Mortgage Cram-Downs a *Terrible* Idea

I had hoped to pen a considerable article about the Obama administration's currently (rumored) mortgage "cram-down" plan.  But I won't have time until after Wednesday of this week (at which point I'll revise this article and spell out the arguments) [Note, I've decided to just contribute my thoughts in the form of comments below.  I may write a more formal essay later, but for now I'm just going to argue in real-time].

But in case anyone wishes to discuss in the interim, have at it.

In short, I think mortgage cram-downs are a terrible terrible terrible idea.  I agree that something needs to be done regarding the flood of foreclosures.  But I'm more for an "orderly devaluation", if you will.  I'd slow down the process, and put more effort into being thorough.  I'd go after those who committed mortgage fraud aggressively, lenders & borrowers.  I'd also go after lenders, borrowers and home builders who exploited or outright avoided taxes.

But I would not punish responsible homeowners who've been paying their mortgages, along with responsible savers who waited to buy, along with the struggling people who are working 2-3 jobs just to barely make the mortgage they can't really afford by _rewarding_ the worst of the worst.

Yes, this plan punishes someone who's working 3 jobs to just make payments, and rewards his lazy neighbor who'd rather sit around and whine for a bailout.  And don't get me started on the banks/lenders.  Yet another bailout for them?  The government will "match" their loan workouts? 

This is getting ridiculous.

--- More on why my plan to allow foreclosures to take place in an orderly fashion *helps*, later.  First I must make a living...

Comments

[TunaFIsh]

Well, I certainly agree with Randy on this. That being said it, depending on if banckrupcy is a prerequisit, would strike at one of the heads of this 3 headed dragon. In the end, I think that it would end up costing more because it would cause banks to have to write off alot of debt quickly, rather than over time. Sadly though, I, as I'm sure many would, would jump at the opportunity to reduce my debt.

[astrid]

I've been very disappointed by Obama's policies and economic appointments so far. To me, they're backwards looking and written by the same Wall Street "economists" who got us into this mess in the first place. Everything I've seen so far looks to be just encouraging more moral hazards and future expectations of government bailouts.

[randolfe]

I'm hoping this isn't my first & last straw with Obama. I have liked many of his economic appointments, and disliked others. And I generally like that a lot. I am a fan of healthy debate and think smart leaders surround themselves with people who don't agree on everything. A refreshing change from King George's Court of Fools.

And who can dislike Volcker? Ok, extreme leftists (and some neo cons) dislike Volcker, but that just gives him even more credibility in my book.

But this housing plan is unconscionable. I am speechless. It is so bad, so unfair, so unbelievable...

...it *literally* rewards the most to those who deserve the least. Unbelievable.

It's as if, comparing to the banking bailouts, we put all the money into bad banks and punished the good banks with zero rates and disproportionate competitive disadvantages ... oh, wait ... I guess that is what we did. Damn.

[randolfe]

I've heard a lot of hand wringing about "moral hazard". It is very convenient to dispose of moral hazard concerns during a crisis. And indeed, sometimes we have to.

So let me make my counter argument without a single appeal to moral hazard and the screw-job the Irresponsible Homedebtor Bailout Plan gives the rest of us:

*** IT WILL NOT WORK ***

Repeat, this plan will [pause] not [pause] work.

Housing prices will _still_ continue to fall because incomes aren't rising, and prices aren't yet anywhere near the government's now stated target of 31% of family AGI.

Short of literally mandating that it is henceforth _illegal_ to sell a home for less than one paid, Obama's plan won't work.

What it will do is make homes **less** affordable for responsible borrowers/buyers, and subsidize the unaffordable homes already squatted in by irresponsible borrowers/buyers.

[randolfe]

Another thing Obama's plan _will_ do:

It will cause me and a number of other _reasonable_ free market Objectivists to get off the Hope Train.

I've spent a lot of time rallying against the neo-libertarians, their flawed, revisionist view of history, and their woefully dreadful ideas about how to fix the economy.

I've spent a lot of time correcting simpleton doomsters and their fantasy that the US is irrelevant, the dollar is worthless, gold tastes great, and Schiff is a messiah.

I've spent a lot of time describing how the US can re-emerge as the dominant world economic power for the next century.

But I'm close to being done. If this is what "hope" gets me, then I'll stick with "despair", thanks. Trying exactly the same doomed policies executed by Japan over a decade ago isn't audacious -- it's stupendous.

Obama can't afford to lose folks like me. I don't often consider myself in any particularly influential demographic camp, but this is different. Once Obama loses the honest brokers capable of arguing his Keynesian economics points against neo-cons and neo-libertarians, he's left with the left. But hey, it's worked out so well for California!

[astrid]

(I admitted that Volcker is a shrewd pick. But right now, it just looks like another powerless advisory appointment. I've been very disappointed by Tim Geithner and Obama's two Commerce secretary picks, that that may have colored my views about his picks generally.)

[Casey!S]

Randy,
I used to follow you guys over at patrick.net which helped me preserve my renting sanity in the bay area, not to mention preserving my 401(k). Glad to find your writing again, hadn't checked out C2.0 in a while. I'm eager to read more of your arguments about why cram-down won't work. Here is an interesting take, the government gets an equity position:

http://watchingmarcitz.com/2009/01/14/a-silicon-valleyventure-capital-solution-to-the-housing-crisis/

It might not help bring housing costs back to earth, but at least it slows the foreclosures and seems fair.

[randolfe]

Casey,

Yes, I've read a number of cram-down payback proposals/ideas in the past 24 hours. They're all along the lines of some sort of equity-liquidity returning to the "investors" at the time of sale.

It's a good idea. At least better than what's on the table now, which is gobstoppingly atrocious. But here's what I see happening:

1. I've seen numerous interviews with both Congressional supporters and Administration officials where they've steadfastly *refused* to address the issue. In one case an Obama spokeswoman bristled at the idea and said something to the effect that "maybe we can figure out a way the government can _share_ in any profits".

Share? Share? Really, "Share"? W - T - F? That thinking is so disconnected from any sort of realistic grasp of the situation that I just don't know what to say. Share? Hell, I'm already being forced to "share" with apparently 1-in-10 homedebtors who can't make ends meet. But hey, if they end up winning the GovermentLotto ticket out of it by selling for more someday, _maybe_ we'll get them to toss us taxpayers a lil' bone? _Maybe_.

2. There are pragmatic reasons that trying to recapture the sales proceeds against the government/taxpayer equity stake won't work. Primarily, homeowners will just engage in lots of non-arm's-length transactions. That already happens in places like CA with Prop 13. For example, as I've been tracking Marin $1.5mm+ sales over the past 4 years, I've noticed that often 1-in-4 sales are inside deals to manipulate tax loopholes.

And this puts *downward* pressure on prices, as you've now incentivized home sellers to take _lower_ sales prices since above a certain amount, they don't get to keep the profits anyway. If selling for $500K or $600K both net me the same amount, then I'll sell for $500K. (I'm ignoring the straight equity-percent idea floated in the linked article because that's not on anyone's radar. What is is an idea to take a threshold amount above the cram-down principal.)

[randolfe]

Another massive problem is that this plan, with or without equity payback clauses, will result in DOWNWARD pressure on prices.

Why?

Because everyone is dancing around the million-dollar-question: who determines "fair market value" of the home in question. The entire premise of the proposal is that homeowners who are "at risk", which requires you determine the current, true fair market value of their home.

So this happens:

You bought for $600K, 0% down. Your mortgage is $600K.

Now you suspect it's worth $500K. You go crying to the government to help. Now they have a problem. A big problem: what is your home worth?

If they mark it at $500K, and cram down your principal by $100K, then what happens a year later if your home is now worth $400K? Are they going to keep a rolling readjustment? Or do homeowners get one-shot at it?

Assuming the latter, then homeowners have every incentive to prove their homes are as worthless as possible. And indeed the government politically might desire to aggressively value the homes lower. But wait, there's more...

If the government marks too low, then appraisers et. al. will be *forced* to use those as comps, and even if they don't in the surreal world of real-estate-sales-people & their shills and market pimps, I suspect underwriters will.

So now if the gov't marks that house down to $400K to start with, all the other people who are current on their payments either end up as "at risk borrowers" themselves, or they get screwed if they want to refinance or sell.*

*Note, they don't really get screwed, as I've argued a thousand times, because their homes is actually only returning to it's real value. But they'll _think_ they're being screwed, and that's what I'm emphasizing here.

CONCLUSION:

This plan won't work. Not only for the reasons that real incomes are declining, and there is no way to reach enough people with the 31% loan-to-income figures, but for the reasons I outlined above.

And I won't even go into what the payment-adjustment formulae imply...31%...? Uh, doesn't that create an incentive for the borrower to *not* work 2-3 jobs, *not* try to augment their income by being motivated and hard working? Doesn't that just make it _pay_ to work the easiest, lightest, lowest paying job possible? At least until you get your big government gift?

This plan stinks no matter where you step in it.

[Peter P]

I agree that something needs to be done regarding the flood of foreclosures.

I agree too. We should speed up the foreclosure process. We should have the National Guard throw non-paying homedebtors on the street, at gun point. We should skip the 2008 tax year and use the entire pool of resources in IRS to process foreclosures.

The faster the market adjusts, the faster we emerge from this mess.

[astrid]

I agree. I just can't see any rationale, including political rationale, for this plan at all. I had a look at the comments sections of New York Times's articles and the vast majority of commentors hate this plan viscerally, including people who just lost their jobs or recently bought a house. Even laymen recognize that this plan rewards the stupidest/greediest homebuyers at the cost of everyone else.

[Peter P]

Hi astrid. Are you going to Iceland any time soon? Perhaps you can buy half the country with an Andrew Jackson. :-)

Many people are just scared. We do not want to have a scared population because they are prone to manipulations. It is better to realize their worst fear and get it over with.

No matter how much I hate FDR I agree with him that the only thing we have to fear is fear itself.

[randolfe]

No matter how much I hate FDR I agree with him that the only thing we have to fear is fear itself.

Peter, I'd hate to think I'll have to go after you as another neo-libertarian >:-/

I'm definitely not on board with the latter day haters of FDR movement. I think it would do well to force them all to spend 3 years in the early 1930s and then come back to the present and share their perspective about what, how and why FDR did what he did.

[Peter P]

Yes, send me back in time to 1930. With my "future" knowledge of market movements I would own the world in a few months. :-)

The depression of 1837 ended itself in just a few years. There is no need for government interventions to prevent or mitigate depressions.

[astrid]

Hi Peter,

I'm not sure how to respond to that second paragraph - are you sharing a brain with Phil Gramm? People are fearful because they're in danger of losing their homes, their jobs, their access to healthcare...are you proposing that they're going to be better off once they are homeless, jobless, and sick?

I'm rather sad for Iceland. It's a lovely country that I think you would enjoy very much (great food, naturally heated spring baths, no hiking required attractions). However, it is interesting to note that Iceland's economic collapse was not brought upon by its traditional role as a small, isolated, export-based economy. Rather, it was because they went into international banking at the worst possible time. Iceland now is essentially Wall Street without the possibility of a bailout.

It would be interesting to follow the fate of similarly situated countries - Switzerland, Lichtenstein, Cayman Island, Dubai, Britain... Of these, Dubai is already toast. Switzerland looks like it might be next - just imagine if Switzerland is forced to support itself by selling chocolate, cuckoo clocks, and tunnel digging machines!

[Peter P]

Astrid, the economy is a connected system. Those who have lost their jobs will not be better off for a while. However, the economy on the whole may recover faster and it will emerge will far less baggage.

I am not against a basic safety net. Perhaps we can help those people with this and proceed to purge the system of malinvestments.

Again, I do not see economic collapse as something bad. It is just part of a cycle. A necessary process similar to garbage collection.

Iceland will recover, especially if they are willing to face the music now.

Cayman Island will probably do fine for now. Switzerland may have too much exposure to emerging market debt.

[Peter P]

When Dubai started building ever-taller towers and ever-sprawling artificial islands, I knew their downfall would not be far away.

When people do things simply because they can, the end is here.

[randolfe]

The depression of 1837 ended itself in just a few years. There is no need for government interventions to prevent or mitigate depressions.

Peter, you know as well as I that is faulty logic. You're inserting causality without supporting it. Do you assume that the massive US naval military buildup which occurred during that same period was just a coincidence? Also try taking a look at when all the precursors to economic federalism started. Those *government* interventions had a profound effect on the economy during _both_ of the depressions prior to the Great Depression of the 1930s.

[randolfe]

I'd remove the UK and probably Switzerland and Lichtenstein from your list.

First, the UK is one of the world's massive economies. It's not even in the same universe as Dubai or Cayman. The UK also has natural resources in ores, oil and coal; they have agriculture + marine commercial fishing; and they have way more manufacturing than people generally think of. (Much like the US has far more mfg than popularly believed.)

Switzerland and Lichtenstein have a tremendous amount of static wealth. Especially in places like Lichtenstein & Luxembourg, most of the wealth is not transactional but is sitting in family vaults.

The Swiss do carry a large volume of transactions, but they also have built their workforce out of almost entirely "temporary" ex-pats. The Swiss always protect the Swiss first. So they'll just dismiss all their temp workers and return to life as usual. If you've ever been there, you can even see how cleanly and separately they've kept developments that house all the ex-pats. Almost as if they were planning for how to handle doomsday. Then again, the Swiss have always been planning for doomsday -- thus the nuclear shelters built to a capacity to house the entire population.

[Peter P]

I guess if they can do so without massive tax increases and handouts, a neo-libertarian like myself can turn a blind eye to it. ;-)

[astrid]

Peter,

I can see from your standpoint but I do not agree. You're treating people in an economy/society as though they're merely fractions of a GNP. People aren't neat and qualifiable like revenues and cashflow. If you put them in a position where they're deprived of food/home/future, they won't neatly lie down to be written off, they'll be angrily holding pitchforks and eyeing your sushi plate. Would you rather be robbed a little by the government or beatened up and robbed by an angry mob?

There's a reason why successful modern countries all have a degree of socialism and government involvement. Societies function better and are more successful over the long run if there are safety nets and relatively low wealth disparities.

[randolfe]

Actually, pure capitalisms are rare and anomalous in human history. People often criticize Ayn Rand for being cynical, but I think it's the opposite. She was idealistic and optimistic whereas the truth about people is they are flawed. Democratic market socialism is about as cynical of an approach as you can imagine, but it is effective and has been proven to be very long-lived. And no, it wasn't invented by us (not even in our millennium for that matter).

And I'm an Objectivist who believes that a pure meritocracy is the only objectively *fair* society possibly imaginable. The problem is -- the one which separates those of us in the Objectivist camp from those in the (neo)-Libertarian camp -- is with that last word: "imaginable". Neo-libertarians actually think a Randian capitalism is possible. What's more, even Rand didn't thank that. Read and discover for yourself.

[Peter P]

Astrid, many of those advanced countries have extremely wealthy people too. A lot of them accumulated their wealth before socialism was in place.

Socialism makes it difficult for one to go above middle class. I am sure this is welcomed by those who are already rich.

Given a choice between difficulty in upward mobility and possibility of getting lynch, I would pick the second option!

[Peter P]

RE: Randian capitalism

By Ayn Rand or Randy Harrison? ;-)

[randolfe]

Funny how these things tend to line up, isn't it? Maybe someday people will be invoking Randyan economics?

[astrid]

Peter,

Take a look at what happened to the Dutch after the Tulip Bubble bursted. I think we're dealing with something on that scale and not just another cyclical downturn. Also, ignoring this cycle has much more serious consequences on society than the previous cycles. People can't wait out the credit squeezes by on the farm anymore.

[Peter P]

Perhaps we should focus on the agricultural sector again.

Who says humanity should not suffer?

[randolfe]

I understand the Administration's philosophy and reasoning better now that they've come out and clarified it. It still won't work, and since I disagree with their core philosophy behind it...

Anyway, here's what how I read it:

• They are only trying to help people who are marginal – those who are being hurt because they bought a house they _could_ afford, but now are at risk because they can’t refi because their house price has fallen.

• They think those people are innocent victims.

• Because they think no normal, everyday people could or should have been expected to read the housing bubble.

When asked directly, they answered:

• People who bought over the last couple years or so were innocent, and had to pay very high prices. It’s not their fault there was a housing bubble.

When asked directly about savers & people who avoided the bubble and rented/waited because they knew prices were too high:

A) They aren’t being hurt anyway and they’ll be helped if prices stabilize so they can buy like normal.

Now the best, because it’s me:

B) People who maybe sold or traded down, and decided to sit out the bubble: to them we say too bad. We don’t think you should profit off of the bubble any more than the speculators and flippers did on the way up. Shorting housing is not going to be rewarded by our administration.

---

So there you have it. They think we are “shorting housing” – which I guess we are technically. I actually do get his arguments … _philosophically_. But I disagree with that philosophy. It’s like Atlas Shrugged for crissakes. They’re very specifically REWARDING MEDIOCRITY and PUNISHING MERITOCRACY.

If you followed the herd, we like you and will protect you. If you strayed from the herd, your risks will be punished regardless of whether you’re ultimately right or wrong in your reasoning.

It’s like I’ve entered into an Ayn Rand novel. Holy schmokes.

[Peter P]

I would like to quote one of my personal heroes, Secretary Andrew W. Mellon:

"Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate"

High-octane capitalism creates toxic wastes. It is not a problem if and only if we allow crap to exit the system.

[randolfe]

Of course though, Peter P, that would have liquidated the Union too. If you want to argue that would have been better then that's a different discussion. But there are bounding pragmatic issues to consider in any ideological discussion.

[Peter P]

This is why we also need to stimulate the supply-side. We need tax cuts for businesses in order to incentivize employment and investment.

We should not have bailouts. We should not have new regulations. We should not have new welfare programs.

We should let tax-cuts trickle down to every person.

[astrid]

Peter,

Tax cuts mean nothing if everyone is losing money and not paying any taxes. Also, we already had 8 years of tax cuts coupled with stagnant growth, ending in MASSIVE FAIL.

Do Republicans have any other ideas than tax cuts, abstinence only sex ed, and hating poor people? You people seriously sound like a cult - you just keep repeating the same stuff over and over again, as though that alone would make it true, despite tons of real world evidence to the contrary.

Randy,

I had a bit more of a look and maybe the solution isn't quite as bad as thought, if they're just planning to write down interest portion but not the principle. Still not what I would have wanted, but I can see a reasonable argument that this will slow the tide of foreclosures and then letting monetary inflation slowly erode the real dollar value of the houses. It's not good for JBR with 20+% down such as ourselves, but it's probably the least traumatic way out for the economy...if it works.

[randolfe]

Astrid

I did a lot of reading today too. There are principal write-downs, it's just not mandatory. What is mandatory is that the lenders reduce the payments to a 38% of the homedebtor's income.

Surely you see the terrible moral hazard in that. Talk about incentivizing the wrong behavior. So let me get this straight: you're going to punish a single mom who's working 3 jobs to make ends meet and reward her neighbor who's barely working 1 by lopping off more of her principal/term/interest? C'mon.

I agree with you about the Republicans in general. They practice as bad of tax policy as the Democrats, just a mirror image of an ugly face. But it's the social hypocrisy of the Republicans that is most unsavory. I had hoped this last thumping they took was going to oust the loudmouth minority that has been running that party since the late 80s, but I fear the Obama f-ups are happening too fast and we're going to get a non-rehabilitated Republican party back into Congress in 2 years.

Riddle me this? Why do I have to choose between inane Socialist policies that want to punish merit and inane _social_ policies that want to outlaw personal privacy and rational science? Who represents REASON? It's *not* the Democrats. It's *not* the Republicans. They're both cults of whackos if you ask me.

I really tried. I was looking for a leader. I can't tell you how crushed I am that this one turned out to, yet again, have no clothes. (...or almost. I guess he's still got a few days to recover this, but I'm not holding my breath.)

[TunaFIsh]

Time to start a new political party!

[Spec]

Just so I am clear on this. The govt. is going to swallow one hell of huge pill which in turn will eventually get split up and fed to someone. The current administration has sworn to lower taxes in the lower income brackets.... hmm so who pays that bill? The corporations! GM is currently making a great example of what gradually increasing residual can do to a otherwise healthy company.

So what are the options then ...
1. lower wages to employees?
2. company moves overseas or closes ?
3. government further subsidizes the corp.?
4. see number 1

Lower taxes or lower income … much like the executioner asking do you want to be shot or hung?

[Peter P]

Tax cuts mean nothing if everyone is losing money and not paying any taxes.

As a result, tax cut incentivizes production. We need businesses to take risks and make investments now.

Do Republicans have any other ideas than tax cuts, abstinence only sex ed, and hating poor people?

We don't hate poor people. We hate poverty. Welfare sustains poverty. Hence, we hate welfare.

But it's the social hypocrisy of the Republicans that is most unsavory.

Huh? We openly embrace profits and exploitation. I won't call that hypocrisy. ;-)

[randolfe]

The operative word was _social_ Peter. Republicans claim to be for smaller government and more personal responsibility and then proceed to legislate every moral issue they can get their claws on. I see that as a _liberal_ agenda, which is hypocritical by definition given the Republican's demonetization of liberalism.

[Peter P]

Why do I have to choose between inane Socialist policies that want to punish merit and inane _social_ policies that want to outlaw personal privacy and rational science?

Randy, the choice is obvious. Merit is what we want as a society. Privacy is a nice-to-have for a responsible society, which we are not. I do not believe in objective truths. Knowledge is a dialectical process involving opposing views.

Truths are subjective.

[Peter P]

Randy, I hear you. Republicans are not what they are supposed to be. I am against the legislation of moral issues.

Paradoxically, I think the world will be better off if everone becomes amoral. Economics should be the only "moral" system.

[randolfe]

Truths are not subjective. You are confusing "truth" with "right & wrong". Good & evil are relative and subjective, but truths can be objectively arrived at.

If you wish to take an "opposing view" as to the general shape of the earth, for example, then the burden is upon you to show your "truth" displaces the currently held one that the earth is generally spherical.

[Peter P]

Truths are not subjective. You are confusing "truth" with "right & wrong". Good & evil are relative and subjective, but truths can be objectively arrived at.

Correct me if I am wrong, but truths are really "statements a person ought to accept." If "right and wrong" are subjective then truths can also be subjective.

[randolfe]

Sounds too post-modern for me Peter. Semantic gymnastics. Objective truths exist. The laws of thermodynamics are objectively true. They will be the same regardless of one's perspective, occurrence in time, or position in the universe. The ratio of a circle's diameter to its circumference will be objectively true everywhere, every time, for everyone.

Economics is not a physical science. It is a social science with strong analogy to physical processes, and bound by the constraints of physical reality. But it is not something about which one should go digging for "truth".

[Peter P]

Anyway...

Anyone going to the Libertarian Party meet-up tomorrow?

http://www.meetup.com/Libertarian-Party-Santa-Clara-County/calendar/9738935/

"Why the Crash of 2008 was not a Market Failure"

[randolfe]

I tried the (L) party between 2001-2005. I can't stomach those guys anymore, to be honest. There were a few good thinkers at the meetings, but most fell into two camps: Neo-libertarian whack-a-moles and crotchety old guys who teach at the local junior college and perpetually run for office as a commissioner of the local hospital board because they want to shut down the local hospital so they can raise cows in their back yard...

[EBGuy]

Uh-oh, watch out, the Relitters are becoming honest and are about to turn on the sellers. This one's for you, Randy...
"The delta between renting and purchasing a home at $1.5 million or $2 million is pretty strong," said Rick Turley, president of Coldwell Banker Residential Brokerage for San Francisco, the Peninsula and the North Bay. "If you're looking at an entry-level home in Burlingame or Marin and you're not sure about your job, you can rent a pretty nice place for half of that house payment and you're not taking the risk."

[randolfe]

While we're not in the entry-level market, I'm still very happy to see this sort of rational public press from "professionals" in the industry. That's pretty much our calculus right now. Plenty of homes have dropped within an almost justifiable price up in Novato. There are bank-owned properties lying around everywhere -- most are new construction with only a single owner that couldn't even make it 2 years.

But the problem is now risk. There are two sorts of risk:

1) Financial. What if prices keep dropping, which I believe they will.

2) But, even if that doesn't mean financial ruin, which it wouldn't for us, there still is the need-to-move risk.

All it takes is a corporate buyout or round of deep cuts and we, like everyone else, could find ourselves needing to move for work in a hurry.

That makes renting all the more valuable. Renting includes an automatic risk-free move-in-a-hurry premium. Hell, you can even break your lease and abscond with minimal impact when compared to the alternative problems associated with being stuck with an devaluing house. And you can always buy out your remaining lease, which is a small price to pay for a job and the safety of all the equity you've built up over the years.

[Peter P]

Renting is risky too. It has political risks. Since homeowners are favored by the politicians, especially those in this administration, perhaps we cannot discount the endless handouts and entitlement programs designed to keep debtors kool-aided.

I resent not buying 20 properties during the peak. Perhaps I would be qualified for TARP now.

Other risks for renters:

- Foreclosing landlords (leases get torn-up)
- Deadbeat landlords (unfixed dishwashers)
- Populist entitlement-induced hyperinflation

[astrid]

I'm in complete agreement about the moral hazard. This country has become all about "privatizing the gain" and "socializing the cost."

[Peter P]

Yes astrid. I say privatize the gains and privatize the losses. Socializing should be restricted to Facebook.

[astrid]

Peter,

It is funny how all we Patrick.net old timers completely missed the complete Wall Street implosion untl it happened. We planned for a serious recession, but not the complete economic collapse. That's why even though I hate the moral hazards induced by government intervention, to me that's better than the alternative.

We're actually thinking about buying in 2010 or 2011. I rather like the carefree rental lifestyle, but retiring parents (who are threatening to move to Atlanta if I don't provide space for them) and almost inevitable future inflation is pushing us into buying.