I am Not a Communist – Part 1

When someone proposes something that can be viewed as political, people holding other opinions often start name calling. I think there is a role for government in the credit crisis, but I don't want to be labeled a Communist. Actually, my views tend more to the Libertarian end of the political spectrum. I believe in free-will, free markets, self-reliance, self-improvement, education, and that government ought to get out of the way.

Of course, government getting out of the way is simply not been what has been going on in my lifetime. Even in the era of deregulation that started under Reagan, government is at every party, not always as an invited guest.

Today we are experiencing the worst credit crisis in a couple of generations, a crisis that has happened in spite of a great deal government regulations. It has happened in part because of a appalling lack of enforcement of those regulations. Government regulators were asleep at the switch. The question now is, "What is the proper role for government in getting out of this mess?"

First, it is really easy to decry bailing out people who acted irresponsibly. Yes, people should have not bought homes they couldn't afford. Yes, they should have understood the loans they were getting. Yes, they should have done a lot of things. I have heard a lot of that but saying it doesn't help. It is really important to separate those subprime and other borrowers into smaller groups that have common characteristics. They become easier to understand.

Let's remember that the great majority of homeowners who got subprime loans are not going into foreclosure. They may have been talked into buying a home by some smooth-talking real estate agent whose co-conspirator was a subprime mortgage guy. Their toxic loan may be a huge burden to them, but they are in their homes and have achieved their part of the American dream, and they will be better citizens.

Ones in trouble still have solutions other than walking away. They can get second jobs or they can have a brother-in-law move in and pay rent. I don't think that we ought to worry about these folks. Maybe the ones most deeply hurt will be able to work out better loan terms with their lenders. But eventually, without help from the government, most will find a reasonable solution and become stable members of their communities

There are others that do not deserve sympathy or help. Many "investors" didn’t think that the risks inherent in real estate applied to them. Those who bought homes on speculation, hoping to turn them for a quick profit, are going to lose money, and properly so. The bad news is that foreclosing on them will add another home onto a saturated market. That hurts the neighborhood, and the affected neighbors didn't do anything wrong.

In the next installment I will discuss a plan that is under consideration in Washington. What will ultimately be enacted is unclear and what the effect will be on the real estate market is fuzzy as well. But what is clear is that we have one heck of a mess on our hands and we need to take bolder steps to fix it.