See, that's the other assumption that you've been making that I would call into question, well, actually TWO assumptions:
1) The mortgage deduction from itemising is hardly something that "encourages millions of people to go into debt." Seriously. If you itemise, then you know very well that the money gotten back in a refund through that is less than the interest paid in each year. I certainly didn't take out a mortgage to buy a home on the basis that I'd "get to itemise my taxes." I did so because it was a sound investment strategy in the long-term - something that is still true, despite the current housing crisis. There is no reason to think that the housing market will still have the same problems it has now five, ten, or twenty years down the road.
2) The mortgage meltdown did not happen because of the simple fact that people choose to go into debt (i.e. take out a mortgage) to buy homes. The meltdown occurred because of the fact that the government pressured lenders to make extremely unwise loans to millions of extremely questionable buyers - people who under normal circumstances would not have even been considered by a bank for a loan.
That - not the mortgage interest deduction - is why we're in the mess we're in. The government was forcing banks to give half-million dollar loans to guys whose listed occupation was "mariachi singer" (seriously) and whose only proof of occupation was a picture of them in sombreros holding maracas.
Nevertheless, that is a situation that is completely different from a young couple who are financially stable, have decent jobs, have budgeted for taking on a mortgage, and then do so. When banks only lent to people like that, the system worked well. When banks were forced to make loans to people we all knew couldn't pay them back, that's when it started to break. Your mistake seems to me to be that you are lumping all mortgagees together, without differentiating between the responsible (who, to this day, have very low foreclosure and default rates) and the irresponsible (who are driving the problem).
I'm going to bed, so I will respond to any further comments tomorrow.
“I’m going to bed, so I will respond to any further comments tomorrow. “
Get some sleep...it was fun. The problems were due to probably 10 factors...but the deduction is a HUGE one, or the Real Estate Lobby would not fight so hard to keep it. I heard it most of my adult life (and half of my childhood life), about the way I’d get to screw Uncle Sam if I took out a mortgage. It has a HUGE psychological effect, even if the net amount is not very much.
But yes, it was STUPID LOANS that were the rut of the problem...but they were still loans and still deductions.
I’m upset because we have TRILLIONS of dollars that could have gone to productive purposes (like modernizing factories) but instead were diverted to STUPID MORTGAGES (particularly in Florida, Arizona, Nevada, and California)...and now are in the process of becoming part of the national debt (i.e., being thrown on the backs of my kids and [future] grandkids). I have a HUGE PROBLEM with that.
But yes, where were the credit rating agencies, the pension holders, everyone in the system that could have stopped this crap? I don’t know where they are, but they should be in jail...along with the regulators.