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The longer the real estate market swoons, the easier it is to conclude that the late housing boom was really just a giant, taxpayer-insured racket.
How free is a market when the game's losers can appeal to Big Brother for a full or partial refund? Or, if the mood strikes, leave the game altogether in a snit?
Several developments in the past month provoked this sour assessment.
The resumption of modest housing depreciation has led some consumer advocates to favor "strategic defaults." Those are defaults among stable homeowners who can afford their mortgages but hate owing more on their loans than their homes are worth.
The government is cooking up its own scheme. Frustrated by the limited success of anti-foreclosure programs that operated through interest rate cuts, Washington advocates partial cancellation of actual mortgage debt, otherwise known as principal reduction.
University of Chicago business professor Luigi Zingales took stock of these developments and forwarded an honest proposal: If a bank is to waive part of a homeowner's loan, it's only fair that lenders get a share of the home's future appreciation.
Makes plenty of sense to me. Makes little sense to plenty of others. Here's the good professor's conclusion, in his own words:
"The proposal's main appeal is that it tries to split the costs and benefits fairly between lenders and borrowers, without having taxpayers subsidize both, as the Obama administration's interventions have done. Unfortunately, that makes our proposal unpopular. Since it doesn't unduly favor any constituency, it isn't supported by any."
Just as alligators lose their fear of humans who overfeed them, humans lose their fear of bankers who overfund them. The relationship is starting to resemble extortion — and the homeowners have the brass knuckles.
Florida is a "recourse" state, meaning a lender can sue homeowners who walk away from their mortgages. But such debt collection has been mostly theoretical.
Banks are so swamped by tens of thousands of mortgage defaults around Tampa Bay that hounding homeowners after foreclosure is uneconomical. People flip off lenders with impunity. All it takes is a surplus of desperation or a deficit of dignity.
Banks are guilty, too. After making millions of lousy loans, they've been happy to raid U.S. taxpayers to cover cataclysmic losses. Too-big-to-fail businesses have figured out that politicians guarding the Treasury vault are defanged Dobermans.
You didn't have to be an economist to note the deception behind General Motors' announcement this week that it would repay $6.7 billion in government loans by June.
Buried in the announcement was the critical bit about GM owing taxpayers $45 billion more and the tens of billions in unpaid debt, much of it owed to elderly bond holders, that the government arbitrarily erased.
Come to think of it, it's hard to blame homeowners for grabbing their piece of the quiche. If a citizen can get a government-subsidized Chevrolet Camaro, who's to say a house is any less worthy of a handout?
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