On the other hand, there is a proposal on the table to make the homeowners partially whole on their losses by writing down their mortgage interest rates, at the expense of the banks who lent them money.Â In the context of that argument, a number of people seem to be making the argument that the homeowners really deserve a large transfer from the banks, because it was the fault of the banks that they lent them money in the first place.
I actually can’t think of anyone who believes that homeowners deserve a rescue, or deserve a large transfer from the banks. Similarly, I can’t think of anyone who thinks the banks deserve a rescue, or deserve a large transfer from taxpayers. The logic behind the rescues isn’t to address some injustice somewhere, but to prevent a crisis from growing ever worse.
At the same time, I think it’s appropriate to defend homeowners generally from people like Rick Santelli, who think the rescue is somehow an invalid instance of government intervention because the borrowers in trouble acted irresponsibly. That’s true of some, but not most buyers. This is why I made the point that if you bought in 2005 or 2006 (and in some places in 2004) you’re underwater, even if you put down 20% of the value of the home. A great many households have lost a great deal of money, putting housing markets in a condition that continues to undermine the economy, despite acting in ways that are generally considered appropriate or laudable — buying homes putting down 20% out of personal savings.