Whenever the mainstream news starts making think in terms of absolutes, I know something is wrong…so I quickly load up Cato.org.  As always, Cato Institute Author, Alan Reynolds provides a fresh view on something the main stream news outlets either don’t see or don’t want to bring up.  I have written about a Mr. Reynolds article in the past, and he was even cool enough to comment in response!

A quick reminder, the Cato Institute’s Mission is,

to increase the understanding of public policies based on the principles of limited government, free markets, individual liberty, and peace. The Institute will use the most effective means to originate, advocate, promote, and disseminate applicable policy proposals that create free, open, and civil societies in the United States and throughout the world.

Mr. Reynold’s article titled, “The Foreclosure Five” originally appeared in the NY Post and can be found in full on Cato’s Site HERE.  It seems like (just like most things in life) the foreclosure problem follows the pareto theory of 80/20.  Meaning that 80% of the problems are caused by 20% of the participants (a rough rough rough translation of pareto).

What is Causing the Current Foreclosure Problem?

Mr. Reynold sums up the main stream’s media stating,

When President Obama discusses his $275 billion mortgage bailout, he talks as if it was a national problem, caused by a national decline in home prices. “We must stem the spread of foreclosures and falling home values for all Americans,” he says.

Then he makes it clear,

…there is no national market for homes and no national price for homes. Instead, most of the United States will pay for the folly of few.

That is an incredibly simple yet smart statement…think about how local is the local real estate market?  Once you get beyond 5 miles on Long Island, you are in an incredibly different world.  Even in rural areas, what is it? 40 miles?  Thus my tax dollars helping someone in Cali who overpaid on a mortgage just seems unjust.

I’d love to hear Mr. Reynolds’ views on the next logical argument that it is a national problem because of CDOs (i.e. those investment vehicles which take mortgages from all over the country which have, at least in part, brought our financial system to its knees)? Hopefully, he’ll respond, and if he doesn’t – Some of you readers better!

Our Problems are Caused by 5 States

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Mr. Reynolds compares the top 5 foreclosure states with New York (my home state) which is right in the middle for foreclosures.  He finds some interesting (and some obvious – i.e. higher unemployment rate) common traits between the top 5, but I think the one the most important once people still are having trouble with – those states which are on this list (minus the problems involved in Mich because of the auto industry)  – your home should not have grown as fast as it did and you are now crashing.

If you didn’t sell you missed it, if you bought during it – sorry this is a zero sum game – I, in New York shouldn’t have to bail out someone in Cali!  Let the market work itself out.