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Saturday, May 24, 2008

Home Owners

The term 'Home Owners' ranks high in the pantheon of misleading - even grossly dishonest - terms that could have been used by George Orwell in either Animal Farm or 1984.

We are suffering from the unwinding of the recent housing bubble wherein no one seemed to understand that the ratio of house prices to income (see also Price - Earnings ratios for speculative stocks) can not increase forever. Politicians - in full pander mode - are proposing that massive sums of taxpayer money be GIVEN to those in danger of losing the homes which they never owned in the first place.

Will someone please explain how someone with a zero down mortgage (i.e. no, repeat zero, equity in the property) can be described as a homeowner? The reality is that such a person can only be described as renting from a bank with the really sweet kicker that one hundred percent of any price appreciation belongs to him.

Usually Wall Street tries to create one way bets like this for themselves. This time, however, the investment bankers are on the wrong end of it. They deserve to be punished. The potential damage to the financial system, however, dictates that they be bailed out. If that is not done, the consequences of letting them take their medicine is all too likely to rebound on the real economy.

We will work our way out this hole, sooner or later, but referring to those who are really renter/speculators as home owners merely serves to confuse.

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