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If you feel like you're being played, you're not alone.
The financial crisis has deepened many people's suspicions that doing the right thing hasn't paid off. Instead, they feel it's made them chumps.
You see it in the "Where's my @#$%ing bailout?" T-shirts, the despair about plummeting retirement accounts and the hostile comments that greet every news story about mortgage restructuring or credit card forgiveness.
One reader put it this way:
"Doesn't keeping your promises mean anything? Most if not all of the people who snagged these (mortgages) were well aware of the risk and the responsibility. It kills me that I'm playing by the rules and bailing out those who were greedy, stupid or both."
Even when they're not directing their anger at anyone in particular, many of my readers feel like they've been led down the garden path.
"I am 62 years old and HAD been planning to retire in 5 years," one wrote. "Although I have lived frugally my entire life and put away 15% of my income every year in a retirement account, my balanced portfolio lost 60% of its value in the last two months."
What he wanted to know: Would he be a bigger fool for pulling his money out of the market now or staying in and possibly suffering more lumps?
If you have similar questions -- if you suspect you're being a chump for making your mortgage payments, paying your credit card bills and continuing to invest in your 401(k) -- read on. You're certainly not alone as you watch others exploit loopholes, mistakes and well-intentioned remedies.
Bailed out but still ruined
The question of why some homeowners are getting bailouts has really been answered by the financial turmoil of the past few months. A huge spike in foreclosures, magnified by derivatives cooked up by Wall Street firms, nearly brought down the global economy. As it stands, we're still likely to suffer one heck of a hangover in the form of a serious recession.The foreclosure mess is far from over. Many of the riskiest loans -- the ones where homeowners weren't even paying all the interest that was accumulating on their loans each month, let alone touching the principals -- are just now resetting.
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Then there's the whole vicious-cycle effect, which I wrote about in April. As foreclosures rise, banks slash the prices of the homes they recover, putting downward pressure on everybody else's property values. With more homes "underwater," more fall into foreclosure when their owners lose a job and can't sell, or simply decide to walk away.
That's why the Powers That Be are finally getting serious about working with struggling homeowners. Given how interconnected everything is in our economy, their success in saving your neighbor from foreclosure might ultimately reduce the chances you'll lose your job.
I agree that a lot of borrowers were complete idiots for agreeing to mortgages that were eight or nine times their incomes (a mortgage that was three times your income used to be considered a stretch in the days before lenders went nuts). Smart borrowers fixed their rates for at least as long as they planned to stay in their homes; dumb ones agreed to adjustable-rate mortgages on their brokers' assurances that they'd be able to refinance before the payments reset.
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Home-loan bailout planThe federal government is considering a plan that would help about 3 million homeowners avoid foreclosure.
But borrowers didn't get these loans in a vacuum. Mortgage brokers and loan officers downplayed the risks. So did lenders, who gave the brokers and loan officers fat incentives to push them. The Wall Street machine encouraged looser lending standards and created exotic investment products that wound up multiplying, rather than reducing, the risks. Regulators, meanwhile, stood by and basically did nothing. No one involved is covered in glory.
Neither is anyone getting an entirely free ride. Plenty of people will still lose their homes, and many who get workouts will have to live with trashed credit from the payments they missed before help arrived.
Continued: Forgiven but not forgotten
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