Nothing But Upside

The Wall Street Journal and the San Francisco Chronicle agree: anything that looks like a mortgage bailout is a bad idea. Both articles draw comparisons with the Japanese banking crisis of the nineties, wherein bad loans were carried on the books, avoiding the recognition they were bad, until they became completely atrocious. Both authors question how admission to the lifeboat will be determined, and both point out the moral hazards. Both articles empathize with the homeowners who have kept current on their mortgages.

However, soon there should be an awakening, because even the homeowners who have been dutifully paying their mortgages have something to lose here: todays foreclosure is tomorrows comp. The popularity of sites like Zillow demonstrate that all the homeowners have one eye on their valuations. Once the homeowning public sniffs out the threat of a large-scale devaluation accelerated by defaults, opinions will swing round in favor of a bailout. It's too good an opportunity to vote ourselves rich.