Richard Eskow, HuffPo: "Millions of struggling homeowners and the bankers who got rich off them"

[Amerigo Vespucci]

Richard (RJ) Eskow

Consultant, Writer, Policy Analyst

Posted: April 1, 2010 02:28 AM

Resident Evil: Are Struggling Homeowners as Immoral as the Big Banks?

http://www.huffingtonpost.com/rj-eskow/resident-evil-are-underwa_b_521169.html

Do homeowners who are underwater on their mortgages deserve to lose their homes? That's what finance commentator Barry Ritholtz says, in a post called "More Foreclosures, Please." Ritholtz must have been channeling his inner Rick Santelli when he wrote that "the boom and bust saw irresponsible and reckless behavior by lenders and home buyers alike," adding that mortgage relief programs for homeowners reward those who were "reckless, speculative, and foolish" while punishing those who are not.

It's not reasonable to put Barry Ritholtz in the same category as Santelli, of course. Ritholtz is a highly informative, widely quoted writer on economic issues. Santelli's the frat-boy trader turned CNBC host whose rant about "rewarding the losers" got a cheer out of some morons on the Chicago Mercantile Exchange (and started the Tea Party movement). But Ritholtz puts financially beleaguered homeowners in the same "moral hazard" dumping ground as the banks who wrote their mortgages, suggesting that both of them "overused leverage, disregarded risk, (and) ignored history." Is that really fair?

After all, what kind of information was available to the average home buyer during the last decade? How would the average reasonable person have decided whether to buy a home or what kind of mortgage to use -- in, say, 2004?

They probably read articles like the one published in February of 2004 in USA Today ("America's newspaper") with the headline "Greenspan says ARMs might be better deal." "Overall, the household sector seems to be in good shape," said Greenspan, who added that adjustable-rate mortgages might be the right choice for many homeowners. Greenspan enthusiastically promoted the new-style mortgages that later played a big role in the meltdown: "American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage," he said.