Just because we shouldn’t bail out Joel Stein doesn’t mean we shouldn’t bail out anybody

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Joel Stein joins the Rick Santelli bandwagon in a column that I think will be in the next issue of TIME but is already online. It’s far more reasoned and charming than the now famous Santelli rant, although I still disagree with the conclusion.

The biggest revelation is that Joel appears to have paid $1.12 million for his house in the Hollywood Hills. (Come on, Sumner Redstone, how about buying another run of Hey Joel to help the guy out!) But I’m going to focus on two key excerpts. First:

The only people affected by plummeting real estate prices are the ones who bought a house that cost more than they could afford, hoping for a spike in value so they could sell at a profit or take out a new loan based on an increased value.

And then:

It’s not that the housing market has suddenly gotten sick and needs medicine. It was sick, and it’s getting better. Just like $4 gas, Pets.com and Jim Carrey’s career, we are undergoing a needed correction.

Yes, yes, yes, yes! Joel’s right about all that! But none of that means there shouldn’t be some sort of government-directed foreclosure-prevention effort.

The correction is happening. There’s no stopping it. It doesn’t matter so much to people who (a) didn’t pay more for their house than they can afford and (b) are still making as much money as when they bought their house. But category (b) has been shrinking lately, and when people (and companies) run into situations where they can’t pay their bills but still have significant income, we have a long history in this country of arranging workouts in which debts are reduced. It’s a better deal for all involved than foreclosing or liquidating or sending somebody to debtors’ prison.

It’s been really hard to arrange such workouts for home mortgages lately. That’s partly because so many people are in way, way over their heads and there’s really no option for them but foreclosure. But it’s also because mortgage securitization has created a situation in which investors and servicers have very different interests and find it very hard to agree on the terms of a workout. That, and our society’s chief workout enablers, bankruptcy judges, are barred by law from tweaking first-home mortgages.

The Obama administration’s mortgage proposals strike me mainly as attempts to address these obstacles—by providing financial incentives to tempt servicers and investors into mortgage workouts and by getting bankruptcy laws changed. I’m doubtful that they’ll have all that big an impact, but I also don’t think there’s anything particularly un-American or anti-capitalist about them. Unless you think bankruptcy is un-American and anti-capitalist.

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