In case you haven’t seen it here’s the Chicago Tea Party video by Rick Santelli.

I live in a pretty wealthy area full of nice houses where the median price is around $1M, which to date has been pretty insulated from the housing price downturn.

So it was more than a little surprising to hear that some people in our area are lining up to get a bailout on their loans – some of which are Negative Amortization  Interest Only loans.  Whether or not they’ll be successful is questionable since the Refinance option is only for Fannie and Freddie owned conforming mortgages – however the Loan Modification component looks like it may help anyone.  We have heard stories of people in this area getting their Jumbo(> $729K loans) written down to 3-4% for 30 years and in some cases principle reductions.  Here’s the executive summary for the Homeowner Affordability and Stability Plan.

Most Americans are current on their mortgages and are paying their debts – many of them have taken big hits to their retirement savings account and other investments.   I understand the idea that you want to prevent the blight of foreclosed houses in areas where there are no buyers.  However in towns like ours and many others that are attractive to people – there are plenty of buyers out there – many of whom have been renting due to the recent housing bubble.  By subsidizing people who bought houses they can’t afford – we are perpetuating artificially high housing prices and rewarding poor decision making and supporting the heads I win / tails you lose philosophy that promulgated excessive risk taking by Wall Street and Sub Prime borrowers.  It’s the same problem – people saw no downside and if we use tax payer dollars to pay down million dollar mortgages – we are just continuing the problem.

If we allow markets to hit and clear at their natural prices – then we’ll create sustainable communities and healthy markets.  If we do otherwise we create all kinds of incentive problems and turn everyone into a welfare seeker that is focused on how to get their bailout vs.  how to contribute constructively to society.  Some people may “lose” their homes (which in many cases they don’t have equity in), but people need somewhere to live so investors will buy the houses and then rent them back out for a profit, which brings private capital back into the markets – so people shouldn’t be homeless they just won’t “own” taxpayer subsidized houses.

What do you think?