A couple of days ago the President announced his plan to rescue homeowners in mortgage trouble.  Those who criticized him two weeks ago for not having a plan are now criticizing him for the plan he has.  As Kurt Vonnegut wrote in Slaughterhouse Five - "and so it goes." 

However, I'm more concerned by the continuing criticism by those of us who have been paying our mortgages (at least semi-regularly) that those bad people should not be "bailed out."  It reminds me of a Russian fairy-tale that is probably centuries old.

Russian peasants traditionally are jealous of their neighbors' good fortune.  Against that background,  a peasant finds and releases from a desperate situation a wood sprite.  The sprite tells the peasant that he, the sprite, will grant any wish the peasant has.  However, he will give double to the peasant's neighbor, whether it be gold or whatever.  The peasant thinks for a moment and then says "poke out one of my eyes."  So, the peasant loses one eye, but his neighbor is blinded.  What a triumph!

Those who are not having difficulty paying our respective mortgages might think that our neighbors who "bought too much house" deserve to be foreclosed on.  But if our neighbor is foreclosed on, the home will become vacant and the house may very well deteriorate and its value decrease.  Imagine, if you will, that you own a house worth $500,000, and your neighbor's house was worth $500,000, but couldn't be sold for more than $400,000 after a lending institution foreclosed.  And imagine as well that your employer tells you that they like you so much that they are going to transfer you to East Japip.  When the appraiser comes to call, what do you think your home will be valued at?  $500,000?   $400,000?

Do you really want the value of your home to be tied to your "matter of principle?"  Wouldn't you really be willing to pay taxes to "bail out" your neighbor (so long as the amount you paid was less than $100,000)?  Think about it.  Really, poke out one eye so your neighbor could be blind?

And the "moral hazard" issue (rewarding the bad behavior of defaulting on one's mortgage) is one which is not in your best interest when it costs you $100,000, is it?  I can feel very caring about my neighbor when such caring saves me $100k.  How about you?