More of the sky is falling, and the collateral damage is getting larger. And sillier.
Here’s this gem from CNBC today:
For the sake of argument, let’s set aside the issue of whether lenders were deceitful or predatory, or whether the government encouraged this kind of behavior. I know I’m going to get lots of comments about 25-year-old idiots with $45,000 salaries buying McMansions and giant plasma screens and fancy cars that they couldn’t afford. But I suspect that many people who are in trouble now were mostly trying to buy into a safe, stable neighborhood with good schools. The real-life choice for many families in bubble markets isn’t between a fancy McMansion and a modest older home. It’s between a house in a school district that works, and a house in one that doesn’t.
Hey, as long as we’re going to force people to send their kids to crappy schools, why don’t we give the government control of more stuff so that these same people can shop at crappy grocery stores, too? And when they try to escape, we can blame the lenders for trying to get their money back.
Here’s a quick-and-dirty on this deal. The government is being asked (politely, and not insistently at this point) to bail out homeowners who default on their mortgages. Why are they defaulting? Because, as the terminally confused Berkely economist Brad DeLong argues, there is some sort of “systemic failure” in the mortgage industry. What that failure is is totally unclear to me, and I do this for a living. Of course, it might be hard for me to see because none of my clients have ever been even 30 days late on their mortgage (and this is no accident), but I digress.
But I agree with the quote above that most people who are defaulting were really not trying to buy into something outrageous. A top mover of families in my experience is how good the school is that their kids will be going to. Houses in poor neighborhoods usually have bad schools, which depresses their property values, which brings in more low-income people, which further reduces the quality of the schools, and so on. This is a hugely negative spiral aimed directly at starter families and people who are struggling. And the spiral is at least exacerbated, if not outright CAUSED, by the lack of school choice – the ability of poorer families to get their kids into better schools without having to pay private school freight to do it.
In other words, the government is now being asked to step in and fix a problem its own monopoly caused. Oh, the irony. So, so easily fixed. Of course, the people most interested in supporting the NEA and the public-school monopoly are the same ones screaming for the government to do something about mortgage defaults, and the same ones that claim most vociferously that they are on the side of the poor and downtrodden. Bull.
I’m not going to dispute that these people CARE about the poor, but I am going to contend that the policies they advocate seem almost perfectly designed to make sure those that are poor stay poor, and to make the consequences of their poverty as harsh as possible. Quick quiz: where is it more livable for the poor, Detroit or Delhi? That would be Detroit, for those scoring at home. And why is it more livable in Detroit? A) because of massive US government handouts to the poor or B) because Bill Gates and his entrepreneurial ilk essentially tripled the US economy by making the PC so easy to use my 3-year-old can do it. And that would be B. The case can convincingly be made that US entrepreneurs are the only people making things better for the poor in Delhi, too, but this isn’t the space to do that.
The US government should not be in the business of bailing people out of their mortgages. It should, however, be in the business of removing those ridiculous and counter-productive regulations and monopolies that make it so much harder for people to afford the things they want to buy. Start with dismantling the public-school monopoly. That’d be a great start right there.