Is this really happening before our eyes? Congress is just going to make a lot of noise and then pass this massive bailout, which may or may not do anything to stop this crisis and shore up the economy, and which gives yet another murky agency with no oversight carte blanche to do whatever it wants.

We may have a $14 trillion economy, much of which is okay. Personally, my family may be doing okay, muddling along, pinched, a little stressed, but not bankrupt or facing foreclosure.

But none of this is making it any easier for me to breathe lately.

This story caught my attention today: Fifteen percent of Americans are paying at least half of their income on housing, primarily in high-cost markets in California, Florida, and the East Coast.

But this stat about spending 30 percent or more of your income on housing was even more sobering, because it points to more potential fallout down the line:

“Traditionally, the government and most lenders consider a homeowner spending 30 percent or more of their income on housing costs to be financially burdened. But that definition now covers almost 38 percent of American homeowners with a mortgage — 19 million of them.”

We are in that group, if you count the home equity loan we had to take out to have the house painted a couple years ago. We have that slotted in debt, and not in our monthly committed expenses. But if we did count it that way, it puts us just at the 30 percent mark in terms of monthly expenditures.

Spending 30 percent or less on housing has long been a rule of thumb for good budgeting. But in the ’90s as prices soared, that number became laughable for many, if you didn’t want to live in a cardboard shack.

Now, that story I just cited ends the way they all do, with a homeowner ruing the poor loan choices they made that are now coming due. Too bad, homeowner, you’ll have to live with the consequences.

Compare all of these individual situations and their bad outcomes, which will have their own ripple effects throughout our economy, to the tone of this bailout and who is being protected here from their very bad choices.

I certainly don’t have answers, but can we please, please slow down with such a monumental and complex decision? And perhaps try to take a more nuanced view? How much more evidence do we need — besides our massive deficit, weak dollar, and collapsed financial and housing markets — that maybe this Titanic won’t be righted by saving just the First Class passengers?

One voice of reason that appeared in the Sunday New York Times offers a solution called “continuous-workout mortgages,” where your mortgage payment would automatically adjust based on shifts in housing costs and the unemployment rate. Robert Shiller, who wrote it, is a professor of economics at Yale and the author of “Subprime Solution: How Today’s Global Financial Crisis Happened and What to Do About It.” (There’s a good interview with him at Forbes, too.)

I just don’t have a lot of confidence that our decision makers will listen.

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Tags:   30 percent rule of thumb · bailout · continuous-workout mortgages · Robert Shiller2 Comments