An object lesson in how greed makes us poorer
Posted by Charles II on March 7, 2008
I have posted on many economics and finance message boards a simple proposition: it is cheaper to pay the mortgage resets of people about to get evicted than it is to evict them. The response I get tends not to be polite, usually including some blunt remarks to the effect that helping people in trouble creates a “moral hazard.”
Now Kathleen Howley of Bloomberg does the math:
The public’s bill for maintaining foreclosed properties abandoned by lenders and investors may reach as much as $50 billion this year, according to Peter Sepp, vice president of the National Taxpayers Union in Alexandria, Virginia. The U.S. Congress is considering various bills to help cover some of the costs to towns and cities for securing and policing the empty homes, Sepp said.
Banks or mortgage companies typically hire people to care for repossessed properties. As foreclosures increase and the value of property drops, more companies are simply walking away, Zandi said.
Almost 1 million U.S. homes were seized last year, the highest ever and more than double the pace of 2006, according to RealtyTrac Inc., an Irvine, California-based foreclosure data company. U.S. banks owned $12.1 billion of foreclosed real estate at the end of 2007, according to the Federal Deposit Insurance Corp. in Washington, double the year-earlier amount.
Let’s suppose that to keep people in their homes would require the taxpayer shelling out $500 per month for each of those 1 million homes for five years. The cost would be $30B, a little over half of what the NTU says the taxpayers are paying for one year.
Corporate landlords like Morgan Stanley think they’ll just walk away from the costs. But the eventual effect is higher taxes. Probably much higher taxes. Compounded by interest.
Greed is very expensive. It makes people stupid, and stupefied people don’t do their sums very carefully.
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