Housing stimulus

[TromboneAl]

I see two main complaints about the housing plan. One is that it rewards the bad people who bought too much house. The other is that it may not work. Let's look at the just the first complaint:

Here's a hypothetical situation. Let's say there's a mortgage bailout plan that would solve the financial crisis. In this hypothetical situation, it is guaranteed to solve the crisis. The economy and stock market will recover in 8 months, and everything will be OK.

The problem is that this plan rewards the people who bought McMansions that they couldn't afford. The money comes from people who made wise decisions, and lived within their means. IOW, the bill requires that you "pay for your neighbor's mortgage that has an extra bathroom and can't pay their bills."

Summary: Your retirement is saved, but you have paid for bad people's mortgages.

Would you support this hypothetical plan?

 

[deepc]

Well we're already paying their bad mortgages through the results of this whole mess.

Here's a question: Some of the wealthier folks in town here have had notices of foreclosure posted in the local paper on their properties, these are the notices for public auction found in the legal notices. Even though the dates for the auctions come and go, there doesn't seem to be any change in home ownership. Their SUVs and such remain, they continue living in the house. One in particular had their house on the market for over two years, just had the auction, and nothing. So, is this a scam or what? Seems funny that the ones around here living high on the hog seem to be doing just fine, yet foreclosed upon.

 

[TromboneAl]

Here's an interesting article about the federal mortgage assistance that almost all of us have received at some point, paid for by taxpayers who do not own a home.

 

[REWahoo]

Would you support this hypothetical plan?

Yes, but only if we (the taxpayers) could get a share of equity (should there be any) in their house.

 

[2soon2tell]

Since we cannot change this government stimulus plan how about those who do not need the money but legally qualify for it take it and put it aside for their kids and grandkids. They will bear the brunt of having to repay this mountain of government debt.

My $.02 but with the inflation in the pipeline induced by the government printing presses this will soon be $.04.

 

[ERD50]

Summary: Your retirement is saved, but you have paid for bad people's mortgages.

Would you support this hypothetical plan?

Sure, if me and everyone I care about is dead in 8 months.

The problem with your hypothetical is that it stops at that 8 month recovery point. Life goes on. So, even in a hypothetical, those people who were rewarded for taking risk will encourage that behavior (in themselves or others - "hey, those guys got a free ride"), so it perpetuates the cycle of bad behavior. And it will probably just be worse next time.

So no, I don't like that scenario.

I have not read through the details, maybe someone can help here - is there anything in these plans that pushes the cost back on the ones who took the risk? If it does, it would be more palatable to me. Something like, OK, we will extend the terms of your mortgage, cut your rate to such-and-such, BUT.... you pay that back PLUS interest and costs over time, or as your equity or income increases. Something like that.

-ERD50

 

[ERD50]

Here's an interesting article about the federal mortgage assistance that almost all of us have received at some point, paid for by taxpayers who do not own a home.

That was an interesting article, but I disagree with you that the mortgage deduction is " paid for by taxpayers who do not own a home."

When you rent, the landlord deducts interest as a business expense. This lowers the average cost of being a landlord, and that (in a free market) will lower the rents that will be charged to make a reasonable profit.

The mortgage deduction just puts the homeowner on the same footing at the renter is the way I see it.

The really interesting part of that article to me was, there apparently never was a specific "mortgage deduction", it just always was there because interest paid was netted against income (if I read that right). Plus, the idea that it helps people afford homes, when they point out that most take the standard deduction and mostly the "rich" benefit. Another case of Congress saying they want a progressive tax system, but throw in complications that turn parts of it regressive, and never bat an eye, and even promote it as "progressive", when it is not.

-ERD50

 

[samclem]

Here's a hypothetical situation. Let's say there's a mortgage bailout plan that would solve the financial crisis. In this hypothetical situation, it is guaranteed to solve the crisis. The economy and stock market will recover in 8 months, and everything will be OK.

. . .

Would you support this hypothetical plan?

I understand that you are trying to break down the issue into bite size chunks, but it doesn't help me grapple with the issue because the "given" is so huge. Like "If biting into a stolen candy bar would allow an individual to magically be awarded a million dollars (hypothetically), would you be in favor of people stealing candy bars?"

But, more fundamentally, I think maybe the pre-crisis situation answers your question: People were being rewarded for bad behavior (including getting into mortgages they couldn't afford). House prices were going up, unemployment was low, the market was going up, and our retirement savings were growing. That's the situation that we were in, and it is the situation we would be in even if everything went perfectly after a huge taxpayer tax infusion (your first premise). Still, in retrospect, was everything really alright? I think we all know the answer, I think we all know the root causes, and I think it is right to be suspicious of a "fix" that papers over the root causes while pretending to address them. Especially if the fix costs hundreds of billions of dollars. In fact, the situation would be worse than before: Before, some of those taking the risk might have understoofd they were rolling the dice. In the "post bailout" scenario the whole cohort of irresponsible borrowersw has learned a very unfortunate lesson--Daddy wil bail me out if something bad happens-it wasn't my fault--I was a victim!