They Call It "Private" Property for a Reason

I can hear Alexander Hamilton rolling over in his grave.

Last night Senator McCain announced a plan to buy $300 billion in actual mortgages from homeowners sitting on loans they can't afford.    While pushed as new, it actually seems part of the current $700 billion dollar rescue plan already made into law last week.    As this article notes, section 110 of that law gives the power to already do what McCain was proposing.   We will have to wait for more clarity on this, but it certainly seems that there is a push for the public (taxpayer) to get more into the business of owning what should be private property.

New or old plan, we know many homeowners need help.    According to a Wall Street Journal story this morning, economist Mark Zandi says that nearly 1 in 6 homeowners is "under water," sitting on a house that is worth less than they owe:

The relentless slide in home prices has left nearly one in six U.S. homeowners owing more on a mortgage than the home is worth, raising the possibility of a rise in defaults -- the very misfortune that touched off the credit crisis last year.

Certainly many homeowners are suffering.   Millions owe more than their house is worth and some can't make their monthly payments and are in foreclosure.  If the Feds want to push, encourage, or cajole mortgage companies and banks to renegotiate troubled loans, fine.   Banks need to realize it's in their interest to do just that.   A lower mortgage payment being made is better than a higher payment that is not being made.   Banks have little interest in owning foreclosed homes that are falling in value.   Why should the government be any different?

The conflict here goes back to the basic ideals of our founding.    We are a nation of private property rights.   The government should not be in the business of owning homes or other private property.    It is dangerous territory and a slippery slope.   It smacks at the very distinction between what is public and what is private.   Consider this: taxpayers who are making their payments on time will now "own" bad mortgages across the country in towns and states where they do not live.    In a sense, we all become on the hook for a national problem when we are dealing with various degrees of regional troubles.   Those who have over the years uprooted their families from slow growth areas to faster growing ones will now become in part responsible for the fate of housing markets they have either left or never lived in.   The money to buy those homes will come from your tax dollars, greater federal deficit or both.   Either way, you pay.

The slippery slope comes in the form of a few questions:

1. Will the government also "rescue" those who have lost money in the stock market?   If you bought GE at $30, should the government now buy that stock from you and make up the difference?

2. The increased spending by the government has decimated the return on government bonds and bank interest rates.    Will the taxpayer pick up the tab for the loss in income suffered by millions of retirees?

3. If you bought a car or truck for $25,000 that is now worth less than half that as the auto market sinks, will the government cut you a check?

4. There is also the issue of contract law.   At what point does a binding contract between two parties become worthless?

The majority of home foreclosures are occurring in those states that experienced the fastest swing higher in the boom years.   So should the deal go both ways?     Should the taxpayer who will now be helping those in need also see a benefit from future gains?     I have a feeling the check will be going only one way - from you to the government.

There is some good news: You won't need a hotel anymore.   Just pick up a list of empty, government owned homes on your vacation route and stop in and stay the night in "your" house.    Just tell Uncle Sam to leave the key under the mat.