The administration strikes back:
To expand on Gibbs's argument a bit, Santelli's rant was predicated on the idea that this is the homeowner's fault. In his narrative, greedy homeowners bought too much home and are now facing -- and should be left to face -- the consequences. If you touch a hot stove, you should burn your finger. That's how it works. But that's often not how it worked. In many case, home values dropped. It's not that those buyers couldn't afford what they purchased but what they ended up with (you could argue that they should have expected housing prices to drop, and I guess we can go back into CNBC's 2005 tapes and see if they were sufficiently warned). Folks with a $300,000 mortgage on a $350,000 house can refinance to a lower rate and ride the turmoil out. But if their house dropped to $300,000 -- or worse, $270,000 -- they can't. Their loan-to-equity ratio changed, and not through any action they took. Similarly, a homebuyer who purchased a new house in 2002 and got laid off from her job at Caterpillar in 2008 can no longer pay her mortgage. But it's not really because she purchased too much house. It's because the economy tanked -- thanks, traders! -- and demand dried up and credit weakened and Caterpillar stopped employing her. She's not a greedy homeowner: She was laid off due to macroeconomic conditions. Meanwhile, it's a bad thing for homes to go empty. Nearby home values drop by about nine percent. Which means those folks can't refinance and lose control of their mortgages. Which means they default, causing more homes to drop in value. And so the cycle continues. Santelli's rant assumed home owners were in the wrong, and David Brooks bought into that assumption in his column today. It's "money for idiots," he says. But rather often -- not always, but often -- they weren't doing anything wrong at all. And that wasn't just their opinion. It was backed up by the lenders who approved their mortgage and the, yes, traders who bought those mortgages and packaged them as AAA securities and then leveraged their companies -- and our economy -- atop their reliability and are now cheering Santelli blame-shifting from the trading room floor.
