Very Few Innocents in Housing Market Collapse

Theodore Dalrymple offers his thoughts on the housing market collapse at Pajamas Media:Very Few Innocents in Housing Market Collapse

I am not an economist; I confess that I sometimes have the wicked and unworthy thought that economists aren’t really economists either.

That being said, though:

However complex a situation, though, nothing is gained by sentimentality, and Mr. David Stevens, of the Federal Housing Administration, was sentimental. He said that the government was developing “a program for responsible homeowners who through no fault of their own find themselves in a situation of negative equity.”

No doubt such responsible homeowners as he described could be found if looked for hard enough, but not in such numbers that their bad luck could have precipitated a financial crisis measurable on the Richter scale. Such a crisis could have developed only if there were millions of homeowners, or should I say people who took out loans to buy homes, who behaved not responsibly, but irresponsibly.

This does not in any way exonerate crooked mortgage brokers, careless or dishonest bankers, or a government that failed to notice that anything was wrong; nor does it mean that the millions of irresponsible “homeowners” were the worst villains of the piece. But the man who drives the getaway car from an armed robbery is not innocent because he did not instigate or plan the crime, nor would we think much of a criminal justice system that exonerated him completely on those grounds.

Let us at least be clear, and have no humbug, about the reasons for measures to assist the “distressed” homeowner who has a large mortgage that he cannot service. It is not because he has negative equity “through no fault of his own,” or to render him victim compensation. It is to avoid a further collapse in the property and financial markets. Whether this is the right, that is to say the economically prudent policy, is a matter of debate; but it should not be undertaken under the banner of preventing a massacre of the innocents. In this story, there are very, very few innocents.

I'll add that I bought a house at the beginning of the housing bubble. Three years later, I took out a HELOC, and pulled out $50,000. The bank was offering me a lot more -- my house had nearly doubled in price. But I didn't want to be that far upside-down when (not "if") prices fell back to earth.

Lots of other people didn't make that choice.