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Comment by fnid | Hacker News Reader

I do believe it was the mortgage interest tax deduction that helped create the real estate bubble. Lots of people said, "It's okay, I can deduct the interest from my income. I pay a lot less taxes now!" Not even aware of where the money was going and that they were spending two dollars to save one.

We need to reward saving, not spending. I know we have a consumer economy and everyone loves everyone to spend, but we must change that economy for the sake of ourselves and the world, and definitely if we wish to preserve our position in the global hierarchy.

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Mortgage interest tax deductions were certainly an accelerant, as they were designed to be, but that alone wasn't to blame. Packaging mortgages into investment vehicles was a horrifically bad affair which was at least the number two ingredient. How do you manage to take 10,000 mortgagees that on average represent 7% 30 year loans and end up with a packaged investment that rates at 20% return? This involved some loose and unregulated mark-to-market math and relied on home turnover in a superheated market. Once leveraged instrument after instrument has been added into this unregulated space, you end up with an enormous unmeasurable structure of debt that has little to do with houses.

So it may well be true that mortgage tax deductions were a necessary ingredient, this alone did not cause the debt explosion.

> I do believe it was the mortgage interest tax deduction that helped create the real estate bubble.

I believe that pants helped create the real estate bubble. After all, almost everyone involved wore them at one time or another.

What? People wore pants before the bubble? That's no more relevant than the fact that mortgage interest was deductible before the bubble.

> Not even aware of where the money was going and that they were spending two dollars to save one.

If you're paying the mortage, you're aware.

Of course, you're only "spending two dollars to save one" if your marginal rate is 50%. If you want to reduce the value of deductions, lower marginal rates....

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