Saturday, February 21, 2009

CNBC's Santelli: Ignorant & Unprofessional Rant

CNBC, with the exception of Kudlow and this jerk, has generally had the best, if still weak, reporting on the financial crisis.

But Santelli's rant was both unprofessional and ignorant. The lack of professionalism is obvious. He's supposed to be a reporter on the floor of the NYSE [correction: Chicago Board of Trade].

Ignorant because he obviously didn't listen to Obama's speech in its entirety and because none of us will know the full details of the mortgage plan until March.

But let's deal with his "do you want your taxes to pay for your neighbor's mortgage when that person wasted money on a [fill in the blank]"? (You could use this same argument for objecting to universal health insurance, unemployment insurance, ERISA, welfare, etc.)

Let's assume the worst, that some tax dollars will go to the "undeserving", however one defines that person. That isn't alone reason to object to the plan. No system is perfect, private or public. And, sometimes, people who shouldn't get something do. The objective of any public program should be to maximize the positives and minimize the negatives.

So you still have a job and a 30-year mortgage you can afford. But you could be underwater (owing more than the house is worse). Maybe you don't care. It's your home and you figure it will eventually regain its value. But your neighbor is having trouble making the payments, maybe because one of the partners has lost a job. That person may decide, quite logically, to walk away from a house that isn't worth what is owed on the mortgage. So the house gets foreclosed. The same thing happens across the street or on the next block. All of a sudden, your home's value shrinks even more, and maybe the neighborhood starts to go downhill, too. Perhaps you don't care. Those "other" people didn't deserve any help, no matter what happens to your neighborhood as a result. This is the prototypical case of cutting off your nose to spite your face. Most reasonable people, however, would prefer to live in an intact neighborhood with no foreclosure signs. Obama's proposal will specify rules for reducing mortgage payments and writing down the principal that should reduce the likelihood of mushrooming foreclosure signs in this scenario. This is a social good - even if some of the individual recipients are "undeserving".

As for the details of the plan... I suspect they will pretty much resemble what Baird has done for the Countrywide mortgages. In her program, if you don't have a job or can't afford to pay a mortgage (however renegotiated), you will lose your house. You also have to live in the house - so the program won't help speculators. Allowing judges to force a cram down in bankruptcy is widely disliked (because a first mortgage is a special kind of contract and if you allow this contract to be broken there will be long term financial consequences). I'm not qualified to judge the long term consequences. But, short term, the idea is to have a stick in the wings so the people holding the mortgages will be more inclined to negotiate reduced payments or some kind of mortgage write down. And, finally, as I recall, Baird's program uses a NPV calculation to determine if the changes to principal and interest make financial sense to the owner when compared to the cost of a foreclosure. It it doesn't, foreclosure is the only solution.

In short, the plan won't help everybody. Foreclosures will still occur. And most of the "undeserving" will, indeed, lose their houses. The goal of the program is to help the rest, the ones who are in trouble through no real fault of their own.

But Santelli, like most ideological Republicans, doesn't care about the public good. And he's gotten a lot of press for his rant which he no doubt counts as a personal good.

3 comments:

Anonymous said...

Rick Santelli reports from the floor of Chicago Board of Trade, not the NYSE.

Whether you agree with his point or not, he makes a valid argument. Clearly his comments have resonated with the masses.

I don't think it's fair to characterize Mr. Santelli as ignorant. He, along with the rest of the talent on CNBC, are well-informed, intelligent people that know the inner workings of our economic system.

Mr. Santelli is certainly entitled to his opinion and it has served a valid and noble purpose in this instant - it started a conversation that needed to take happen.

Anonymous said...

Rick Santelli reports from the floor of Chicago Board of Trade, not the NYSE.

Whether you agree with his point or not, he makes a valid argument. Clearly his comments have resonated with the masses.

I don't think it's fair to characterize Mr. Santelli as ignorant. He, along with the rest of the talent on CNBC, are well-informed, intelligent people that know the inner workings of our economic system.

Mr. Santelli is certainly entitled to his opinion and it has served a valid and noble purpose in this instant - it started a conversation that needed to take place.

YAB said...

Thank you for the correction - but, whether or not Mr. Santelli is ignorant, his comment was IMHO both unprofessional and uninformed.

(By the way, I heard a good analogy for why one should bail out people who don't deserve it. Say the person who lives in the house next door smokes in bed. The house catches on fire. You could say it is wrong to call the fire department because it was the guy's fault, but then you risk having your house burn down too - as well as the rest of the block. Foreclosures hurt blocks, neighborhoods, and the whole country because they contribute to an increase in housing inventory and a decrease in housing prices - well, yea, maybe the latter isn't so bad if you're a first-time buyer, but the point is that this urge to punish can boomerang and hurt all the people who did the "right" thing.)