Well – it has been a week and Casey Mulligan offers us this explanation:
Though ubiquitous these days, mortgage modification programs create terrible work incentives. This is one reason the current recession is so different from previous ones … Because of the low resale values, foreclosing on any of the homes will not yield lenders their entire principal; lenders in those cases must rely on the good behavior of the borrowers … these “modification programs” encourage lenders to reduce mortgage payments so that each borrower’s housing payments (including principal, interest, taxes and insurance) are 38 percent of the borrower’s gross income. The payments are to be reduced for five years, or when the mortgage is paid off (whichever comes first) ... I do not expect every adult among those in the 12 million underwater households to be without a job because of the modification rules.
Mulligan is essentially saying that those poor saps who have lost their jobs actually quit so they can game the mortgage system. In other words, there is no such thing as involuntary unemployment or being forced to either lose one’s home versus enter into one of these mortgage modification programs. I’m sorry – but Casey Mulligan is clearly writing from some ivory tower and needs to get out into the real world.
4 comments:
You are being kind. Casey is in the business of doing exactly what the owner class needs done. He is a true neoclassical economist. Whatever it takes to protect the ownership class then that is what will be done. If it is necessary to use ones credentials to sell snake oil then so be it. After all, those credentials were created by a university that is endowed by owners. And that is why a good foundation of CLASSICAL economics and political understanding (civics?) needs to be created in the high schools.
The Sandwichman commented, on the Economix blog:
"Bravo! This is a wonderful parody of the "assumptions" and "models" of the reality-challenged, math-savant economist! I'm surprised nobody else seems to get the joke."
If we completely ignore the other benefits of work, ie health care, 401k, money for food...
And I am not sure how his argument even agrees with itself...first he argues that people are being unemployed, and then he argues that they are accepting lower wage jobs to modify the mortgage...which is it? No jobs, or lower wage jobs?
If people were that savvy, they would have never wound up underwater in the first place
or they would just buy a new house at cheap prices, and then dump the old expensive house next door on the bank....
The funny thing is, workouts are in the best interest of banks and society, as foreclosure is a horrendous procedure for most families to go through and is VERY expensive for the bank...
This brings up the old adage, if you owe the bank 1 million you have a problem, but if you owe the bank 1 billion, the bank has a problem...
"I’m sorry – but Casey Mulligan is clearly writing from some ivory tower and needs to get out into the real world."
More and more I've come to believe that the U Chic econ dept should be forcibly terminated, and Chicago's endowment redistributed.
-Barry
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