Thou shalt not covet thy neighbor's assets

As a relatively recent homebuyer in Upstate New York, I'd like to think I'm pretty isolated from the worst of the housing bubble's bursting. Prices around here have been fairly flat for decades, failing to go up dramatically along with the rest of the country for the past 15 years, but also failing to drop much either. When looking for a mortgage, the most exotic option we considered was a 25-year fixed, but in the end the 30-year fixed just seemed like the better option.

Many people around the country were eiter not so fortunate, or not so wise. The government's efforts to help ease the crisis be encouraging banks to modify the interest rates on mortgages have been either ineffective or actively counterproductive, since, according to experts quoted by the NYTimes,

desperate homeowners have sent payments to banks in often-futile efforts to keep their homes, which some see as wasting dollars they could have saved in preparation for moving to cheaper rental residences.

Banks still have bad loans on their books, home prices are still being artificially inflated, and widespread foreclosures are damaging entire neighborhoods.

The solution popular among economists is to encourage banks to modify the principal amounts of mortgages gone bad, even if this is on the government dime. Needless to say, this is often unpopular, with frequent sentiments being echoed by CNBC's resident real estate blogger, Diana Olick:

The arguments are plain and simple: Bite the bullet to save the greater housing market or don't because the moral hazard is far too untenable. Anyone who's ever read this blog before knows where I stand. I would honestly rather see my home's value go down than see the guy next door (figurative: my neighbors are lovely and fiscally responsible) who made a poor/negligent financial decision get a mulligan at my expense.

She's really fond of blaming both banks and homeowners, but especially the homeowners:

I'm sorry, but I'm just getting a little sick of all the onus being laid on the banks. Sure, they deserve half of it, but what about the borrowers?? We seem to excuse all their responsibility because the possibility exists that they could lose their homes. But realistically, many borrowers are sitting in said homes, rent free, actively refusing to take the help being offered because they'd have to admit they lied.

Principal modifications have a lot of potential benefits, including lower payments for homeowners, and a higher chance for the bank that the borrower will keep repaying a loan. Becuae it instantly increases the borrower's equity stake, they become more mobile, able to seek out better job/life opportunities and increasing the chance that the house will pass on to a new buyer rather than into the hands of the bank. The problem is that even though banks and underwater homeowners are the responsible parties, we as a society end up getting stuck with the bill. It's not pleasant, but we're long since beyond pleasant. I get worried, at some point, by frequent moral hazard arguments that manage to basically exonerate corporate misbehavior while bringing down wrath on everyone else. The basic idea is that it's better to suffer a little oneself so long as those who were foolish suffer more. Is this really the best we can manage these days? While I appreciate that times are tough all over, it's stunning to see how much concern is paid to the idea that someone undeserving might get ahead in life. It underlies the affirmative action debate, the debates over welfare from the 80's onward, a good bit of the Teabagger/anti-tax crowd, and a shockingly large part of our political culture.

Seriously, why? Perhaps some of it is corporate culture, in that every tax dollar we are forced to contribute is a dollar that we can't spend on a new electronic gadget that will revolutionize our existence as we know it (damn those underwater homeowners, now I can't afford Rock Band: Glockenspiel!). A lot of it, though, is simple acceptance of the "backhanded tenth commandment", which basically states "I will not covet my neighbor's possessions so long as I ensure that I have more than he does." It probably helps explain why so many people are often so stressed, harried, and generally unhappy:

Psychologists at the University of Rochester evaluated survey responses from 147 recent graduates, noting their achievements and their level of happiness over a period of two years. People's goals were divided into two categories: extrinsic (things like wealth, fame and personal image) and intrinsic (for example, meaningful relationships, health and personal growth). Achieving intrinsic goals led to higher self-esteem and a greater sense of well-being, the researchers statistical analysis revealed. But, in a snub for the American dream, attaining the extrinsic goals of wealth and fame led to anxiety and unhappiness.

At some point, it would be good if the dominant political mindset of the chattering class, and perhaps that of the nation as a whole, was not that of a vengeful six-year old. As is nearly always true, the best advice comes from Raffi: "All I Really Need is a Song in my Heart, Food in my belly, and love in my Family" or, if you prefer a more stoned adult perspective, from Rusted Root: "All I need is food and creative love". Decrying the fact that your neighbors and fellow citizens are not losing their houses really won't help you achieve any of these.

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