Think back a few years.

Were you one one those people who lived within their means, bought and lived in a house you could afford on your income, and took out a conservative fixed rate mortgage and steadily paid it down.

Or were you one of those people who bought a bigger house than you could afford on your income, got a cheap but risky adjustable rate mortgage, perhaps with zero money down, and maybe even took out home equity to boost your standard of living? Did you by any chance not even live in the house? Maybe you were just out to make a quick profit flipping houses which at the time seemed to be the national pastime for recent geniuses.

Kudos to you if you belong to the latter category: The white house just bailed you out!

The reason is of course that there are more subprime borrowers than there are subprime lenders.

That’s democracy or short-term populism at work and it will probably result in the housing crisis dragging on for longer than it should have, since people are allowed to keep living in houses that they can not afford by their contractual agreements.

This tendency to create moral hazards leaves me slightly worried. Those of us who are conservative and responsible with our money are somewhat of a minority and thus quite disadvantaged when it comes to political solutions to financial problems. Here I am of course thinking about the underfunded ticking time bombs of social security and medicare/medicaid. Something to consider …

Originally posted 2007-12-08 16:32:00.