pinch of Lost Equity. It sheds light on what has been behind the massive run-up in mortgage debt; and why a large number of people who cashed-out at the top (via a cash out refinance) really have no business demanding bail out assistance.
Being stupid with your money just doesn’t cut it as a good excuse.
Mr. Whittey once seemed an unlikely member of that cohort. A sales manager at a flooring and tile company, he exudes the unflappable air of someone raised amid the easy money of the casino world. Until recently, he and his wife regularly embarked on shopping sprees of $1,000 and up.
He bought a 21-foot boat and two flat-screen televisions for their home. He sold his old truck and bought a new one, he said, “just ’cause I didn’t like the color.” Mr. Whittey could live in such fashion because his company was making good money and his house was appreciating.
But today, the value of his own home, which reached $500,000, has fallen and a separate investment property he bought seems likely to fetch far less than the $580,000 he owes the bank. His commissions have diminished, so his income is down. His neighbor recently fell behind on house payments, prompting the bank to foreclose. Anxiety reigns.
“We used to go out to eat three or four nights a week,” Mr. Whittey said. “Now, we don’t go out at all.”
Is Mr. Whittey a good bail out candidate? I would like a new truck; my Toyota 4Runner in silver is growing ever so boring! Maybe one with blacked out rims and a nice sound system would do the trick. I can get an appraiser to inflate my value allowing me to cash out and get my fix truck. Why shouldn’t I? You guys will be there to bail me out, right?
For every poor old lady and single mom who were duped there is at least 1 Mr. Whittey. Probably more. According to the article mortgage equity withdrawal hit almost a trillion dollars last year alone; with more than a third of it ending up in consumer spending. So it seems that there are far more Mr. Whittey’s than there are of the truly duped.
I hope that when politicians talk of bail out they remember that Mr. Whittey didn’t need a new truck - he wanted one. Heck, I wanted one. I didn’t finance my house to the hilt to get one; he did. He shouldn’t win because he wanted more than he could afford. Unfortunately I think that argument makes too much sense for politicians - there are too many Mr. Whittey’s and not enough of the rest of us to keep them from pushing through some kind of expensive bail out scheme (whether at the state or federal level) or both that lets you, me and everyone else pay for Mr. Whittey’s truck.
Hey Whittey - I hope you enjoyed it.
