As our editors closed this issue, President Barack Obama was in the process of making good on a number of his campaign promises. In whirlwind fashion, he unveiled planks of his audacious economic program. He signed the American Recovery and Reinvestment Act, the $787 billion economic stimulus package. The administration also revealed its $2.5 trillion plan to resuscitate the wheezing banking system and, at the same time, make credit available to both individuals and business owners. Then he turned his attention to the other economic wrecking ball: housing.
In mid-February, the president presented the Homeowner Affordability and Stability Plan. It seeks to enable roughly 5 million “responsible homeowners” who have seen their home values plummet, refinance mortgages owned or guaranteed by Fannie Mae and Freddie Mac. It also calls for the creation of a $75 billion initiative to aid between 3 million and 4 million at-risk families—those who may lose their homes, in part, because of subprime and exotic loans—through loan modifications, incentives to help borrowers stay current, and an insurance fund managed by the Treasury Department to discourage lenders from initiating foreclosures. Taxpayers’ estimated total cost: $275 billion.
In many quarters, public resentment has been palpable. The most pervasive argument against the plan: Why should homeowners who have never been delinquent in their mortgage payments foot the bill for people who purchased properties they couldn’t afford? CNBC Journalist Rick Santelli responded to the housing proposal with a series of rants—one in which he asserted that “America shouldn’t take our hard sweat in the form of a non-acknowledged charity” and give it to the undeserving.
First, let me say that everyone needs to calm down. I truly believe President Obama must act swiftly and boldly; simply doing nothing isn’t an option. The housing crisis continues to serve as an anchor halting the forward progression of the economy. Although foreclosure filings in January decreased 10% from the previous month, they still had risen 18% from a year earlier, according to RealtyTrac, the leading marketplace for foreclosed properties. In fact, one in every 466 U.S. households received a foreclosure filing in January.
But having reviewed all these factors, I unequivocally stress that taxpayers should not subsidize irresponsible behavior. With President Obama’s ascension to the Oval Office and his earnest efforts to develop rescue programs with maximum impact, a segment of the American public—including some readers of this magazine—have captured the wrong message; they believe his presidency means that their debts will be absolved. This is the thinking of many who belong to what I call “the bailout culture”—if you happen to overspend to keep up with the Joneses, whether it’s buying more home than you can afford or using credit cards to finance a posh lifestyle, then the government or your neighbor will come to the rescue. Well, ladies and gentlemen, let me repeat an oft-quoted truism: there is no free lunch.
My advice: create your own economic stimulus plan. It requires going back to the basics. Begin with the first tenet of our Wealth for