Thursday, April 10, 2008

Thieving Bastards!

Tony at RollingDoughnut has an outstanding evaluation of the asinine mortgage "crisis" bailout passed today by the Senate. (If you like my site and haven't bookmarked Tony's site, then you should do so now- he takes an almost-identiccal tone to mine but covers a more diverse array of topics).

In any event, it seems the bill is even worse than many of us had feared, as it "combines large tax breaks for homebuilders and a $7,000 tax credit for people who buy foreclosed properties, as well as $4 billion in grants for communities to buy and fix up abandoned homes."

This means that the result - which is clearly intended - of the bailout package will be that homebuilders will have an incentive to, uhh, build more homes. At a time when the supply of for-sale homes is already at record highs? Is the solution to the so-called housing crisis really to increase the supply of homes even more? How does that make sense?

Of course, the $7000 tax credit for purchasing foreclosed homes is every bit as bad. This will have the effect of reducing the value of homes owned by people who have actually lived up to the terms of the mortgage contract they signed (people like, well, me). Which will mean that those homes will continue to sit on the market for months and months at a time. In other words, incentivizing the purchase of one specific kind of real estate will have the effect of making things even worse in the rest of the real estate market - which happens to account for like 99% of homes owned. But it gets even worse than that: the people who buy foreclosed homes are usually investors and developers, not people looking for a home to live in. So the Senate's solution to a problem caused by too much speculation encourage more speculation? And not only that, but the people receiving this benefit aren't even people you could call your "average Joe."

But they didn't forget the "little guy" completely. No, they left in $11 billion in "tax-free mortgage revenue bonds" to help people refinance out of subprime loans. The fact that those people agreed to those subprime loans out of their own free will and have benefited for 3-7 years from unnaturally low interest rates on those loans appears not to have crossed the Senate's collective brain. My wife and I both had ARMs on our properties before we got married. We both understood that meant our payments would go up dramatically when the ARM kicked in. But we also understood that the ARM was a terrific option for each of us since we only intended to live in those places for a short time and since we both had every reason to believe that our incomes would rise at a greater rate than the ARM increase.

In any event, let me just second Tony's words when he writes:

The housing market needs to stabilize.... I want that to happen sooner rather than later because that is better for me, as it would be for any homeowner, whatever their equity status. More information is better than less information. But the market will not stabilize correctly, or as quickly, as long as Congress forgets that its job escription does not include "Do something".

I also found something to make this idiotic bill even worse. According to the Washington Post, "the Senate added $6 billion in unrelated tax breaks for renewable energy producers." In other words, the December energy bill boondoggle which is helping boost world food prices through the stratosphere didn't do enough damage, so the Senate felt a need to come back for more.