Kirby on Finance

Are you stupid for paying your mortgage?

There’s a famous line out there: “Nothing is as certain as death and taxes.” I’m not sure who said it, but I’d like to ask their permission to amend the line to read: “Nothing is as certain as death, taxes, and unintended consequences.”

It seems that whenever we attempt to tackle the problems we face, either personally or as a nation, we lack the ability to really look ahead and see the natural progression of the problem, our proposed solution, and the potential collateral damage that may ultimately result from that solution. Perhaps saying we lack the “ability” to do so is a bit cynical - we lack the desire to take the time to understand the issue.

We’ve become such a reactionary society - if something sounds like a good idea at the time, well, lets just do it! You don’t have to look any further than the last eight years for confirmation of this mindset. Sadly, our nation’s solutions to the current financial crisis are no different.

The most recent idea offered is to suspend the foreclosure process and allow homeowners to rework their mortgages so that the debt they owe on the property reflects the current value of the home rather than what they paid for the property. In fact, John McCain supports such an idea:

“I would order the secretary of the Treasury to immediately buy up the bad home-loan mortgages in America and renegotiate at the new value of those homes — at the diminished values of those homes — and let people be able to make those payments and stay in their homes.”

Doesn’t sound too bad, right? Well, struggling homeowners, Peter Schiff has some advice for you:

If you are a mortgage holder who is either struggling with crushing payments, bitter for having overpaid for your home during the bubble, or who has extravagantly refinanced when prices were rising, the government’s landmark $700 billion bailout package has an important message for you: stop making your mortgage payments . . . immediately. Furthermore, if you believe that with some planning and sacrifice you may be able to meet your mortgage obligations, the government’s message is clear: relax, don’t bother.

Schiff sure sounds like he’s being cynical, but trust me he’s not. Think about the mindset that people have which causes them to live over their means and think for a second what the implications of this plan may have to those individuals.

To bolster your bargaining position it will help to be able to claim poverty. As a result, if you have any savings, spend it soon, before they call. Buy a bigger TV, a new wardrobe, or better yet, take a vacation. After the hardship of spending all of your refi cash, you probably deserve it. If you have any guilt just remember, Washington argues that consumer spending is the best way to stimulate the economy. Living beyond your means is a patriotic duty.

I don’t completely agree with Schiff’s viewpoint on McCain’s proposed plan, but I think his viewpoint does offer one truism - “Nothing is as certain as death, taxes, and unintended consequences.”

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