The 2000s saw a massive housing bubble that, when popped, gave us the financial crisis and Great Recession. For decades, the federal government incentivized home-ownership and encouraged banks to write mortgages for people who might otherwise have been unable to afford them. The ability of these new homeowners to make payments rested on the continued rise of home values and a thriving economy. It was a virtuous cycle that quickly turned vicious: The higher home prices got, the greater the incentive to buy -- and the greater the incentive to buy, the more people entered the market who really shouldn't have been there in the first place.
The changes in economic incentives coincided with a shift in culture. Homes were transformed from a long-term investment, a place to put down roots and raise a family, to just another asset that could be "flipped" for a short-term profit. As was happening in so many parts of our politics, society, and culture, emphasis was placed on immediate gratification over delayed benefit. You could get a mortgage with no money down, wait a year or two, and sell the property at profit. Or at least that was the idea.
But the idea was bad, and corrupting, and pretty soon the entire edifice collapsed under its own weight. And the people who were hurt the most were those who were saddled with mortgages they could no longer afford -- indeed, mortgages they should not have been able to afford to begin with.
Since 2008, the federal government has been trying to mitigate the worst effects of the recession while making sure the financial crisis "does not happen again." But in order for the government to succeed, one would have to identify the underlying moral hazards and eliminate them. One would have to say -- and this would be upsetting for many -- that home ownership is not for everyone. One would have to say that, in order to get a mortgage, an individual ought to be able to show that he is personally responsible. And one way to demonstrate personal responsibility is through the accumulation of savings for a down payment.
Sen. Bob Corker, Republican of Tennessee, introduced an amendment to the Senate financial regulation bill yesterday that would have required a 5 percent down payment for potential home buyers. For home buyers who put less than 20 percent down, the Corker amendment also would have required purchasing private mortgage insurance (the Canadians, who emerged from the crisis relatively unscathed, have something similar). We're not talking requiring a 30 percent down payment for new home buyers. We're talking 5 percent.
You know where this is headed. The Senate defeated the Corker amendment, 57-42. Many Democrats argued the requirements would hurt minority home buyers. But what hurts home buyers more -- standards that encourage savings, discipline, and personal responsibility, or putting people into situations where they could face foreclosure and bankruptcy?
Corker plans to re-introduce a revised version of his amendment. Let's hope the Senate reconsiders its vote. But then, why would The World's Greatest Deliberative Body™ think boldly and imaginatively, when it can just beat up Goldman Sachs?