Editorial | Crisis 2: this time, it’s homemade
Just when you thought it was safe to venture back into the economy, we’re now being told that the worst may in fact be yet to come. But this time, it’s not the banks that we’re going to have to blame.
Unlike with the economic downturn that started in 2007, and which now goes under the name ‘financial crisis’, the fault for the approaching economic storm can be placed squarely at the doormats of the tens of thousands of people who accepted interest-only mortgages as a shortcut to homeownership.
As any mortgage-holder in Denmark knows, before signing a loan they are presented with a list detailing the exact projected cost of their quarterly payments. For someone taking out a 30-year, fixed-rate mortgage and taking advantage of a ten-year interest free period right off the bat, this list probably shows something in the order of a six-fold increase from payment 40 to 41.
We can understand if homeowners hell-bent on finding a place to call their own chose to ignore year 11 and beyond. It’s also understandable if they feel duped by a loan officer who sold them on the belief that housing prices would continue to rise. But neither absolves them from the responsibility they assumed when they signed on the dotted line.
But while common sense may dictate that people be held responsible for their own financial decisions, in this case, there are two good reasons why they shouldn’t be – at least not in the short-term.
The first is precedent. In this day of government lifelines (Danish banks were issued four of them), homeowners can rightly demand that they be extended a similar hand if they find themselves struggling to make their mortgage payments.
The second is economic stability. Critics will reject a homeowner bailout as simple social welfare for members of the middle class who failed to live within their means. This may be true, but successive governments extended corporate social welfare to banks with the argument that if they failed, they would bring the economy down with them. Should we believe the economists, the pending wave of mass defaults risks pushing any hope of economic recovery even further over the horizon.
Help from the state shouldn’t be a hand-out. Banks like to repeat that not only did they pay back the money lent to them to help keep them afloat, but the government has actually profited from it. Struggling homeowners should follow their example once they too reach sturdier financial ground. In order to get there, though, they’ll need a lifeboat, even if it is their own responsibility for getting in over their heads.