Tuesday, December 23, 2008

Crisis Conspiracy

Over on another site, one of those well-meaning young men who thinks he has discovered secrets hidden from the rest of the world has announced that all governments and religions are owned by a single corporation, which apparently is set on evil tidings for us all. Like most conspiracy theories, it’s high on drama, empty on facts and the writer is unwilling to accept even the mildest criticism of his epiphany. He is convinced that he, and he alone, has uncovered some great secret that we should join in denouncing after, of course, applauding his courage and leadership, even though these are quite as imaginary as his villains.

I am being a bit harsh perhaps, but with so many real problems to address, it seems a bit annoying to have to trudge through the rhetorical muck of Chicken Little. And there are many such birds. The fictions of Global Warming, American Imperialism, Welfare, and such already drag down the business of the nation, and yet there are always more who are happy to pile on new delusions. The present mortgage crisis, for example, is complicated by the paranoia of those who see racist practices where stupidity and greed are quite sufficient to explain what has happened, and those who demand a diversity-focused approach to addressing failed mortgages, a tacit attempt at extortion for holding people responsible for buying a house they knew they could not afford, because demographically this practice was most common among minorities.

The resolution of this problem can be done rather simply and quickly, provided clear heads are in charge and the plans put in place attempt effective solutions, rather than politically correct actions. Most of the homes have real value, if not at the price originally charged, and banks should be enabled and encouraged to renegotiate the financing on those homes to address the principal in a workable fashion, provided the homeowner has reasonable equity in place and the ability to pay down the balance on schedule at the reduced rate. That’s one of the original purposes of the Congressional action already passed, after all. Those homes which cannot be addressed through simple refinancing, must be evaluated on a case-by-case basis, with the homeowner and bank both made aware that they will share responsibility for the lost value, for example if a house sold for $400,000 can now only be considered to be be worth $250,000. The reason this can work, is that homeowners with something to lose in the event of a foreclosure will be motivated to work with the bank, and a bank made aware that a deal will bring in more money than a foreclosed home will sell for, is also motivated to negotiate in good faith. Since the bank and homeowner are both already committed contractually in these situations, government intervention should frankly be minimized – they cannot really do anything to make the deal, and so should focus on situations where their action would save the home and minimize loss, for the taxpayer as much as anyone else. Unfortunately, few in Washington seem to share that opinion these days.

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