2arrs, 2ells - alexbain: ““What are we doing to help those...

26th March 2010

Post reblogged from All the Alex Bain you can handle! with 7 notes

““What are we doing to help those people who owe more on their homes than the home is worth?””

— A classic Dennis Kucinich quote from CNN’s coverage of Obama’s mortgage modification plan. I’m not clear on why we bail out people who’ve lost money on their homes, but not people who’ve lost money from other investments. No one cuts me a check when my 401K dips. Now my tax dollars are helping out people who bought homes they couldn’t afford, which props up a housing market that I would like to participate in, but can’t, because I can’t afford it. If I stopped laughing I’d probably cry. Why is the government obsessed with keeping home prices unnaturally high?

Alex, I know you know this, but your 401(k) is an asset. Your home is also an asset, but it’s one with a big loan attached to it.

This makes a difference because if your 401(k) dips, you’re screwed. But if your home price dips, the bank becomes screwed, because you can always walk away from your loan. Even if this sounds like a good thing, foreclosures are awful and inefficient for many reasons (houses sit unoccupied, banks make poor sellers, there’s no incentive keeping the foreclosed-upon owner from trashing the place).

Now, what you really need to do, is find a way to lever up your 401(k) with some sort of no-recourse loan. Sounds a lot like what happened on Wall Street…

Source: alexbain