While driving, I heard on the radio a news story where a politician was proposing putting a halt to all foreclosures for two years. The purpose of such a moratorium was to "save the American Dream" for all those families who will be kicked out of their homes in the coming years.
Let's forget the fact that most of these are homes that these people could never have afforded in the first place. Let's also forget about the rights of companies, and by extension their shareholders, to collect the money that was agreed to in writing by the people who signed these mortgages. But really, to protect the American Dream.
That is clearly a phrase that politicians just love to throw around whenenver it is convenient for them or when it makes for a good sound bite. But are we really protecting the American Dream by allowing these people to stay in these homes that they can't afford, even with a lower mortgage payement? No.
What about the American Dream for all those people who didn't get caught up in the craze? Those who were careful and responsible with their money and didn't get caught up in the frenzy of a housing bubble? Are you telling me that our government should favor those who already own a home vs those who don't? Doesn't that sound a little bit like the rich getting richer, pretty much exactly the opposite of the American Dream?
How can I make such a claim? Wouldn't helping all these familes stay in their home be the right thing to do? Sure, if you want to prevent anyone else from ever being able to reasonably afford a home. How can this be? Look, the current foreclosure wave is a GOOD thing. It will bring prices back in line with where they should be, much much lower. If you allow people to continue to live in homes they can't afford, you will not put downward price pressure on home prices. This desperately needs to happen if we ever hope to get back to a level of afforability. People will have no reason to sell their homes for less, because the supply of homes will be much lower. Banks won't have any incentive to sell foreclosed homes at a lower price either since the inventory on their books will be much lower than would be otherwise.
So let us not kill the American dream for the rest of those unfortunate enough not to already own a home.