I actually had never come across that particular verse before, and it very neatly boiled down for me why I believe what I believe.  And I have to laugh a little when I hear people asking the question, "what is love?" Because for me, that right there, is it--giving someone what s/he needs the most, when s/he least deserves it.

February 18, 2009

Economic Scene

By DAVID LEONHARDT

The long-awaited housing bailout will finally be announced on Wednesday.

In a speech in Phoenix, a signature real estate boomtown gone bust, President Obama will explain his plan to reduce foreclosures. And the key to understanding that plan will be remembering that there are two different groups of homeowners who are at risk of foreclosure.

The first group is made up of people who cannot afford their mortgages and have fallen behind on their monthly payments. "I bought too much house with too little down, and I vote." - Obama's Constituents.  Many took out loans they were never going to be able to afford, while others have since lost their jobs. Hmmm, maybe you should've thought about buying a house that you can afford on ONE income.  About three million households — and rising — fall into this category. Without help, they will lose their homes.

The second group is far larger. It is made up of the more than 10 million households that can afford their monthly payments but whose houses are worth less than what is owed on their mortgages. In real estate parlance, they are underwater. If they want to stay in their homes, they will have no trouble doing so. But some may choose to walk away voluntarily, rather than continue to make payments on an investment that may never pay off.  What happened to responsibility?  Fine, be a brat and walk away.  I'll take your nice house.

Scratch beneath the details of any housing bailout proposal, and the fundamental issue is whether it tries to help the second group or just the first.

Mr. Obama has evidently decided to focus on the first group YES!! Cause it makes complete sense to help the irresponsible ones!  This reminds me of the time in elementary school when the teacher curved everybody's grade up by a letter.  Why? "Because everybody tried their hardest."  "But teacher, what about Lezi who actually studied and got an A?" "Why is she complaining? She got an A.", based on the previews of his speech that aides have offered. In coming weeks, his administration will begin spending $50 billion to entice banks to reduce the monthly payments of people who otherwise couldn't afford to stay in their houses. In effect, the government will split the losses on these mortgages with banks.  So guess who will actually pay for this "reduction in monthly payments."  ME.  Yeah, the girl who has two degrees and never bought anything she couldn't afford.  

The $50 billion will come from the money Congress has already allocated for the bailout of the financial system. It is likely to be aimed at people who need a significant, but not an enormous, amount of help to meet their mortgage payments.

There are some big advantages to this approach. Bailing out all underwater homeowners would be tremendously expensive. All told, about $500 billion in mortgage debt is already underwater, and it's impossible to know in advance who is likely to walk away. So the government would have to spend hundreds of billions of dollars to help millions of people who don't need help staying in their homes.

But the Obama approach also brings risks. The administration is betting that few of those 10 million underwater homeowners will walk away. (A year from now, the number will about 15 million, Moody's Economy.com projects.) If they begin to abandon their homes in large numbers, however, they will aggravate the housing bust and the financial crisis — and probably force the administration to come up with a new, much larger housing bailout down the road.

In that case, the speech that Mr. Obama is making in Phoenix could come to look like a rose-colored bit of incrementalism, which happens to be the very criticism that Obama advisers have leveled against the Bush administration's response to the housing bust.

You can read the rest of the article here. 

Why are we letting the irresponsible ones take the rest of us down with them?  Just last week, Eric and I looked at a house that was in short-sale.  We met the owner, who is a mechanic and a single dad.  He also drives a Mercedes & BMW.  Does it make sense that a single-income mechanic with child is living in a house that Eric and I (we both have graduate degrees & well-paying jobs) are stretching ourselves to buy?  This guy got a mortgage that is way more than what Eric and I can afford, and now he is probably going to get some kind of help from the government.  Which means he's probably not going to sell us the house at market prices anymore.  Why would he if the government (i.e., ME and YOU) is going to help subsidize his payments?  I wouldn't turn down free money either.

Speaking of turning down free money, maybe Eric and I should consider buying a million dollar house!  Obama's plan's goal is to reduce everybody's payments to 30% of their income.  Buying a million dollar house is probably more than 50% of our income, but hey, if the government is willing to pay the other 20%, then why the hell not?  Maybe one of us should quit our jobs...then the government will subsidize even more!  Actually, while we are trending away from capitalism, let's just give everybody a house & a mule after graduation.

This for sure is going to artificially keep mortgage rates up.  I know I may sound harsh, but I think the only way to stop the madness is to let them go into foreclosure and let the market adjust itself out.  A mechanic buying a $450k house is not "normal."  If he can't afford it, then he should be kicked out.  Just like in school...if you didn't study and you got a C, you shouldn't be handed a B.

Oh yeah, and what about the people who recently sold their houses at a loss?  Do you think they can take their receipts to the government and get a credit on their account?

I'm getting madder & madder as I write.  Time to e-mail my congressmen.