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If you let even 1% of people default, that's a huge excess supply and fall in demand (if people sold their houses every 10 years, only 10% of them would be for

If you let even 1% of people default, that's a huge excess supply and fall in demand (if people sold their houses every 10 years, only 10% of them would be for sale in 1 year, so a 1% repossession increases supply 10% in a given year). So then what? You either bail out so many people that fewer than 1% of people default. That's basically a 100% bailout right? Or you don't and then prices fall. And as soon as prices fall, suddenly construction stops and more people lose their jobs and people are underwater and consider defaulting strategically even if they don't "have" to. I really agree about buyers not being innocent. I really do. It's by far the least reformed group in the 2008 shit show of fraud. But this isn't a moral position. It's a practical one. And you can't punish those people or they'll take their neighbours (and elected officials) down with them...

naasking 5y ago
> Or you don't and then prices fall. Falling prices are fine because homes were overvalued virtually by definition of the circumstances at the time. Your argument assumes this would lead to a run away effect rather than it all reaching a fixed point, but this claim isn't justified. My position isn't that home owners were the worst actors here, but that the bailout should have gone to home owners rather than the banks; the moral hazard argument applies to both, but at least in one arguably most people get to keep their homes and you're not rewarding the people whose professional responsibilities were to assess risk and properly manage financial instruments. I'm just claiming that this wouldn't have required a full/100% bailout, just like we didn't fully bail out the banks and let some fail.