Of archaic banks and egghead financial journalists who want to keep America poor

A reader writes:

I recently read your article ["Reward the Good Guys"] in a September 10, 2007 issue of Time. It certainly makes me curious why you believe the tightening of money for mortgages is a good thing; also, why you think that it might better be in the domain of banks and thrifts? Do you own more than one piece of property? If not, you have missed a great opportunity to increase you wealth through appreciation of property in this past decade. But if your proposal is that lending to buyers of homes is better left to banks, etc., then I believe you are missing a vital fact about banks: they are notoriously conservative and reluctant to loan money at favorable rates to even their own depositors; Many people who brag about their banking relationships with Chase, etc. are usually mortified when they go to apply for a loan; it is a sad sad fact.

By advocating that these dinosaurs of finance be in the forefront of lending to first time buyers, etc. you are, in fact, causing an entire class of buyers to 'NOT BUY AT ALL,' AND THUS BE POOR AND HAVE TO WRITE ARTICLES FOR MAGAZINES. You are, sir, helping to create a society of poor who after not buying any property, and then losing a job, be destitute and homeless all because of the eggheads, like yourself, calling yourselfs "financial experts" in fact leading the current crop of would be home buyers to delay in purchasing property and thus harming themselves and keeping them from amassing wealth. DO YOU HONESTLY BELIEVE THAT FIRST TIME BUYERS WILL BE FORCED TO FIRST SAVE 10-20% for their down payment before buying? IT WILL NEVER HAPPEN. MOST PEOPLE CAN ONLY BREAK EVEN ON THE MONEY THEY EARN.

IT IS THINKING SUCH AS YOU HAVE CREATED IN THIS ARTICLE THAT WILL MAKE A NATION OF POOR PEOPLE. ALSO, American Home Mortgage is not bankrupt; New Century is also still in business as is Countrywide.

BANKS are archaic and useless to use in financing almost anything much less a home;

i'LL JUST BET YOU ONLY OWN YOUR HOME, PROBABLY A SMALL CONDO, AND NOTHING ELSE.

American Home and New Century did in fact both file for Chapter 11 bankruptcy (you can read all about it here and here) and stop originating loans. But beyond the errors of fact, the semi-crazed use of capitalization and the ad hominem attacks, there is truth in this missive.

For one thing, Mrs. CC and I do in fact own but one dwelling, a small co-op apartment (the old-style New York equivalent of a condo). For another, if all mortgage lending had to be done by depository institutions, lots of people perfectly capable of making their mortgage payments would never get loans.

Then again, with the mortgage brokers leading the way over the last few years (and yes, some banks and thrifts joining right in), millions of people got loans they were never going to be able to pay back unless house prices kept going up. Because, you know, "MOST PEOPLE CAN ONLY BREAK EVEN ON THE MONEY THEY EARN."

Obviously there's some appropriate middle ground that we will stumble around trying to locate for decades, maybe centuries, to come. But here's one thing I do know for sure: "appreciation of property" that's not based on appreciation of income is not sustainable.