Matthew Yglesias has his doubts about whether homeowners who default on their home loans bear any responsibility whatsoever for the financial mess they have caused. Certainly lenders deserve a share of the blame for failing to run their businesses, well, like businesses. The federal government played a huge part in the fiasco as well, as we’ve discussed before.
At the end of the day, however, it is precisely the individual homeowners who borrowed more money than they could pay back who bear the final responsibility for defaulting on their home mortgages.
But I’m getting ahead of myself. Here’s part of what Matthew wrote at Think Progress:
There really is plenty of blame to go around here. But I just don’t see how more than a tiny fraction of it could possible adhere to our electrician or teacher or secretary who’s decided, basically, that the financial services professionals and government regulators know what they’re doing. Now could she have known better?
If we’re going to be honest with ourselves, we should start by admitting that under no circumstances can any American justify a claim that he or she doesn’t understand how mortgages work. You borrow money, then you pay it back, with interest, over a term. Basic 9th grade math in this country.
Of course there’s always the question of cash flow. But this is also elementary mathematics, as in:
(Monthly Income * Probability of Maintaining Income) – Monthly Mortgage Payment
Simple. And there’s no need to make the analysis more involved than that. Yglesias does, of course, invoking the Fed’s monetary policy and blaming the lenders’ derivatives-based Ponzi schemes to explain away Americans’ failure to apply freshman math in the most important transactions they ever make.
(At this point a jab about this being a result of public education would be too obvious, I think.)
Most Americans have the common sense to know that Ygelsias’ argument is hogwash. 55% of us say that government intervention on behalf of defaulting homeowners only rewards bad behavior. The percentage ought to be higher, frankly.