You Ask the Wrong Question, You Get the Wrong Answer

From Paul Krugman* today:  “By the way, in saying that our prolonged slump was predictable, I’m  not saying that it was necessary.  We could and should have greatly reduced the pain by combining aggressive fiscal and monetary policies with effective relief for highly indebted homeowners:  the fact that we didn’t reflects a combination of timidity on the part of both the Obama administration and the Federal Reserve, and scorched-earth opposition on the part of the G. O. P.”

This brings us back to Rick Santelli on February 21, 2009, when he famously asked, “Do we really want to subsidize the losers’ mortgages?  This is America!  How many of you people want to pay for your neighbor’s mortgage that has an extra bathroom and can’t pay their bills?”

The answer to that was a resounding “Hell, no!” and the start of the Tea Party,  but Santelli asked the wrong question.  He should have asked “How many of you people want to lose 30, 40, 50% of the value of your homes?  How many of you people want to lose your jobs because of the worst economic meltdown since the Great Depression?  How many of you people want to then lose your homes because, just like your neighbor now, you won’t be able to pay your bills?”

The truth is that because we got so obsessed with “moral hazard,” so determined not to coddle those damn “losers,” we all became losers.  If we’d loved our neighbor a little more, we would have all been better off.  Instead of lifting them up, we dragged ourselves down.

With all our politicians who constantly quote the Bible at us, where was Mike Huckabee or Michele Bachmann or Rick Santorum reminding the self-righteously righteous that the rain falls equally on the good and the bad?

* “The Optimism Cure,” NYT

The Wrong Question

Back on 2/19/09, Rick Santelli called for a Tea Party in Chicago in July, asking his viewers,”Do you really want to subsidize the losers’ mortgages?  This is America!  How many of you people want to pay for your neighbor’s mortgage that has an extra bathroom and can’t pay the bills.”  Santelli deserves the credit — or the blame, depending on your point of view — for inspiring the Tea Party movement.

But he asked the wrong question.  What he should have asked was, “Do you want your house to lose 30% of its value?  Do you want to lose your job?”  Because if we’d helped our neighbors back then, we would have been helping ourselves as well.  Instead, we were so concerned that bad behavior might be rewarded that we punished ourselves.

The banks never should have been bailed out without agreeing to pass that relief along to mortgage holders.  The government should have backed up the sub-prime mortgages that were failing.  If the government had bought up all the sub-prime mortgages — performing and non-performing — it still would have ended up costing us a lot less as a country.

Essentially, we cut off our noses to spite our faces.  A lot of people lost houses with prime mortgages, responsible people who had been doing just fine, who did not buy houses they couldn’t afford, but lost their jobs and couldn’t use the equity they thought they had in their homes to tide them over because that equity got wiped out.

If we’d loved our neighbors instead of begrudging them that extra bathroom (!?), we’d all be better off today.

We’re suffering from the moral hazard of moral hazard.  The rain falls on the just and the unjust, people.  It’s been raining hard in this country for almost five years.