February 25, 2008

These People Deserve a Bailout?

You knew it had to happen.  The New York Times last week carried a story about Bank of America proposing that the U.S. government assume responsibility for bad mortgages.

Bank of America, which is in the process of acquiring Countrywide Financial and has potentially huge exposure, has circulated a proposal to create a new federal agency that would buy vast quantities of delinquent mortgages at a deep discount and replace them with fixed-rate federally guaranteed loans. The bank warned that tightening credit conditions were leading to “escalating levels of delinquency and default among borrowers” and “an unprecedented number” of homes that would enter foreclosure.

Let me get this straight.  The very people who helped create this mess want the government to assume the burden for fixing it?  I have another idea:  Let’s force former Countrywide CEO Angelo Mozilo to sign over his $115 million severance package to the federal government.

I hope everyone will write to their congressional representative to express outrage over this plan.  The people who are losing our homes do not deserve our sympathy, or government money.  They behaved recklessly; they made poor decisions.  When that happens, you’re supposed to suffer the consequences. 

We live in a country of spoiled brats, where people believe they are entitled to all kinds of perks without having to work for them.  It’s all about instant gratification and appearing to be prosperous and successful.  When things go wrong, Mommy and Daddy (or the government) step in to make it all better.

Case in point:  The same story spotlights a Memphis couple, the Breakstones, who were $65,000 short on the sale of their last house.  Later in the story, we learn more about them.

The Breakstones are similarly in danger of sinking, despite their high income [$250,000 a year]. After forking over $65,000 on the house they just sold, they are struggling with $670,000 in debt on their present, larger home — perhaps more than the house itself is worth. The Breakstones, each previously divorced, married in 2006, bringing three children to their union. They needed a bigger house than the one Mr. Breakstone had built. Mr. Breakstone thought that he could sell his other home quickly, but it sat on the market for 17 months and finally brought only $170,000. He covered the shortfall by borrowing against his present home — bringing it closer to being underwater, too. Now the Breakstones are saddled with $4,000 a month in house payments, and $14,000 more in fixed outlays, including child support, car leases, taxes, consumer debt and utilities, using up the bulk of their income.

Excuse me for a moment while I wipe away tears of sympathy for the Breakstones.  How difficult it must be to try to make ends meet on only a quarter-million dollars a year, particularly when you’re “saddled with” so many “fixed outlays” such as a McMansion, leased luxury vehicles, and nasty credit-card debt that never seems to go away. Life is so unfair. 

Recent Redfin posts:

Mystery on East Walnut
A School is Born

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