Obama Punishes Responsible Parties

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This is a headline that I have long been waiting to see, because without accountability at every level, a society is a weak shadow of what it can and should be.

Unfortunately, the responsible parties I am referring to have never committed any crime, nor do they deserve to be punished.

I am among them. Perhaps you are as well.

If you did not buy more house than you could afford, or never issued a loan to a party that could (obviously and predictably) not repay that loan, then you just got punished.

Here’s the data:

Obama Plans $75 Billion Outlay to Fight Foreclosures

Published: February 18, 2009

Seeking to stabilize the foundering housing market, President Obama is offering a plan to help as many as nine million families refinance their mortgages or avoid foreclosure, according to a summary released by the White House on Wednesday morning.

The plan, which is more ambitious than expected, would spend $75 billion to help keep as many as four million families in their homes, and would help as many as five million more refinance their mortgages to take advantage of lower interest rates.

Okay, there are so many beliefs and opinions wrapped into those opening salvos that I feel I must step in and expose them. One thing that I do in conference, and in the Crash Course, is distinguish between facts, opinions, and beliefs. This article, which comes from the front page of the New York Times will be absorbed by many as “fact.” Let’s be more careful.

  1. “Seeking to stabilize the foundering housing market…” is a statement of opinion, not fact. While this sounds laudable and worthy as a goal, there can be no doubt that any plan that funnels money to homeowners is really going to end up in mortgage companies and banks, and very rapidly at that. So it could just as easily be framed as, “Seeking to stabilize the foundering mortgage and banking businesses that made extremely foolish loans…”. The difference between the way that the NYT framed it and the way that I did does not reflect a difference over facts, only opinion.
  2. Saying, “…help as many as nine million families refinance their mortgages or avoid foreclosure…” is also presenting something as fact that does not even stand up to the slightest scrutiny. The $75 billion price tag divided by 9 million gives us a value of $8,333.33 for each of the nine million homes. There is simply no possible way that $8,333 each is going to make the difference between 9 million people keeping or losing their homes. It might if that was applied to this year’s balance gap, but over the life of the loan? No possible way.

But it’s not just the NYT that is mis-representing the issue. Obama said:

“The plan not only helps responsible homeowners on the verge of defaulting, but prevents neighborhoods and communities from being pulled over the edge too. It will prevent the worst consequences of this crisis from wreaking even greater havoc on the economy. And by bringing down the foreclosure rate, it will help to shore up housing prices for everyone.”

He can wrap this with as many words as he wants but the plain facts are that only people in trouble with their mortgages get any handouts here. People who are not delinquent, or who are perhaps renting, only get the opportunity to pay for the mistakes of others.

Politically, this is a great plan. Good sound bites and it looks like action. Also, roughly 9 million votes are secured for the next election. Two thumbs up in this regard.

Economically, it stinks. This is throwing good money after bad, and, worse, by seeking to “shore up sinking house prices,” it betrays a complete ignorance of the actual root of the problem. Blaming sinking housing prices for the fix we are in is equivalent to blaming the car for the drunk driving wreck. If Obama were to craft a similar program for drunk drivers, it would include new cars for any that happened to wreck their own. The problem is not that house prices are sinking, it’s that they got too high to sustain. It was a bubble for goodness sake! That’s the very definition of a bubble. Any and all attempts to “shore up” bubble prices is a doomed effort that will assuredly squander both additional capital and valuable time.

Morally, it is a complete disaster. The clear implication here for every sentient person is that it pays to be reckless. Moral hazard is written all over this one. I can easily envision millions of people arriving at the same conclusion: “I need to stop paying my mortgage right away so that I qualify for a handout!” It’s entirely sensible, and I would seriously consider this option if I had a mortgage and little or no equity in the house. As it is, I am a prudent renter who saw the bubble for what it was and will now pay a double price for having been so prescient. First, I will have to endure government-subsidized house prices set above market rates, and I will have to pay for the reckless actions of house owners and lenders who behaved recklessly. This is no way to set an example and is not how I wish my country to be run.

Taken together, these actions represent a near-total lack of vision and leadership.

Here’s one example that should illustrate exactly why this plan is DOA.

Feb. 18 (Bloomberg) -- It has taken Susan Erb just three years to see the value of her Merced, California, home plunge by more than half to $350,000. Next month, her mortgage payment jumps 20 percent to $3,321 and she knows she can’t afford it. Her bank won’t rework the loan unless she stops paying altogether.

Think about a house underwater by $350,000. Think about a monthly payment of $3,321. Now join these to the total $8,333 offered by the Obama plan. How far will that $8,333 go? About 8 months of payments is my assessment and then the house will still be more than a third of a million underwater.

The reason I sometimes despair at ever finding our way equitably through this mess is captured by this quote (from same link as above):

Rina Serrano, 35, an after-school program supervisor for the Merced County Office of Education, may lose her job next year due to budget cuts. The value of her house, built by Calabasas, California-based Ryland Group Inc. in the Bellevue Ranch development, fell by at least a third since she purchased it in 2007. Her husband’s cabinetmaking business is down by half.

“Nobody has given us any options, but my feeling is there should be some assistance,” said Serrano, 35, a mother of four. The couple took out a 30-year fixed loan and aren’t behind on payments but they are underwater by about $70,000.

Here’s a person who has not yet missed a payment, but whose house is worth less than her mortgage, who wants “some assistance.” Where you might think, “Be more careful next time!” there are many who simply want to be relieved of the consequences of their poor decisions and too many politicans who are eager to try.

And who can blame them? I too would like to have every bad decision I ever made paid for by someone else but I am also mature enough to know that this is not a realistic way to approach life.

So there it is. If you have been responsible, you have just been punished. And you know what? Nobody can possibly blame you for deciding that being responsible is for suckers.

It’s not a stretch to imagine that a few folks will even come to the conclusion that hard work and prudence are no longer the core values of our country.

Does the current administration really want to foster this sort of a mindset right at the outset of a nasty recession/depression?

It would seem that the answer is “yes.”

This is a companion discussion topic for the original entry at https://peakprosperity.com/obama-punishes-responsible-parties-2/

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…and I thought I had finally passed through the anger stage for good.

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So is this the "Change We Can Believe In"?

Or…more business as usual by both political parties.

Another data point increases my worst concerns of how this will unfold/collapse.

 

Nichoman

 

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Chris, I realize and to a large degree admire your wish to make the Crash Course (and, by extension, this website) non-partisan and a-political, but this move just confirms that the two-party system in our country is, in actuality, a one-party system, and that collectivism and the final destruction of our formerly constitiutional republic is what they have in mind. This is Marxist-Leninist redistribution of wealth, pure and simple.

Sometimes it’s best we call a spade a spade.

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“Nobody has given us any options, but my feeling is there should be some assistance,” said Serrano, 35, a mother of four. The couple took out a 30-year fixed loan and aren’t behind on payments but they are underwater by about $70,000.

Chris,

It’s this attitude that, unfortunately, has become pervasive in our society - much to my disgust.

In the "Scenario: Implosion, Collapse, & Liberation" thread on January 5, 2009 - my post #11, I said:

When I lived in California in the 90’s, I was upside down on my
mortgage for many years. It never once occurred to me during that time
to walk away from my obligation and I am dismayed at the attitude in
this country that seems to think it’s become an acceptable practice.
BTW, in time my mortgage "righted itself" and I was able to sell my
house at a small profit.

 

If you did not buy more house than you could afford, or never issued a
loan to a party that could (obviously and predictably) not repay that
loan, then you just got punished.

It’s times like these when I fantasize about a place where all the really genuine, responsible people can live and seal ourselves off from the insanity that exists in the rest of the world! Sigh…

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Never under estimate those in power doing everything possible to hold onto their current lifestyles, even at the expense of their fellow man/future generations.

I have kids and when they go to a friends party and it’s time to go, the response is always the same "Can’t we play for a bit longer"! The economy I think is the same - people keep wanting the game to go on for a bit longer, just as my kids do.

If they (my kids) are allowed to play on, the result is that they are more tired and more worn-out the next day and then EVERYONE suffers, so for the sake of the whole family, I am unwavering when it comes time to end the party game and come home because the long term result is worse for all if they are allowed to play on.

While there’s probably much to my anaology that doesn’t hold water in relation to the economy/living beyond one’s means, it’s how I view things for now and it’s how I can drag the bigger picture back to something that’s relevant for me.

:slight_smile:

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Yes, I have noticed how the Marxists funnel money from the people to bankers on a regular basis.

This is ultimately benefiting the banks, as Chris pointed out…It will give some temporary relief to regular people who made bad decisions but it only delays the inevitable forclosures and bank failures.

We need to ask why were these loans made in the first place? Why did we have a housing bubble and who ultimately benefits from the level of debt that has been created? The individuals highlighted in these articles are just pawns in a much larger game. Personally, I would not want to be in the shoes of anyone who qualifies for this "aid" because I do not think it will be enough to bail them out of their situation.

What really irritates me is the transfer of tax dollars to banksters that is occurring on a massive scale through the TARP and now this so called mortgage rescue program. The banks should be required to absorb some of these losses they helped to create. The lack of accountibility fis consistent with the way the government has dealt with Wall St., Fannie, Freddie and the auto industry. Who’s next in line for a hand out?

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It is well to remember that this is the nature of political power and why we should should be preparing for a major collapse if we haven’t already. The state of the economy is well over the red line now.

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This thread is a perfect segue into another story.

NEWS broke last week that Rahm Emanuel, now White House chief of staff, lived rent- free for years in the home of Rep. Rosa De Lauro (D-Conn.) - and failed to disclose the gift, as congressional ethics rules mandate. But this is only the tip of Emanuel's previously undislosed ethics problems.

One issue is the work Emanuel tossed the way of De Lauro's husband. But the bigger one goes back to Emanuel's days on the board of now-bankrupt mortgage giant Freddie Mac.

Emanuel is a multimillionaire, but lived for the last five years
for free in the tony Capitol Hill townhouse owned by De Lauro and her
husband, Democratic pollster Stan Greenberg.

Rahm’s rent is just the tip of the ethics iceberg

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Oh, you mean we’re not going to "hit bottom" and "return to growth" in the next ninety days or so?

By the way, Ray, good to see you again, my friend. (And that I mean sincerely.)

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And another burden pushed on to younger generations…not allowing prices to drop to realistic/affordable levels.

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Regarding Emanuel, no surprise there. Guy’s a total thug and slime-ball.

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Best post of the lot, Bluemarble.

This is small peanuts compared to the direct transfer of trillions of dollars of the country’s money into the coffers of private, corrupt banks.

Let’s see. They get the money now. Economy collapses. Regular ol’ folk stuck here. And they all head off with Cheney to their Dubai-steads while looking like Bush gazing down moronically over the destruction wrought by Katrina as their private jets leave a newly minted third world nation for the last time.

Oh, and thanks for reminding me about the basic tenet of Marxism, which of course is, as you say, funneling money from the citizenry to the bankers who either were or will be high-ranking government officials. I forgot about that part!

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Hey Davos,

As you and I have talked about (I think), the resets coming in Alt-A land over the next 3-4 years are going to be mindboggling, as the 60 Minutes vid you recently posted attests. So the funniest part about Obama’s plan aside from whatever political or ethical considerations one has is its utter impotence to prevent reality from unfolding. That’s why when I hear someone saying at the local breakfast joint that now is the time to get into real estate to "make money" I almost spit my coffee clear across the place.

15

Crikey! People are mad about this one.

Read the first page of comments left under the NYT article;

Angry folks.

In case the NYT pulls them down, here’s a few.

++++++++++++++++++++++++++++++++++++

To Whom It May Concern, What kind of propaganda are we selling to the American people? This is NOT about your overdue mortgage its about who cooked the books and cooked the world’s economy. We as a people, the citizens of this great country have been manipulated into "this mess". Laws where changed and laws created to allow greedy banks and financial institutions to make them money. Now that it has backfired and the few greedy bastards who perpetrated this scheme, the ones at the top of the ponzi scheme, got out first and left the corrupt government holding the bag. The tax payers are the ones accountable. I am sick to death about the continued abuse by the financial interests who are now using divisive, propaganda to make us all think that it is the homeowner who "bought more than they could afford" "who took advantage and should have known better" well to them I say, "they stab you in the back and you say that your not looking"

The most unfortunate lesson to be learned from all of this; the one percent of this country has gotten away with the greatest transference of wealth and they did it legally.

— Ross, New York

++++++++++++++++++++++++++++++++++++

This is awesome! No downside on anything ever! Except for the responsible people! Welcome to the era of responsibility! Now pay up, there are deadbeats who need your money.

— austinite, austin tx

++++++++++++++++++++++++++++++++++++

Great! $75 billion to help people that should not have been in a house in the first place. Obama seems to love to reward people who make mistakes and overreach and let the responsible people pick up the tab.

— John, L.A.

++++++++++++++++++++++++++++++++++++

Hey, President Obama - Are you also going to bail me out when I purchase a stock at the top of the market and it drops in value?

Prices are falling for a reason - because they were and still are too high. Virtually nowhere in the country do median homes prices reflect their historic metric of 3x median incomes. Propping up home prices artificially does NOT help the distressed homeowner. All it does is delay the inevitable and prevent qualified home buyers from buying at a price point that actually makes sense.

Would someone in our government PLEASE let the markets sort out some of this mess? The Fed, lenders, and borrowers all share some responsibility for the mess we’re in, but you don’t give someone who got drunk the night before more alcohol the next morning to cure their hangover. Our alcohol was cheap debt and our hangover is this recession. Adding more debt will NOT cure the hangover, at least long term…

— David E., College Park, MD

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Hello MaineCoonCat:

Yeah, wave II sould be a killer…Hang onto your coffee :slight_smile: take care

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I have difficulty in separating out the responsible from the not-responsible.

For starters, those who participated in the real estate bubble are all in responsible in some way. Obviously, the elites that engineered the debt instruments have the greatest amount of explaining to do. However, those who bought properties also tended to validate the system by their own participation. The idea was to get mortgaged to the hilt and pray two things would happen. One, wages would rise so the note could be serviced by inflated money. Two, even if wages went stagnant, the value of the property would always increase. So what if "one" fails, sell it at a profit. Millions of people were in it up to their eyeballs and giddy at the prospect of trading, flipping, dipping, or just riding high. Of course, if you weren’t doing what everyone else was, you were stupid. Now who’s stupid?

It appears the stupid are the ones who got caught. A lot of people are stuck with properties they can’t move. (me for example) Some are under water. (not me for example) Fortunately, my wifey and I have always lived within our means. We’ve kept our debts to a minimum.

Still we got sucked into the notion that one’s home is an "investment". This is such crap. How can a house produce wealth that isn’t a speculative bubble? Does a house in itself produce anything? What commodity comes out of it? Bread? Steel? Strawberries? This notion that a house is an investment even runs counter to capitalism! How can someone investing in real estate be considered a "rational player"? Isn’t the market supposed to be "rational players" seeking their highest good? The unseen hand guiding us along to prosperity? But, the propaganda system said it’s all good so be fruitful and multiply. And we bought it. Some more than others.

If everyone in the game is responsible, then why are the players getting a hand out from Uncle Sugar? No one held a gun to the heads of the mortgagees. The banks got everything they wanted from congress and the executive. Shouldn’t they be happy with it? Or is it a case of "those whom the gods would destroy, they first grant wishes?"

The deeper trouble in this is that the banks virtually own congress. They get whatever they want. Serving on a banking committee is a gold mine in campaign contributions. My question is, if the banks get what they want and do pretty much what they want, can we rule out the idea that this credit collapse was engineered? I keep coming back to the similarities of previous panics, depressions, recessions, etc. Suddenly the money dries up. Who’s in control of the stock of money? The Federal Reserve for starters. It’s accountable only to its share holders. Remember their refusal to account for $billions in bail out money? Modern banking is a form of social parisitism. We pay rent on our common currency. Is it right that our currency should in itself be a profit center? Who does that serve? What kind of society does that encourage us to be? Benjamin Franklin described Colonial Sript as a currency that was issued by the public authority in a quantity sufficient to facilitate trade and keep prices stable. It was issued interest free for the good of all and to the advantage of no one. He further said that the control of the currency was the PRIME reason for the war of independence against England. Since then until 1913 the story of America might justifiably be described as a relentless battle of the banks against everyone else for the control of the power to issue currency. As Amstel Rothchild said, "Let me control and issue the currency and I care not who makes the laws." Well, now the banks have what they’ve always wanted. Can anyone say with certainty that this latest credit melt down wasn’t their idea?

18

Worst headline EVER

"Commentary: If you oppose stimulus, don’t take the money"

http://www.cnn.com/2009/POLITICS/02/16/begala.carolina/index.html

Gah!

Admittedly, he’s talking to a governer, not a tax payer, but still! I would LOVE to opt out of the stimulus plan. But, short of moving to a different country, I’m not sure how this would be possible.

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I’ve seen prettier plane wrecks - and they worked better.

http://vimeo.com/2893203

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A good analysis and depressing BS from the new president, just like the old. This one has no excuse, he knows he’s spouting lies.

Somehow I knew it was going to turn out like this.
SG