Moral Hazard Comes Back Home

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I saw this item in the morning’s local paper:


So, just to net it out:

  • The government has been authorized by citizens to sell bonds;
  • Taxpayers are on the hook for those bonds as well as the accompanying interest;
  • The government is turning around and paying for down payments IN BEHALF OF THOSE WHO CANNOT AFFORD THEM;
  • The fortunate recipients of these gifts do not pay ANYTHING for it; neither principal nor interest is required.
  • You can be assured that the mortgage on the property (that is, the portion not covered by the free down payment) is provided by another government-backed program, backstopped by the taxpayers of the country, not just California
  • If and when the house is sold in the future, the county gets its money back, meaning, of course, there is a foundational assumption that real estate in California will never decline in value

I’m speechless. But I will offer up this: if there is ONE thing I hope Slope teaches the world, it has nothing to do with trendlines or risk management or how awesome SlopeCharts is. The one thing I hope to teach are these three words.

People. Never. Learn.