How Far Should Your Sympathies Go?

Over the past few months, the press has deluged Americans with weepy stories about people who are in danger of losing their houses because their sub-prime mortgages now exceed the value of their houses, which the recession and the popping of housing bubbles have caused to drop.

I am sympathetic; and I, and other taxpayers, am being asked to provide relief in one form or another. People who bought houses whose basic value far exceeded what they might reasonably have expected are now expecting other taxpayers to bail them out; and the expectations will probably be satisfied.

But what if one poses the issue in reverse: Would taxpayers be willing to put tax dollars into a program that would buy single-family houses that are larger and more valuable than would be consistent with usual standards of prudence in mortgage lending? I strongly doubt it.

Implicitly, proponents of homeowners’ bail-outs are relying on what one might call a “second-hand endowment effect.” We are supposed to offer money in sympathy with others’ losses (not of life, merely of property), whereas we wouldn’t offer money out of sympathy to provide them gains. Similar second-hand endowment effects exist, I believe, toward a variety of existing and proposed government programs to “help” citizens.

(Hat tip: DJH)

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  1. Allen Reynolds says:

    No, no, no! I am sympathetic, even to those fools who bought in to the height of the bubble. But the action from my sympathy is to reduce the long-term suffering. If we bail out people now, we face a moral hazard and will end up with more people in the same boat later.

    No bailouts, for anyone, ever. It’s the only compassionate response.

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  2. Mike says:

    We should have no sympathy for those who are unable to live within their means. The home I purchased is almost certainly down in value since I purchased it, but I am able to comfortably pay the mortgage along with all my other bills (as well as enough for me to afford the things I love to do), despite having taken a very substantial paycut.

    Whatever happened to hope for the best, plan for the worst?

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  3. Paul says:

    What about the $15,000 tax credit for homebuyers in the stimulus bill?

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  4. Ian says:

    Are some people walking away from their mortgages that are quite capable of making ends meet? The benefits of jumping ship on a negative equity situation are too high versus the costs.

    Credit is still to easy to get. Have no lessons been learned?

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  5. Gavin Andresen says:

    I bet the average homeowner supports a housing bailout mainly because they don’t want the price of THEIR home to fall any further.

    Renters who support a housing bailout (do renters support a housing bailout?) would be the ones suffering from a second-hand endowment effect.

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  6. C. Larity says:

    If homes are truly valued by how much utility a person receives from a home, why would a decrease in the perceived dollar value of their home (i.e. going “underwater” on their loan) affect their willingness to continue paying their mortgage? Just because an mp3 player goes on sale for $10 less a month after I bought it, I don’t appreciate the mp3 player less.

    As for those who took variable-rate loans, particularly loans with teaser rates, they took a risk and got burned (assuming the risks and conditions were adequately described by the lenders, which I admit is probably not always the case). Would they be afforded sympathy if they’d lost money in the stock market?

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  7. Steven Surowiec says:

    I agree in that there should be absolutely no bailouts for anyone. I think the real underlying issue is that we’ve become such a welfare state that everyone expects the federal government to come running with cash in-hand any time they’re in trouble for anything.

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  8. Matthew R. says:

    People who are sympathetic are welcome to open their own wallets, and not pickpocket mine. Be as sympathetic as you want with YOUR OWN money.

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