Friday, July 25, 2008

Saving the US Economy 1 Check at a Time

The NY Times has a fairly comprehensive piece on the new housing bill that was rushed through Congress in an effort to "save" Fannie Mae and Freddie Mac. I could go into a long discussion on the risks of this maneuver and why we should be questioning a US taxpayer bailout of two private companies that benefits foreign investors (China/Japan) as much as it does US homeowners, but I'll focus on the pork in this bill.

In fact the pork is so clear that the Times calls it for what it is:

"Whether larding up the bill with all these benefits is good for taxpayers is a debate for another part of the newspaper. But there is no shame in taking advantage of what is offered. In fact, you would be foolish not to."

1. New 30 yr mortgages - In theory this seems like a good plan assuming people can keep up with the new payments. Unfortunately, this plan is destined to fail from the start because it limits the loan size to 90% of the current market value (which is falling like a stone every day). A home bought in 2005 in California for $650k with no money down is now worth $420k and the mortgage is over $600k. Unless the banks agree to more writedowns, this plan is DOA. Oh and how about this:

"Finally, you have to hand over no less than 50 percent of any appreciation on the home to the government once you sell. Sell the house in less than five years, and you will have to turn over as much as all of the gain." What's that?!?!?! I sell my house and the government wants my gain b/c they helped renegotiate the loan? Who wrote this legislation?

2. Tax Credit for new buyers - this one smells of the Real Estate Agent lobby. If you qualify and buy a home you get a $7,500 tax credit this year. Again, this sounds good on the surface, but the devil is in the details. This "credit" isn't a credit at all. In fact, you have to repay the $7,500 over 15 back to the government. So now, you owe your bank and the Federal government - great. Welcome to home ownership!!!

3. Standard deduction kicker - For those prudent individuals that actually paid off their home (I heard there was some guy in Omaha that did this once) there will be another $500-$1000 deduction for these people next year. This is another handout for the baby boomers that can't stop stealing from my kids to put gas in their RV's. The baby boomers better enjoy it while it lasts, b/c the time is coming when we are going to have to take off their training wheels and they are going to actually have to survive without all these handouts.

4. A Break for Veterans - This is perhaps the most offensive part of the bill. The old GI Bills really helped Veterans kick start our economy after WWII. Despite all the flag waving, lapel pins, support our troops stickers - this is what the housing bill does to support Veterans:

"Lenders will have to wait nine months, instead of 90 days, before beginning foreclosure proceedings on homes owned by someone returning from the military. Lenders must also wait a year before raising interest rates on a mortgage held by someone returning from military service."

Wow. Thanks for risking your life and spending the last 4 years away from your family. Now, thanks to your friends in Washington, the bank won't be able to foreclose on you for another 180 days. Care to re-enlist?

This legislation is such an embarrassment. Our economy is on the verge of tipping into a very dark place and if this is the leadership provided by our legislative and executive branches rest assured that US debt will be facing a downgrade in the next 2-3 yrs and if/when that happens, it's all over.

Cheers :(

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