Is Mortgage Bailout Fair – Yes

The simple answer to the question, of course, is “no, it isn’t fair.” But “fairness” should not be the question. The words, “fair,” “faithfully” and “force” are emotionally charged and should have no place in a civil discourse. The question we should be asking is, should there be a taxpayer-funded bailout program for those who can’t pay their mortgages? The answer must be yes, because it benefits Americans as a whole.

First, a very brief civics lesson. The United States of America was founded as a democratic nation of laws with a strong social contract in the tradition of Hobbes, Locke and Rousseau. In its simplest terms, the social contract means that we as a group agree to do certain things for the benefit of the group. An obvious example is if some other group attacks us, we band together for defense.

Our system of taxation relies on the social contract: my taxes can be used to build a bridge in Alaska that I, myself, will never see or use. But because that bridge theoretically benefits the group as a whole, it’s alright for my tax dollars to be used in that way. Of course, the downside is that my tax dollars may be used to pay for something I find objectionable or morally repugnant, such as the 2003 invasion of Iraq. Nevertheless, if I want the benefits of the social contract, I should be prepared to accept the will of the majority on some issues with which I disagree. (And I am always free to change others’ minds to agree with me!)

Second, some costs and benefits. Some issues are pretty easy to analyze in terms of costs and benefits: fire and police protection and water and sewer systems benefit everyone. Imagine, if your house caught fire and you had to pay the actual cost of putting it out. Even worse, imagine if your next-door neighbor’s house caught fire, and because he couldn’t afford to put it out he let it burn and your house then went up in flames! It’s easy to see that fire protection benefits you, even if you personally never use the service.

Other products and services are not so easy to analyze in terms of costs and benefits – public schools, libraries and certain types of infrastructure – yet most of us agree that they are necessary to our well being as a society. If we did not have an educated workforce, we might not be able to get the right change at the store, let alone compete as a nation in the global economy. So, even those who don’t have children of school age, are willing to support public education because it benefits all of us and our social contract dictates that public education be available.

Third, a mortgage bailout. The President’s plan, unveiled last February, calls for $75 billion to bail out nine billion homeowners. This is in addition to the $200 billion each already committed to absorb losses at Fannie Mae and Freddie Mac. There are some less obvious costs as well including decreased real estate values, diminished consumer spending power and declining neighborhoods.

Across the country, real estate values have plummeted 20-30%. In the states of Florida, California, Nevada and Arizona, values have dropped 50% in the hardest-hit areas. On a personal level, this means that because of the huge numbers of foreclosed homes on the market, my home – my single most valuable asset – is worth a fraction today of what it was worth three years ago. On a broader scale, it means less money for retirement, travel, health care and a host of other types of spending – spending which our economy desperately needs.

As home foreclosures increase and homeowners are forced to vacate, more houses in each neighborhood are empty, an invitation to vandals and other criminals. Those of us left in the neighborhood are less safe, and our costs of policing and fire protection are higher. In many instances, vacant houses and untended lawns attract vermin and become a public health concern as well. In Nevada, one out of every 64 homes was in foreclosure in May.

As home foreclosures increase within an area, small businesses disappear as well. The local convenience store and gas station are casualties, along with other small, localized businesses. Local tax revenues drop, necessitating a drop in services or an increase in other taxes to make up the shortfall.

The costs to our society of ignoring the mortgage crisis are very high. But before taxpayers pony up to bail out these mortgages and prevent more foreclosures, there must be some benefits.

The Obama administration claims that turning around the housing crisis is key to turning around the recession and the economy. If more Americans are able to stay in their homes, the real estate market will rebound sooner and property values will start to appreciate again. That makes more wealth available to more Americans, which helps consumer spending and helps the economy overall. With fewer vacant houses, there will be less of a drain on police and fire protection resources and a smaller drain on scarce social support dollars to assist newly homeless families. Local tax revenues will improve. Although harder to measure, I believe the benefits to our nation of keeping families in their homes will outweigh the costs.

Therefore, American taxpayers should fund a mortgage bailout program. Not because it’s fair for Sally, who’s always paid her mortgage on time, to bail out Bill, who hasn’t, but because it’s a social benefit for all of us. For this reason as well, discussions of whether individual homeowners are personally responsible for the mess they’re in are irrelevant.

The individuals who receive help should occupy the mortgaged property as their primary residence, and meet other reasonable requirements. Supporting a social good doesn’t mean we should be stupid about the details!