I apologize for not getting to this sooner; I promised yesterday to blog about the financial crisis a bit more, but the day slipped away from me before I could do so.
Reader John Jensen brought to my attention this article from First Things in which R.R. Reno takes the position that when it comes to greed, we're all guilty. Spiritually speaking, I'm sure that's true for most of us; few of us are really content with what we have, and the prospect of making more money than we deserve to with little or no effort on our parts is something most of us would find alluring.
Still, I couldn't really agree with much of the article, which seems to posit a moral equivalency between the average homeowner and the banks and financial institutions who bent the rules and enticed some, even many, people to buy more homes than they could afford--or to buy homes in the first place when they weren't really qualified. Reno seems to think of the banks as crack dealers and the people buying houses as their user customers; or perhaps of homeowners as being willing to "prostitute" their home mortgages to get easy money and thus being as guilty as pimps for selling what wasn't theirs to eager banks who got all the pleasure of the loan fees with none of the risks associated with long term servicing. (Ahem, Patrick Archbold, that's as close as I'm getting to the phrase employed in the combox yesterday.)
Consider this section:
But that’s not what folks mean when they denounce Wall Street greed. Instead, they are suggesting a juxtaposition. Main Street, they imply, is somehow modestly and virtuously self-interested, while Wall Street is a place of arrogance that guides an insatiable, perverse desire for money. In other words, it’s not people like me who are responsible for the mess. It’s all the fault of moral monsters who feed on innocent lambs.There's a sort of "Let Them Rent Crap!" (if the ghost of Marie Antoinette will forgive me) about this whole section. Some people I know got married or had kids in the last two years--of course they bought a house. Especially the ones with kids. Do you know how hard it can be to rent anything that isn't a slum house when you have kids? Depending on where you live, it can be well-nigh impossible. And as housing prices went up and up and up, guess what? So did rents.
This reaction is both implausible and self-serving. By my reckoning, one finds plenty of blind greed on Main Street. What could possibly motivate a person to buy a lottery ticket other than a greedy desire for a payoff that any rational calculation would show laughably unlikely? Who doesn’t know someone who bragged on and on about how much his or her house was worth during the recent go-go years of the housing bubble? Yes, children, there is great deal of panting after profits in Anywhere, USA.
And not just greed, but also stupidity. Anyone who bought a house in the last two years was as stupid as the Bear Stearns traders who bought and held securities backed by sub-prime mortgages, which means very stupid. Buy a house in Florida for $600,000 with 5 percent down in 2006, and you’re pretty much in the same sinking boat. What could have possibly motivated such a stupid purchase? Are rentals unavailable? Did you really believe that house prices would continue to go up at two and three times the rate of increase of family incomes?
We don’t need a degree in psychology in order to know why people bought houses at the peak of the market. The dollar signs clouded vision. The go-go hype from the real estate agents and media and friends who made tons of money buying and selling houses was overwhelming. Anyway, you gotta live somewhere, and the government lets you deduct the interest payments. Banks were intensely eager to give you the money. “And what the heck,” we tell ourselves, “it can’t ever really go down too much, because there are too many home owners like me for the government to let it all go to hell.”
The real problem is that people used to qualify for a home mortgage on one income (okay, well, the real problem is that people used to be able to buy or build a home without a mortgage in the first place because a house didn't take thirty years to pay for, but we'd be going back quite a ways to talk about that). But since more and more people qualified for homes on double incomes, houses--even basic starter homes--could, and did, get more and more expensive. Eventually incomes were going to stagnate, as they've been doing for the past several years, and suddenly the house that was easily affordable became an albatross around the neck for too many homeowners--and this is before we start talking about ARMs and "creative" financing.
So the house you once could afford easily on two incomes you couldn't buy--but you still needed a three-bedroom house because you had kids. So you started to look at these creative ways to buy a house, and they looked pretty good, and you didn't think there was much risk, and your company owed you a raise anyway...
...but you didn't get the raise, and the cost of living went up, and the balloon rate started to balloon...
And you add in the single income families struggling to pay for a tiny house in a bad neighborhood under much the same conditions, and the people who got sent by their corporate overlords to a place where houses cost 40% more than they did where you came from (though the overlords generously gave you a 2.3% salary increase to offset things) and gas prices started to go through the roof and your commute was twice as long as it used to be because the only house you could afford was forty-five minutes away from work on a good traffic day, and....
Where's the greed in all that? Where are the families thinking they'd cash in and make easy money on the place they called "Home?"
I don't see it. Maybe for a tiny handful of investment-property-minded types, this was the case. But most people didn't see the mortgage market as an opportunity to get rich quick, just a bit of a lifeline in an already-brutal economy where jobs have disappeared into the black hole of outsourcing and where living in a home at all was starting to seem like an impossibly greedy dream.
I don't blame Main Street, because the thing about Main Street is that its people want to keep living there. They're not the ones who wanted to gut the neighborhood, sell all the valuables, and turn the rest into a strip mall. They never are.