One of the most annoying aspects of the housing crunch and the negotiations over the proposed Wall street bailout has been the language used when discussing how foreclosure affects the average citizen. The phrase "people losing their homes" gets a lot of play, but no one seems to question what that means. If I am paying a mortgage that I cannot afford and subsequently go into foreclosure, I am not losing my home, I am defaulting on a loan I entered into. But the home was never mine to lose. I have simply lost my investment toward owning that home over the period of several decades.
(As an aside, this is why most demographic surveys bother me. They ask if you own your home or rent. I don't rent, but I also don't own my home; I owe a bank the balance of the mortgage we entered into several years ago. The bank owns the home, and I make a monthly payment--which is still largely interest--as part of a 30-year process of paying off that loan.)
I don't mean to sound unfeeling toward those affected by foreclosure, which harms both the lender and the borrower, but I feel that this inaccurate language is at the heart of the current financial mess. We mistake physical possession with ownership, debt with asset. This seems to be the core reason for the failure of big financial institutions--they take on risky investments, overvalue those investments, and rack up impractical debt.
The same seems to be the case at the federal level. The big financial debate of the 2000 race was what to do with the budget surplus (can you imagine, a budget surplus?): saving for big future expenditures like Social Security and pay down the debt or make reckless tax cuts that favor the wealthy? In hindsight, the correct decision is obvious, no?
Along these lines, Scott, in a recent comment, argued that presidential policy has little effect on the economy, and, while I agree that blaming or crediting a particular president for the overall economy is fallacious, I think the administration does affect the economy. Fiscal issues like taxes are an obvious part of that, but so too is the general attitude toward the budget. Spending money on a war of choice without appropriating for those funds is an example. So too are smaller unfunded mandate issues like NCLB. In each of these cases, the administration has played fast and loose with fiscal responsibility, which has in turn created a culture of financial recklessness that has permeated both Wall Street and individual consumers.
I think we need to change our cultural mindset away from possessions and toward value, both in terms of material goods and our spiritual well-being. Summer and I are talking about Xmas gifts for the kids, and we both feel that they don't need more stuff (and we don't really have room for more stuff--maybe we should have gotten a bigger mortgage and bigger house when the debt was flowing like honey), so we're thinking about gifts that carry more meaning, like the hand-made books Pat has made for her children's families the last few years. That's the sort of thing with real value.
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6 comments:
I just watched Bush's speech on the bailout and I'm surprised at some of the wording he used. He kept emphasizing that we're in an economic crisis because people can't borrow money. He said we need to bail out the banks so they can continue to lend. This is crazy. The economy is in trouble because of over zealous lending and an overabundance of credit. Bush isn't concerned with protecting investments. He's all about encouraging more debt. Nuts!
I'm just not sure that I want the government in charge of the bailout money...
I would like to take this argument to the bank when it's time to pay property taxes and home"OWNERS" insurance. We are the ones who bear the risk on the property - so there is a degree of ownership.
There is a balance between the asset, the liability, and the equity. The ideal is to have equity in the black... which many who purchased homes recently don't have right now.
Carma, thanks for the feedback. Summer gave me some similar grief over my (admittedly naive) argument about homeownership, and I admit that with time one earns a gradually-increasing part-ownership in the form of equity. But your point about risk gets right to my main point. Real estate is a unique sort of purchase, the value of which is very flexible, and, as you say, subject to the consequences of decisions. But I stand by my critique of the misleading "people losing their homes" idea...if I can't make payments on a credit card and get items repossessed, I'm simply losing things that were never fully mine...
I think our feelings towards the bailout are somewhat similar. You said some of what I tried to say in my much less eloquent post on the topic, in which I also fell into the trap of saying I own my home, when in fact I own practically none of my home. But unlike renting, I can do whatever I want to it :)
Debt unfortunately is what's driving the bulk of the consumer economy. The government encourages people to spend money they don't have on products they don't need in the name of the national interest.
Ironically the lack of statutory requirement identifying the true locale of all components in manufactured goods or the production state of consumables like fruits and vegetables, means that the American consumer has a hard time identifying if their deficit spending is even going to American producers.
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