Tuesday, February 24, 2009

It's Not Your Fault, Rick Santelli. It's Not Your Fault.

Matt Yglesias nails the fundamental issue in the housing crisis:

When someone applies for a mortgage, there are two parties to the transaction. On one side of it is a teacher or a blogger or an electrician or a lawyer or a nurse or a guy who manages a Home Depot. On the side is a guy who, for a living, as a professional, works in the “deciding on what terms to offer people mortgages” business who works, for a living, at a financial services business.

Be sure to read Matt's entire post. The Rick Santelli revolt is based in such bullshit. The idea that home buyers were the principal bad actors in this crisis makes zero sense for the reason outlined above. If I go to buy a house, and the person who's lending me the money says I can afford it, and that even if it's tight, not to worry because, in his professional opinion, the home value will definitely go up, and I base my purchase on that professional advice, how is this my fault? The alternative is to have everyone major in economics before purchasing a house.

The answer, of course, is that the brokerage firms knew they were going to sell off the mortgages they signed, so the impetus to avoid unnecessary risk just wasn't there. To blame people who reasonably believed no one would lend them money if they couldn't afford it is designed to kick up enough dirt and sand so the real culprits can sneak away.

What Rick Santelli and the rest of the thieves who created this mess want is for you to subsidize them, their banks, their companies instead of the "loser mortgages." Watching that clip of him whipping up the Chicago Exchange traders was like watching Knute Rockne give Murder Inc. a pep talk. Just total garbage.

But maybe I'm just being mean, and what Rick Santelli needs is a good, long hug and pat on the back. Because who wouldn't want the Good WIll Hunting treatment:

(h/t Pete for the Matt Y link)


Marty Pupko said...

In general, I agree with your post, but I think you're letting the "loser mortgages" off a bit too easy with one comment...

"To blame people who reasonably believed no one would lend them money if they couldn't afford it is designed to kick up enough dirt and sand so the real culprits can sneak away."

There were plenty of people who knew that they could not afford the mortgages in the long term, many buying into some of the more exotic financing products like interest only options or even negfatively amoritizing loans. They felt secure that they could sell at a premium if they ever needed to get out. And with the help of their mortgage brokers, who had zero skin in the game, these buyers would intentionally inflate their personal income to qualify.

Do the banks deserve the mess they're in? You betcha. But you can't hold the borrowers completely blameless. I have sympathy for those that put faith in the broker or loan officer they worked with and were sold a bad bill of goods, truly not knowing how much they could afford. But there were plenty of folks out there savvy enough to know they couldn't afford it if they ended up stuck with it, but that possibility never entered the equation -- the market would keep going up, up, up!

Berto said...

There were absolutely bad actors who were playing the market and willfully lying about income to try and make their fortune flipping houses. But Santelli's point was that the housing plan should not go forward because it will reward such bad behavior. That's what's bullshit, because he knows fully well that the majority of people went out, got a mortgage, and the market fell out from underneath them. And that those people were sold a bill of goods about extending themselves because the increasing home values would cover them if they got in trouble and needed to sell and get out.

And by the way, that's exactly what the investment firms were doing as well. So when the financial cognoscenti of the nation are telling you this is how business is done in a boom real estate market, you take their advice.

So do we scuttle this rescue plan because some people were educated enough in finance to know better? Just how many people fit in that column if bad borrowers? What percentage? We're supposed to destroy millions of American families just to make sure we don't reward those few bastards who gamed the system? Of course not.

So Santelli's point is bankrupt from an intellectual, financial, and moral standpoint. He's just kicking and screaming because it's easy to stand on principal when its somebody else's family that's going to be homeless. Fuck Rick Santelli.

Marty Pupko said...

Yeah, there's no reason to allow this housing crisis to get worse than it has, there are still a slew of mortgages set to adjust for the first time this year and next that could easily go into foreclosure. If you're going to bailout lenders from their mistakes, how can you not do the same for borrowers? Besides, if you don't provide a bail out for borrowers, their bad notes will still be on banks' balance sheets and we may need to have another round of bank bailouts when those borrowers go delinquent anyway.

Banks are just as culpable in this mess. The difference is that borrowers signed on a dotted line promising to pay. But I think at some point, national interest trumps individual indiscretions. Unfortunately, there will be some people who "profit" in this situation that shouldn't. People who mortgaged their homes to the hilt in cash-out refi's so they could have the 5-star kitchen or resort-style pool they always wanted; people who took mortgages they knew they couldn't afford if the market changed directions. At some point, pragmatism has to supercede principle, and we passed it long ago.