I was reading Treasury Secretary Paulson’s: Remarks on U.S. Housing Market before FDIC’s Forum on Mortgage Lending to Low and Moderate Income Households, and wanted to point out an excerpt from that speech which negatively caught my attention:
..Due to the lax credit and underwriting standards of the past years, some people took out mortgages they can’t possibly afford and they will lose their homes. There is little public policymakers can, or should, do to compensate for untenable financial decisions. And in the midst of rapid price appreciation, some people bought homes anticipating an immediate profit. Now that their investments have not turned out as they had hoped, these people may walk away, even though they can afford their mortgage payment. These borrowers can and should be living up to their mortgage commitment – government intervention here would be inappropriate..
Now I don’t know about you, but when I read this, I get a little irritated.
It’s not the fact that what he says is true. It’s the fact that the Treasury Secretary did not have any problem supporting the bailout of Bear Stearns, Freddie Mac, Fannie Mae, and (or soon to be) numerous other commercial banks and thrifts, without the same type of criticism. Even though he cites lax credit and underwriting standards, it seems to me that he’s shifting blame onto the mortgage holder.
Indirectly, what he’s saying is that it’s okay to bailout the investment banks, the mortgage brokers, and the commercial bankers who created, supported and marketed the risky CDOs, SIVs, and such that led to the subprime crisis. But, it’s not okay to bailout the individual American who also went along with this scheme. It’s okay for big business to “anticipate an immediate profit”, but not the average Joe who was probably encouraged to take on these loans. Of course the many individuals who took out these loans knew that they couldn’t possibly afford their mortgages, but so did the bankers or brokers who approved those loans. Blame should be equally shared all around, even with the regulators.
It’s this type of contempt for the average American that really disturbs me. But, then again, I should remember that before coming to the Treasury in 2006, Secretary Paulson was Chairman and Chief Executive Officer of the investment bank, Goldman Sachs.
That being said, I do agree with Secretary Paulson in that people should be held responsible for their own actions. Just as I think the loan originators and investment banks should be held responsible, so should the mortgage holders. So, if you’ve fell victim as a willing participant in this whole subprime scheme, I want you to look closely into a mirror and repeat the following:
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