Many of the actions of the government over the past few weeks, while perhaps well intentioned , seem designed to obscure the trade-offs built into each economic decision. The housing rescue plan is one instant example. Those of us with mortgages are exchanging the payment in return for the occupancy. As one real estate lawyer likes to say "you have to pay to stay". This is what is sometimes called a "Hobson's choice" , basically a take it or leave it proposition where you have only one choice- to pay or not. As I wrote in an earlier post, the real issue in housing may not be those already in foreclosure but those who are underwater but not (yet) behind. Certain provisions in the plan allow for the possibility of mortgage principal to be changed in a bankruptcy . This could prove as a perverse incentive to some of those underwater as a way to stay and not pay.
Tinkering with economic trade-offs appears innocent but often has unintended negative consequences. We often see clients who struggle with trade-offs. If you retire early you have more time but in return you have less accumulated savings. If you seek a high degree of safety , you forgo much of the future growth potential . If you spend/withdraw more now, you have less for later. And on and on.
