Tag Archives: mortgage

Here Comes the Cavalry…But to Whose Rescue?

Right now, I would like a lot of people to lose their homes.

OK, that’s perhaps overstating the case a bit. Allow me to explain.

You have surely by now heard about the housing crisis in the US. The one where home values are dropping and people who bought homes they couldn’t afford are being foreclosed on, and the banks who hold the mortgage paper are getting killed. (As I’ve said before; your bank doesn’t want your house; they want your money.) The Federal government is frantically slathering money all over the problem as politicians scramble to be seen saving the homes (and mortgages) of millions of registered voters.

The trouble is, that’s how this mess started. What with lots of loan money out there looking for borrowers, and lots of Federal guarantees on the loans, there was more and more money chasing houses and in certain markets the home prices became grossly inflated. The houses were soon priced out of the reach of most people, including the people who had actually bought them. As will happen in a free market, with no buyers the prices fell. With houses now worth less than the mortgage, many home owners are stuck in a terrible financial crunch.

Now the Fed is spending hundreds of billions of dollars — our dollars — to try and prop up those unreasonably high home prices, so the banks and homeowners won’t be hurt so badly.

Personally, I think it’s a damn bad use of my tax dollars. I don’t much care if those homes are ‘saved.’ I want home prices to drop precipitously. You heard me; I would love to see home prices in those overheated markets drop by 50-75%. (Any realtors or bankers reading this just fainted.) Yes, that would be ugly. Many families would suffer great financial hardship, and many banks would lose piles of money. But let’s be honest here. Their greed and stupidity got us into this mess. Do we want to spend hundreds of billions of dollars rescuing them?

In other words, should the rest of the country pick up the tab for them, so they don’t have to suffer the consequences of their bad decisions?

No. Let the people lose their houses, let the banks crumble. It will all sort itself out, fairly quickly. People who bought houses they couldn’t pay for will lose them, but home prices will fall back to a level at which people can actually afford to buy them. People who bought within their means will be unharmed. Lenders who engaged in shoddy practices will go out of business. Banks who behaved more sensibly will survive.

Let the prices fall and the economy will rebound fairly quickly. Keep the prices artificially high, and the economy will limp along for years. It’s like being very sick for a day or two, but then it passes and you feel better, versus just feeling kind of sick for weeks or months. You’re better off taking the hit and moving on.

That won’t happen here, of course. There’s an angle that I haven’t mentioned yet. As far as I know, it has hardly been mentioned at all. There’s a third party panicking at the sight of falling home values, besides the home owners and bankers.

The city and county tax offices. Most local governments get a majority of their revenue from property taxes. With values dropping, the tax base is eroding out from under these local governments. They got used to fat budgets when grossly inflated home values sent tax dollars pouring their way. (And that huge tax burden doubtless has a lot to do with why many people are walking away from their houses.) Now they have to cut back, and governments hate cutting back. They don’t like trimming a budget. If home prices continue to fall it’s going to put increased tax pressure on the remaining home owners to take up the slack in the tax rolls, and local services are going to decline, both of which are going to contribute to causing more people to walk away from their houses. Further diminishing the tax base.

Local governments desperately want to keep their inflated property taxes. I suspect, but cannot prove, that that has more to do with the Federal bailout of home owners than any desire to save people’s homes.

Governments don’t really care about people, you see. They do, however, care a great deal about their budgets.

Trickle Up

Have We Bought Enough Yet?

“Obama could have, instead of giving money to these large mortgage holders, said ‘We will pay off all mortgages up to $300,000.’ It would have cost far, far less than what they gave the banks.”

This is an excellent idea. The only thing wrong with it is that in this country we consider it morally wrong to give money to people who aren’t already rich. Only the rich and corporations are morally worthy of government largesse.

As far as the government is concerned, us commoners can fuck off; they’ll bail out Wall Street, but we don’t give them enough campaign contributions to be worth the investment.

Also, it would go against the interests of the very rich to question the benefits (to the very rich) of ‘trickle down’ economics. (For those not familiar with the term, it is a Reagan-era idea that if we give all our money to rich people, they’ll give a little of it back to everyone else. It remains very popular, with rich people, despite the resounding proof over the decades that that whole ‘give a little of it back’ part never happens.)

The way out of an economic downturn is to put money in the hands of people who will actually spend it; the common folks. Trickle UP. We’ve known that for generations. (it’s how we got out of the Great Depression; Social Security money and wartime mobilization jobs.) But what we actually do is give money to rich people and corporations. The only people that benefits is the rich and their corporations. So why do we do it?

Why do our legislators only do things that benefit the people who give them massive amounts of cash every year? Hmm. I’m stumped.