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May 24, 2010

Welfare in America: Foreclosed Homeowners Hit The Mall

I believe that the consequences of an “over-entitled” society are increased irresponsibility by its citizens.  This is the credo of our mini-series on welfare in America.  Over the week (and perhaps sporadically in the future), we will examine the effects of welfare in America.  Why worry about your health or finding an affordable health insurance provider when the government is going to take care of it?  Why find a job when the government is going to continue to pay you not to work (we’ll look at this on Friday)?
Today’s question: Why pay for your mortgage if the government is going to freeze foreclosures?  Use that money for important things like spas, mall runs, and liquor. 
CNBC, the Calculated Risk Blog, and more recently the Iowa Independent all featured the story of one distressed homeowner who sought help from President Obama’s refinancing program.  This homeowner gave up their mortgage to go to the mall, Best Buy, Home Depot, Sears, the liquor store, and premium cable services.  The total bill was between $1,700 and $1,800.
While many would argue that these cases are rare, one must ask, “where are the recent consumer spending increases coming from?” 
On May 14th, the U.S. Commerce Department announced that retail sales had increased for the 7th consecutive month.  Where is this new found wealth coming from?  Consumers were over-leveraged before the recession.  Our employment situation has not really improved.  Hourly wages aren’t that much higher than they were in 2008. 
The only explanation, in my opinion is a shift in priorities.  It can be seen in the reduction of consumer credit card debt, the increase in retail sales, the slight increase in consumer spending, and through all of this, an increase in foreclosures.  While many may argue that the above example is an exception, I disagree and Calculated Risk agrees with me;
“I’d like to say this is the exception, but it’s much closer to the norm. Many people who request HAMP modifications submit bank statements that demonstrate little if any “belt-tightening” going on.”
Like I’ve said in the past, this appears to be an issue of financial education and responsibility as opposed to a systemic issue.  Then again, why get your financial house in order when the federal government can’t seem to either?  We’ll have to see how many more outrageous applications like our example come out before the rest of the American public gets it.

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