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Home Ownership: Hazardous to Financial Health?


To thrive in a recession, we need to move to where the action is.

It will never be politically viable to say it. It will never be economically possible to do it. Nor would it even be fair to change this rule, especially as we're making up far too many rules as we go along.

But one of the causes of our financial crisis is that cornerstone of the American dream: the tax-deductibility of home-mortgage interest.

It's not for nothing that they don't have it in Canada, and the Canadian banks -- TD (TD), Bank of Montreal (BMO), RBC (RY) and ScotiaBank (BNS) -- have pretty much avoided our mess.

If you want to read a good, thought-provoking book by a good, thought-provoking writer, I recommend More Like Us by James Fallows, known best for his work at The Atlantic Monthly. Fallows got the title for his book from the way he responded to people who asked him, in the late 1980s, whether or not the American socioeconomic system should be more like that of the Japanese. (The Nikkei was peaking at the time.)

Fallows would reply, "No, we should be more like us."

What did he mean by that?

He worried that our system was becoming too rigid, too reliant on advanced degrees and pseudo-credentials. He worried that the American spirit of pioneering mobility was fading. He argued that, rather than form more corporate governmental bonds, rather than create more of a static society, we needed to get back to an economy based on picking up and moving, on short notice, to where the new opportunities were. It might be metaphorical moving -- changing careers in the same location -- or it might be literal.

As far as Fallows' literal sentiment goes, the mortgage-interest deduction, and former President Bush's conception of an "ownership society," are both anti-American constructions at their essence. They discourage the mobility upon which the American spirit depends.

We should have listened to Fallows.

There's not much we can do about mortgage interest. Frankly, I don't think he ever advocated eliminating that deduction, and it would be brutally unfair to do it now. It would be ruinous to those who have bought houses on the basis of the deduction - and we must expect people to respond to the incentives they're given.
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