Wednesday, March 04, 2009

10 reasons to oppose the housing bailout

The top ten reasons to oppose President Obama's $275 billion housing bailout:
  1. The Bailout Encourages Bad Behavior
  2. It Rewards the Wrong People
  3. It Will Further Nationalize our Housing Market
  4. It is a Futile Effort to Re-inflate the Housing Bubble, which Failed Miserably in Japan
  5. The Bailout Keeps People in Homes They Cannot Afford
  6. The Bailout Steals Billions from Hard Working Americans
  7. Policy Like this Caused the Crisis
  8. We Cannot Afford it
  9. It Distorts the Market Economy
  10. The Plan Creates Uncertainty in the Marketplace

18 comments:

  1. James - no problem with 9 of your 10 reasons. However this one kills me:

    "It is a Futile Effort to Re-inflate the Housing Bubble"

    It is not the intent to "Re-inflate" anything. "provide an artificial floor" maybe, "slow the rate of decline" maybe, but "re-inflate". No chance.

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  2. I think that is James' point. Their ideal would be to reinflate, they'd settle for artificially slowing the descent, but they are likely to get a floor, probably lower than they would expect.

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  3. James is too smart to think the powers that be want to re-inflate.

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  4. Actually, James IS to smart to use that term...I just realized that "re-inflate" is not James' language but the article. Its the article's author that needs to think about this some more.

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  5. Anon - your point is semantic, but I get it. Its like this NAR healine I saw the other day

    "Low Unemployment Rates Boost Housing Sales in Alexandria, VA"

    Umm no. Unemployment in Alexandria is low and is only getting slightly worse. However this is not a "Boost" for home sales. Boost implies going up, when reality is sales are "not crashing".

    Either way its all about SPIN. The NAR uses the word "Boost" to hopefully get sitters off the sidelines. Likewise, the article author is using the word "re-inflate" to incite fears in renters, hoping to rally them to fight the cause. They are two sides of the same coin.

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  6. oblivious 2 consequencesMarch 04, 2009 11:16 AM

    who cares anymore. it's all fake money anyway.

    i just heard we're escalating our presence in Afghanistan. coulda fooled me. i just got a tax cut and the FedGov wants to pay me $8,000 to buy a house :-) if that's sacrifice and sharing the pain, then sign me up for more!

    /oblivious

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  7. For all the complaints about "responsible renters", morality, &tc, &tc... The "responsible" thing to have done over the last decade is to do whatever the dominant demographic was doing.

    Anyone with half a brain and the slightest grasp of history could have forseen that the great masses of middle-class voters are not going to be allowed to fail. As for the "morality" of it all, tell it to the native Americans...

    Oh, noes! Life is not fair!

    Heh.

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  8. Sorry, my bad. I meant for the list to appear as a block quote, but apparently I forgot to apply the block quote formatting before posting. (Usually block quotes are in blue text and my thoughts are in black text.) That is fixed now.

    However, I would happily say that politicians wants to "re-inflate" or "prolong" the housing bubble. Of course, they don't think about it that way. They just want prices to start going back up again, or at least stop falling. However, since we still have a housing bubble, the politicians' desires are exactly the same as re-inflating or prolonging the housing bubble. They choose language to highlight the benefits. I choose language to highlight the costs. It's six of one and a half-dozen of the other. However, my choice of words implicitly takes the valuation of housing into account, and theirs does not. Therefore, I believe my preferred wording provides a fuller picture of the overall situation.

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  9. 1. The Bailout Encourages Bad Behavior

    The bad behavior already happened.

    2. It Rewards the Wrong People

    Does it? Are we sure about that? Are all the people who refinance under this program bad?

    3. It Will Further Nationalize our Housing Market

    When did they nationalize the housing market? Did I miss that?

    4. It is a Futile Effort to Re-inflate the Housing Bubble, which Failed Miserably in Japan

    I'm sorry. But I thought the TARP was the means to finance a new bubble.

    5. The Bailout Keeps People in Homes They Cannot Afford

    In every single case, for sure. Yep.

    6. The Bailout Steals Billions from Hard Working Americans

    Steals. Right. The Iraq War stole more from hardworking Americans in a week than this program will cost. Let's extend that argument to other government programs. Lot's to work with here.

    7. Policy Like this Caused the Crisise

    Huh? What policies? The lack of regulation on lenders? Wait, I remember, it was Greenspan who personally approved the liar loan policy.

    8. We Cannot Afford it

    See answer to 6

    9. It Distorts the Market Economy

    There is no market economy without law and that's what was missing here. The lenders did whatever they wanted; liar loans, pick-a-payments, etc. The market economy was distorted by the absence of adult supervison; the adults are now trying to fix their mess.

    10. The Plan Creates Uncertainty in the Marketplace

    What is certain now?

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  10. "1. The Bailout Encourages Bad Behavior

    The bad behavior already happened."

    that's right, and it's ratifying that bad behavior as 'good and rewardable' behavior so that it will be repeated, i.e. moral hazard.

    "2. It Rewards the Wrong People

    Does it? Are we sure about that? Are all the people who refinance under this program bad?"

    yep, it rewards folks who lived beyond their means as opposed to rewarding savers by allowing overextenders to eat FAILcake.

    "3. It Will Further Nationalize our Housing Market

    When did they nationalize the housing market? Did I miss that?"

    yeah you missed it. you got bird sh*t in your eyes or something? they've slowly boiled that frog to the point where the GSEs now back something like 90% of all mortgages currently being written. private money won't touch it w/o a guarantee.

    "4. It is a Futile Effort to Re-inflate the Housing Bubble, which Failed Miserably in Japan

    I'm sorry. But I thought the TARP was the means to finance a new bubble."

    all the credit interventions are attempts to re-inflate the consumer-dependent GDP which is resetting to lower spending based on reality.

    "5. The Bailout Keeps People in Homes They Cannot Afford

    In every single case, for sure. Yep."

    glad we're in agreement that if you could afford your home, then you don't need the bailout.

    "6. The Bailout Steals Billions from Hard Working Americans

    Steals. Right. The Iraq War stole more from hardworking Americans in a week than this program will cost. Let's extend that argument to other government programs. Lot's to work with here."

    agree 100%, still doesn't make it smart policy.

    "7. Policy Like this Caused the Crisise

    Huh? What policies? The lack of regulation on lenders? Wait, I remember, it was Greenspan who personally approved the liar loan policy."

    the 'free credit without consequences to loan to whomever you wish' policy of the Fed, FHLBs, GSEs, et al.

    "8. We Cannot Afford it

    See answer to 6"

    regardless, still can't afford it.

    "9. It Distorts the Market Economy

    There is no market economy without law and that's what was missing here. The lenders did whatever they wanted; liar loans, pick-a-payments, etc. The market economy was distorted by the absence of adult supervison; the adults are now trying to fix their mess."

    there is no law. you think we're a nation of laws? laughable. the kids in charge in Washington, DC need to have an adult conversation with bondholders about that haircut, arrest the fraudsters, open the Fed's books. then maybe we'll have law.

    "10. The Plan Creates Uncertainty in the Marketplace

    What is certain now?"

    nothing is certain. no transparency + no certainty = no confidence.

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  11. 1. The bad behavior already happened

    And bailouts set precedence, hence encourages bad behavior, in the future. “What incentive do I have to be financially responsible when I know the government will bail me out?”

    2. Does it? Are we sure about that? Are all the people who refinance under this program bad?

    Not bad, just financially irresponsible

    3. When did they nationalize the housing market? Did I miss that?

    When they initiated the bailouts.

    4. I'm sorry. But I thought the TARP was the means to finance a new bubble.

    All forms of government bailouts are a means to finance a bubble

    5. In every single case, for sure. Yep

    Yep

    6. Steals. Right. The Iraq War stole more from hardworking Americans in a week than this program will cost. Let's extend that argument to other government programs. Lot's to work with here

    Yes, there is a lot to work with here. Let’s extend it to welfare, WIC, Sec 8 etc

    7. Huh? What policies? The lack of regulation on lenders? Wait, I remember, it was Greenspan who personally approved the liar loan policy.

    The infusion of “funny money” (toxic mortages, loose lending, Liar loans etc). The government simply replaces one set of funny money with another.

    8. See answer to 6
    Two wrongs make a right?

    9. There is no market economy without law and that's what was missing here. The lenders did whatever they wanted; liar loans, pick-a-payments, etc. The market economy was distorted by the absence of adult supervison; the adults are now trying to fix their mess.

    By replacing one set of market distorting policies with another.

    10. What is certain now?

    Bailouts will prolong the downturn. Rising taxes. Moral Hazard. More Bailouts. Debt. Debt. Debt.

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  12. Tonight, the House passed President Obama's “cram-down” legislation, granting bankruptcy judges the authority to alter mortgage terms to sweeten the foreclosure process for homeowners - 234 to 191. Democrats say the legislation could cut foreclosures 20%. The mortgage industry contends that such losses by bankruptcy court mortgage modifications will impose significant costs on its companies and will increase fees/rates for future borrowers. Clearly, the Obama administration is playing with fire and we’re going to get burned if we’re not careful. One can only imagine how our dysfunctional market will react to a banking and financial services sector with this added risk exposure; as well as, how the housing industry will digest the threat of coming change. Will President Obama’s bailout of banks end up accelerating the loss of our banking investments? Watch LA, DC and Miami housing markets. To restore some balance to this government intrusion into free markets; I agree with Anonymous (below), who said "The Gov't could reduce the principal on loans, but then penalize homeowners who sell their homes for a gain in the future."

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  13. "The Gov't could reduce the principal on loans, but then penalize homeowners who sell their homes for a gain in the future."

    Im sorry but if a home you bought at $600K is now only worth $150K, its going to take a few lifetimes for it to go back up to what you paid for it, much less sell at a gain.

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  14. "its going to take a few lifetimes for it to go back up to what you paid for it, much less sell at a gain."

    Or a few months of hyper-inflation.

    Which is it?

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  15. I have a problem with #5 "The Bailout Keeps People in Homes They Cannot Afford". They haven't really defined what is a house someone can't afford, instead they defined it as being a house with a conforming mortgage. Many people with nonconforming mortgages may be afford their house payment if any or all of the following were done (a) Interest rates reduced, (b) back interest and missed payments rescheduled and , (c) mortgage reduced to market with banks getting a large percentage ownership of property value that exceeds mortgage (say 100% until the mortgage reduction amount is reached and then a declining percentage beyond that based on the number of years that the mortgage has been current since the restructuring). The restructuring should only be give to single family owner occupied first homes. Let the speculators go bankrupt now.

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  16. RINKEVICHJM said...
    I have a problem with #5 "The Bailout Keeps People in Homes They Cannot Afford". They haven't really defined what is a house someone can't afford...

    Yes, but when the owners bought their houses and signed their mortgage agreements, they agreed to prices and interest rates that they could not afford. If they could afford the houses, they wouldn't be facing foreclosure and they wouldn't need government assistance.

    I could afford Buckingham Palace if the government would just lower my principal, reduce my interest rate, and reschedule my missed payments.

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  17. To find out whether you qualify for the Obama Housing Bailoutt, check your financial statements and do the math. You’ll only qualify if your monthly payments are at least 38% of your income.

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  18. marvin said...
    To find out whether you qualify for the Obama Housing Bailoutt, check your financial statements and do the math. You’ll only qualify if your monthly payments are at least 38% of your income.


    Basically, in my local, if you purchased an average home in the last 4 years, have average income, you qualify.

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