One of the great things about being on holiday in Europe is that there’s no
chance of running across a Ben Stein column by mistake. But this morning I made
the mistake of noticing that my new colleague, Mr J. Flack, is applauding
Stein for made "a lonesome point of great relevance" with respect
to subprime loans.
The questions rose, unbidden, in my mind. Had Stein’s brain been invaded by
aliens? Did he manage hit on something germane in much the same manner as a
stopped clock tells the right time twice a day? Thus did I find myself, on my
first day back at the blog, reading
Ben Stein, with predictable results.
For it turns out that Stein is completely wrong, yet again: can anybody
explain to me why this man still has his column?
The point which impressed my pseudonymous colleague seems to be that home ownership
is "the bedrock of the American dream" (Stein), or "the most
personally and financially enabling of endeavors" (Flack). To which I can
only say: Not if you’re a subprime borrower, it ain’t.
I just came back from Germany, where millions of people regularly walk into
their homes and find their own dogs waiting for you there. In Germany, as in
the US, this is a major blessing. But Ben Stein seems to think that this major
blessing is impossible without homeownership, which is ridiculous. A dog neither
knows nor cares whether a home is owned or rented. At the moment, homes still
cost more to buy than to rent. Which means that a renter has more money to spend
on himself, and his dog, than does an owner, even if the owner is a prime borrower.
If the owner is a subprime borrower, the situation is much worse. Subprime
mortgage rates can easily get into the double digits, and homeownership makes
very little sense in that situation. Take a look at the default settings in
the New York Times fantastic buy
vs rent calculator. With a mortgage at 6.25%, buying is better than renting
after 11 years. With a mortgage at 11.5%, buying is never better than
Stein continues by wheeling out one of the most misleading statistics there
is: "the percentage of those who have defaulted is still fairly small,
possibly 10 percent to 15 percent of subprime loans, and maybe less," he
writes. I would call this disingenuous if I didn’t believe that Stein simply
doesn’t get the truth: that most subprime loans are refinances, and therefore
the percentage of subprime loans in default is much lower than the
percentage of subprime borrowers in default. (A refinanced loan, of
course, is paid off in full, while the borrower remains in debt.) What’s more,
the big problem, everybody agrees, is not now but rather in a few months’ time,
when most of those adjustable-rate loans (and there were precious few fixed-rate
subprime loans) start to adjust upwards from their teaser rates.
Stein thinks, against all the evidence, that "the experiment with granting
loans to less-qualified buyers worked" – clearly, it’s far
to early to say that. And he then disappears off into cloud-cuckoo land, saying
that the cost to everybody else of the subprime debacle "will be whatever
government programs are enacted to bail out borrowers in trouble". Er,
no: the cost will be huge, even if there are no government bailout at all. That’s
the problem with credit crunches: good credits get crunched along with the bad.
And the idea that "those who lent the money get away pretty much scot-free"
– that’s just hilarious. Can Stein point to a single subprime mortgage
lender which is remotely unharmed? Most, it seems to me, are bankrupt.
I pretty much gave up reading the column at that point. But I did skip down
to the end.
If I were the editor of the business section for just one day, I would run
one immense headline: “Everything Is Going to Be Fine. Go Back to Work.”
Yes, Ben, if you’re one of the handful of Americans with a lot of assets and
no debts to speak of, then I’m sure everything is going to be fine. Oh, wait,
you are. Good for you. But for the rest of us, credit matters a very great deal,
and we can’t look with equanimity at a housing collapse and consider it little
more than a buying opportunity. You might be able to afford homes
all over the country; I daresay you’re haggling on one or two right now.
But most of us are struggling to afford just one.