In the Globe again
In today's Globe, Scott Kirsner was nice enough to quote The Fein Line again, this time on my response to McCain's plan to bail out homeowners and mortgage lenders by repurchasing mortgages that are under water.
The quote in the paper focuses on my criticism of McCain's plan because it really gets the lender off the hook as well as the homeowner. I also proposed some solutions that would require the lender to write down the mortgage and provide them some incentive to restructure the terms of the loan to make it more affordable for the homeowner. I think that any resolution to this problem is going to be incredibly complicated due to the varying terms of home mortgages and each person's situation. Should you treat the homeowner who saved up to buy the nicer house that they couldn't really afford and sacrificed right and left to make the payments the same way you treat the person who mortgaged their house to the hilt in order to buy a fancier car and take a nice vacation? Both homeowners are in over their head, but I've got more sympathy for the former. Who is going to decide which ones get help?
Fundamentally, I have a problem helping out companies who knew that they were taking inordinate risks just because the market let them. And, I have a problem with homeowners who bought a house (or refinanced to the hilt) because they could and not because they could really afford it. The majority of us live within our means (I hope!) and shouldn't have to bail out those who didn't. We need to rescue our economy and the credit market, not the risk takers and profligate spenders. These aren't just Wall Street fat cats. They could also be your neighbor who spent way beyond their means, fueled by easy mortgage lending.
Over the weekend I learned of a friend of mine who is a small business owner (not high tech) who got in way over his head. Fundamentally, he had two problems: 1) He expanded too quickly without getting to profitability first and 2) he had raised money from friends and family and could not face telling them that he was struggling. So, he kept up the appearance of success as long as he could, which only led to him digging a deeper hole. There is nothing wrong with dreaming big, but that shouldn't mean building a bigger house of cards. Instead, focus on getting the foundation solid and building from there.