I'm just back from Florida, more specifically the foreclosure capital of the U.S. in Lee County. It's like someone dropped an economic neutron bomb. Plenty of homes are standing, but there's nobody living in them.
As President Obama battles to win approval for his economic stimulus plan and readies to launch his version of the financial system rescue, here are a few, tough questions we as a nation should be asking:
* Is it wiser to let banks fail rather than try to prop them up? Isn't failure more instructive? To date, only a handful have failed and the biggest banks got a huge handout already.
* If those who couldn't afford a home were lured into subprime loans, shouldn't we be helping them get back on their feet? Shouldn't somebody be counseling them as to the best course of action?
* Shouldn't we really be asking ourselves "is homeownership really for everyone?" If the answer is no, then let's build our policy around there being no shame in renting. If the answer is yes, then we should guarantee as much as we can in the secondary mortgage market.
* What if the reality came to light that not everyone can afford a home, nor should we make everyone struggle to attain homeownership? After all, there are taxes, maintenance costs and financing expenses that really never go away and only rise with inflation. If we're in an age in which salaries are not going to keep up with the cost of living, then that will change the equation.
* By saying, homeownership is not for everyone, we can re-orient our public policy toward more important things. As you know, real estate ownership is the most subsidized activity in our economy. You can deduct mortgage interest on first and second homes and home-equity loans, so there's one subsidy. Then we waive capital gains taxes on homes sold within five years (provided you've owned the property as your primary residence for at least two of those years). Then we allow property-tax deductions and subsidize everything connected with development" New roads, sewers, utilities, etc. What if those tax breaks were eliminated and the additional revenue flowed into a national health care program for everyone?
* The limited ownership policy would then call for a protracted bailout: Those who qualify with sufficient income and credit ratings could be given loan modifications into 30-year fixed-rate mortgages. Those who didn't quality would be given the option to rent.
* The most perplexing question is how do we forgive debts? After all, millions bought in during the bubble at unrealistic prices. Do they get to write down their mortgage principal? What about those of us who have managed to pay down our mortgages for years, even decades? Should we get a chance to write down part of our principal? How would we support the banks after these writedowns occurred?
The fairness question underlies all of the nettlesome realities of the housing bailout. Nobody wants to see people thrown out of their homes without a good reason.
If people were truly deceived, let's see some prosecutions and make amends to those who didn't know what they were getting into. However, if everyone getting in over their head knew it, then let's move on.
The sad truth is that many will have to liquidate their dreams for a while. The government should stand behind them in some way. They can't stand alone.