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March 02, 2009

Most Clueless Column Ever

Shorter Michelle Singletary:

"Sure I've always said people ought to be financially responsible... except for those who take out loans they can't repay to buy houses they can't afford on their present income."

Because those people created an artificial "need" (as in "I *need* to stay in a home I shouldn't have bought and can't pay for rather than moving to a home more in line with my income) others who lived within their means need to hand over a higher percentage of their take-home pay to ensure these folks can continue to live beyond their means:

My children have WAM. I see them looking as I pour juice or cut a piece of pie. They watch closely to see whether their siblings get more. If I give one child a little extra of something, the other two pout and whimper, "What about me?"

But I expect this from children. They often don't understand that sometimes one person -- whether he or she deserves it or not -- will get more. They can't comprehend that life isn't fair.

Trust me, Ms. Singletary.

My husband and I understand that life isn't fair.
That's why we're careful with our money - so that if one of life's many "unfairnesses" were visited on us, we could still pay our bills on time.

What we object to is having our public servants add injustice to the natural unfairness with which we all must contend. Expecting me to fund someone else's continued irresponsibility when it was their actions that caused my investments and retirement account to dwindle and the resale value of my home to decline amounts to punishing me twice for someone else's mistakes.

But I suppose I should be happy to pay up, if my sacrifice will prevent my fellow Americans from facing the consequences of their own poor judgment. That's a lesson they won't soon forget.

Update: Go now and read Elise's excellent post on this subject. Talk about perverse incentives:

Obama’s proposed change to the bankruptcy laws will set up an asymmetry in which a lender can be forced by a judge to eat part of the homeowner’s loss while the homeowner will still be able to simply abandon the house whenever he chooses. To redress that imbalance, we could change the other side of the equation so that any mortgage that can be changed by a bankruptcy judge is always a recourse loan. However, this would probably just encourage generous judges to be even more generous.

That'll help unfreeze the credit market. But wait! There's more where this came from!

... how will the first two elements of Obama’s plan work? Let’s consider two couples who are recent homeowners. Look first at John and Mary. They were both working a year ago making identical salaries when they bought a house. They had saved up their pennies for a few years beforehand and made a 20% down payment. The monthly house payments accounted for 25% of their combined take-home pay. Miraculously, they live in an area where the value of their house has not declined and after making payments for a year the amount of their mortgage is now 79% of the house’s market price. John loses his job. The house payments now account for 50% of the couple’s take-home pay. Nonetheless, they have cut other expenses to the bone and are still current on their payments. They do not qualify for Obama’s help. Because their mortgage is less than 80% of their income they can probably refinance without government help but there’s no guarantee of that since their income is now greatly reduced.

Right next door live Sam and Jane. Through an eerie coincidence they, too, were both working a year ago making identical salaries when they bought a house. Since they hadn’t saved their pennies, they only made a 5% down payment on their house but since they made more than John and Mary their monthly house payments also accounted for 25% of their combined take-home pay. Like John and Mary’s house, Sam and Jane’s house has held its value and after making house payments for a year the amount of their mortgage is now 94% of the house’s market price. Sam loses his job. The house payments now account for 50% of Sam and Jane’s take-home pay. Like John and Mary, Sam and Jane have cut expenses to the bone and are still current on their payments. Unlike John and Mary, however, Sam and Jane do qualify for Obama’s help because the amount of their mortgage is more than 80% of the current value of their home. The government will encourage their lender to refinance their mortgage perhaps at a lower rate than John and Mary could obtain without government sweeteners.

Now let’s imagine that instead of cutting expenses to the bone and staying current, Sam and Jane stopped making their mortgage payments when Sam lost his job. They are now in danger of foreclosure. That means they qualify for even more government help. Not only will the government encourage their lender to refinance, it will take on part of the interest payments to get their mortgage payments down to only 31% of their income.

The probable result is that John and Mary, who arguably made the more financially responsible decisions - a larger down payment and staying current on their mortgage - will be forced to sell their home. Yes, they will get back their down payment but if they can even manage to buy another house it will have to be a cheaper one partly because their income has been reduced and partly because they may have to pay a higher interest rate than Sam and Jane. Sam and Jane on the other hand will see some of their indebtedness paid by the government, will be able to stay in their more expensive home, and will never have to repay the taxpayers - including John and Mary - for their help.

From each according to his ability [to pay and pay and pay] to each according to his 'need'.

But don't you dare call that "socialism".

Posted by Cassandra at March 2, 2009 12:50 PM

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Funny. I just put up a blog post that's sort of the opposite of yours. Not really 180 degrees from yours but maybe 80-105. (A little HASP humor.)

On the other hand, Michelle Singletary is either an idiot or she's doing that straw man thing. There's a big difference between complaining that I'm not getting part of the bailout and complaining because I'm paying for the bailout.

Posted by: Elise at March 2, 2009 01:29 PM

"Life Isn't Fair" is the Excuse for Corruption? Intentionally gaming the system isn't about Fairness, it's about Greed, apply it to the people who got the loans or the ones who gave them the loans...Greed and Envy.

So they took something they couldn't afford
(A HOUSE) not food in a kitchen a little bigger purchase LOL! and now they want to hold up the rest of us because they don't want to give up their ill gotten gains....it's called Scamming nothing to do with Fairness.

Posted by: Ree at March 2, 2009 02:33 PM

"Life Isn't Fair" is the Excuse for Corruption?

It sounds so much better than, "Two wrongs make a right".

Posted by: Cassandra at March 2, 2009 02:50 PM

After getting some Michelle Singletary WaPo columns in my inbox for a period of time when I first moved to the area - this is so diametrically opposed to anything I read from her about make smart financial choices. It smells suspiciously of paying lip service because to do otherwise would make you seem nonsupporting of the First African American President of the United States. And while it may be with a published date of 01Mar the previous month was Historic and could have played a part. Just guessin'.
And I totally agree, lumping the opposition into the sour sounding 'WAM' group is easier than trying to address and counter the many people that don't think paying for other people's irresponsibility should be put on them. Because a lot of people don't really get how 'two wrongs don't make a right'.

Posted by: wifeunit at March 2, 2009 03:19 PM

But don't you dare call that "socialism".

Uh-huh. Let's think up some euphemism, instead...

Posted by: camojack at March 4, 2009 03:36 AM