I’ve mostly been able to ignore the subprime mortgage mess. I don’t work in finance (although several of my classmates at Columbia are walking on eggshells), and my investments are mostly long term so the volatility in the markets doesn’t really concern me. But then I read the following paragraph in The Economist:
The boldest suggestion has come from Sheila Bair, chairman of the Federal Deposit Insurance Corporation, a guarantor and supervisor. The crisis is so grave, she argues, that most borrowers who are facing resets but still paying their dues should be given the chance by servicers to switch into fixed-rate loans at the starter rate for the full 30 years.
I’ve since seen other articles indicating that the government is seriously considering plans to freeze these loans at the introductory rate for at least five years. And I’m furious.
When I bought my condo, I looked into adjustable-rate mortgages. They started off at a lower interest rate than a fixed rate, but then would be released to the market rate after the introductory period. I did my research (i.e. I asked my parents) and determined that interest rates were as low as they’d been for decades, so the market rate would almost certainly be higher after the introductory period. With that in mind, I went with the fixed-rate mortgage, despite the initially higher interest rate.
And now I’m being penalized for being fiscally prudent. If they freeze the loans at the introductory rates, then people who made bad decisions are being rewarded by getting to keep their low interest rates, while people like me who made good decisions are penalized with higher interest rates than we otherwise would have had. That doesn’t feel right.
At the same time, I understand the social issues at play here. Having to foreclose on people’s homes doesn’t help anybody – the bank is left with an asset it can’t sell to cover the loan because the housing market has been weakened, and the people lose their home. The government is intervening because the economy is being damaged by the housing market decline. I get all that. But I still can’t get over my initial angry reaction.
Where does social responsibility end and personal responsibility begin? I believe that we should have a social safety net, but I also believe there has to be consequences to actions or the same mistakes will continue to be made. I don’t understand the people who said they didn’t understand what they were getting into and they were misled by evil mean brokers who said they could afford these big loans. Regardless of what they were told, they were the ones signing a contract, and they were the ones responsible for fulfilling the terms of that contract. If they got suckered by a seller in a flea market, we would have no sympathy for them, but because it’s their house, they expect to be bailed out.
There’s been an infantilization of society where people expect that they can make stupid decisions and somebody else will have to deal with the consequences. This has been happening because it removes responsibility from people, and also because institutions benefit by exerting more control over people’s lives (the MIT Freshmen on Campus decision comes to mind). But being an adult and a citizen means taking responsibility for the consequences of one’s actions. It means admitting mistakes and trying to fix those mistakes.
I wonder what can be done to instill that attitude in our citizens moving forward, and how to remove the temptation from institutions to increase their control. That would be the socially responsible initiative, encouraging people to learn from their mistakes rather than seeking to shield them from the consequences of those mistakes.