Bailing Out the Losers' Mortgages – Global Economist Review Blasts CNBC's Rick Santelli Submitted by: Global Economist Review
2009-03-05 19:37:41
(OPENPRESS) March 5, 2009 -- As a student of economics for over 30 years and after applying economics to the trading of currencies and interest rates for many years, I must take issue with Rick Santelli's comments.
On Thursday February 19th CNBC's Chicago reporter, Rick Santelli, expressed his anger and drew resounding cheers from fellow traders on the Floor of the Chicago Mercantile Exchange when he verbally criticized the Obama Administration's stimulus package. He echoed the sentiment of many people in the U.S. that hate the idea of paying for their neighbors' mortgages. Many people share the opinion that they work hard and pay all of their bills on time and did not buy something they could not afford, so why should they bail out those that did. Right now these people are in the majority, they represent about 95% of the population. Currently it is estimated that there are between 4 to 5 million homes in some state of default. The Bureau of Labor Statistics for January reported unemployment of 7.6%; people that have accepted a pay cut are not part of this statistic. However, as more people become unemployed or have to take pay cuts the default rate will rise.
Many people seem to assume that all the people defaulting on their mortgages either obtained non-conforming ARM's, or bought more house than they could afford. This might have been true when the housing bubble started to unravel and there may still be some of those situations; however, now foreclosure is more mainstream. There are many people out there that did not overextend themselves; they have 30-year fixed mortgages that at the time they took out those mortgages were only 20 to 25% of their monthly income – far below the usual FHA required 30% and well below the 38 to 50% accepted by the sub-prime mortgage companies. Many of these people have either lost their jobs and cannot find a new one or they have had to take pay cuts to keep their jobs. When these people have used up their savings they too could be in foreclosure. Are these people losers? Is it fair to punish these people?
Mr. Santelli has obviously never been hungry and if he was at one time he has forgotten what it feels like. What if one of his family members, good friends or neighbors lost their job, could not find a new job for a year or two, ended up using all of their savings and then came to their good friend Mr. Santelli for some money to buy food and shelter; what would Mr. Santelli tell them? You're a loser, I don't help losers. There are plenty of homeless shelters that my tax money pays for, go use one of those.
I would have to ask Mr. Santelli if he can see the big picture. Let's say that the government does nothing to help homeowners from losing their homes. The banks would have more foreclosed homes that they would try to sell but cannot because there are not enough buyers. The banks would then continue to lower the price of the homes which deflates pricing of all homes in the area. As the value of peoples' homes drop they tend to spend less. As everyone spends less, more companies will most likely lay off more workers. Then those "losers" cannot pay their mortgages and the banks will repossess their homes and resell them for whatever they can, lowering the prices of houses still further. This is already happening in many parts of California, Florida, Arizona and Nevada. Eventually, more assets will deflate and then even opinionated people like Rick Santelli could find themselves without a job and with a portfolio of deflated assets. Would Mr. Santelli then criticize Mr. Obama for not providing sufficient help to stave off the decrease of his assets?
I must say I am very disappointed in Rick Santelli's comments, I thought he was smarter.
