There’s this meme going around among right-wing Republicans; most vocally in the now-famous Rick Santelli rant, but I’ve been seeing it for a little while now. It has to do with the mortgage crisis and the bailouts. And it goes something like this:
“Why should you pay for your neighbor’s mortgage? Why should you pay for their mistake? They’re the ones who took out the mortgage they couldn’t pay. Why should you bail them out?”
Whenever this meme raises its head, there’s a point Ingrid keeps bringing up. And it’s what I want to devote this post to.
When we bought our apartment three and a half years ago, of course we applied for a mortgage (what with the whole “not having the cash up front to buy a San Francisco apartment” thing). We found a mortgage broker, filled out the applications, provided all the pertinent information.
And we trusted the bank to tell us if we qualified.
We trusted the bank to tell us if they thought we had enough income, and a stable enough income, and a solid enough history of paying off our loans and bills and such, to pay off the mortgage on this apartment. We thought we could, obviously; but we also didn’t know any more than the average person about the complexities and finer points of the financial world. Which is to say, we didn’t know much. We trusted that the bank — being a bank and all — knew more about the financial world than we did. We trusted that they were doing a careful evaluation of our financial prospects, based not only on the information we gave them, but on their own extensive experience of loaning people money. And we trusted that, if they thought we couldn’t pay off our mortgage, they’d tell us.
A trust that, as it turns out, was grossly misplaced.
The mortgage is not a problem for us. We’re doing fine. (And I don’t think our mortgage actually got sold in the speculative bubble.) But the fact that we’re doing fine — the fact that the bank was correct when they told us we were a good risk and would probably be able to pay off our mortgage — is apparently just pure dumb luck.
The banks, as it turned out, were no longer making their “to lend or not to lend” bets based on a careful assessment of whether applicants would probably pay off their loans. The banks were now speculating on mortgages, buying and selling them like they were tulip bulbs in 17th century Holland. The banks were not betting that people would pay off their loans. They were betting that somebody else would buy the loans from them, at a higher rate. They were betting, as all speculators ultimately do, that somebody else would be a bigger idiot than them. They were betting that they could make money on mortgages — regardless of whether people could pay them off or not.
Which brings me back around to the topic at hand:
Does it really make sense to blame homeowners for the mortgage crisis?
Does it really make sense to blame homeowners for taking out loans that their banks told them they could pay off?
Maybe I’m showing myself to be a financial simpleton here. But it seems to me that it’s not the job of the loan applicant to know if they’re a good credit risk or not. That’s the job of the bank. The job of the loan applicant is to ask for money. It’s the job of the bank to decide whether the applicant will probably be able to pay it off. It’s the job of the bank to say Yes or No.
Now, I understand that during the housing bubble, some people lied on their mortgage applications. People said they had jobs when they actually didn’t; people said they made way more money than they actually did. And while it is, theoretically, one of the jobs of the bank to check that the information on loan applications is accurate — to oh, say, let me throw out a crazy idea here, call the applicant’s employer and make sure this person actually works there (something the banks were failing to do during the mortgage bubble) — it’s also the case that the people who lied on their mortgage applications clearly do not fall into my “We applied for this loan in good faith, we trusted that the bank wouldn’t loan us money that we couldn’t pay back” category.
So I wouldn’t have a problem with a homeowner bailout plan that said, “If you lied on your mortgage application, then you’re shit out of luck.”
But everybody else?
They were lied to. They were told, “Yes, we think you’re a good credit risk,” by banks who they trusted to answer that question truthfully. They were told, “Yes, we think you’re a good credit risk”… by banks who, as it turned out, didn’t give a damn if they were a good credit risk or not, as long as the banks could turn their mortgages over to a bigger idiot at a profit. The mortgage crisis was not about ordinary Americans recklessly buying homes that they couldn’t afford. Or at least, that’s not mostly what it was about. It was about the banks and financial institutions recklessly speculating on mortgages — i.e., people’s homes, and people’s lives — as if they were tulip bulbs.
I understand the moral principle that people should accept the consequences of their actions, and that you shouldn’t reward people for bad behavior. Like a lot of people, I cringed at the bailout of the auto industry, and while I reluctantly had to swallow that it was probably necessary (on a different moral principle: namely, that you shouldn’t make lots of other people suffer just so you can punish someone for their bonehead mistakes, otherwise known as Not Cutting Off Your Nose To Spite Your Face), there was definitely a strong sense of injustice about it that stuck in my craw.
But bailing out homeowners who got caught in the mortgage crisis doesn’t mean that we’re paying for our neighbors’ mistakes. It means we’re paying to help our neighbors who, through little or no fault of their own, got scammed by institutions they had every reason to trust.
And that, I thought, was one of the good old-fashioned American values the right wing keeps going on about.