Friday, February 6, 2009

Speculating from my Soapbox

To date supply side solutions offered by the government and lenders, mainly in the form of loan modifications, have not been very effective, as evidenced by the high recidivism rates. So the current proposal at least makes sense in that it tries to stimulate demand.

The two ideas being floated right now involve artificially lowering interest rates, and giving buyers a tax credit. While this may slow the decline in prices, increasing demand, it will only serve to prolong the market adjustment.

Interest rates are low right now, and I hope the government encourages anyone who is still able, to refinance out of their ARM and into a fixed rate, assuming they can afford the payment. I am relieved that at least one family member living in the LA basin has been able to do just that.

Personally, I would much rather see the government put the billion dollar subsidies towards creating jobs and infrastructure, so that families don’t lose their income and subsequently their home. There are a lot of construction workers out of work (I just met one on Tuesday standing in line to register my daughter for kindergarten). I would love to see them put to work rehabilitating our aging air traffic facilities and schools which are in an embarrassing state of disrepair.

By focusing on creating jobs and resuscitating the economy, home prices will find a bottom sooner, as there will be income to support the demand for housing once it reaches reasonable levels of affordability (which we are approaching in some areas). As a side note, I am thrilled to see that the bad press and new administration has caused banks and financial firms to cut back on bonuses and out-sized perks. The idea that they report enormous losses, take taxpayer money, yet pay themselves richly is just absurd.

Seems all these housing related proposals, do nothing but buy time. (Of course if the government plans to throw $15,000 at me for buying a home, I certainly won’t turn it down.)


patient renter said...

Re: the 15k thing - One of the tenets of basic econ is that markets adjust to interference, in this case, subsidies. For the same reason that the various government housing "affordability" programs do little more than drive prices up, just as the capital gains exemption drove prices up, so too will the 15k bonus thing.

In general, I prefer all discussion of the benefits of government intervention (below market rates, free money for buying a home, government provided "work", etc.) to be counter-balanced with a discussion of the negative aspects of how these interventions are funded.

IMO, borrowing from the future to encourage people to buy homes they don't need, or to float housing prices that are otherwise unsustainable, or to provide people with short term work that damages competing economic activites, is not good policy. But I recognize that I'm in the minority.

Jacob said...

The problem with subsidies is that the price you pay just increases by that amount anyway.

The $7500 tax credit didn't solve the problem and neither will $15000. Free money is free money so of course I would be happy to take it as well. But it doesn't really solve anything.

If you have bad credit you can't buy anyway, if you lost your job you can't buy no matter what the credit or interest rates are.

I agree that we need to create jobs. At least that way if you pay someone $50k a year or whatever you get some back in income taxes, some back in sales taxes, and that person spends money which gives you a multiplier of benefits as it works through the economy.

Or we can throw money into the banking abyss and never see it again.

We should let the banks go bankrupt, then immediately seize them, default on any debt, whipe out the stock and bond holders, write down the assets to their true value and sell them to new companies that have a chance at surviving.

We need the people that invest in companies (via stocks, bonds, loans, or any other method) that if that company is mismanaged they will lose their $$. So long as we bail everyone out then there is no incentive to be responsible.

And about 5% of mortgages or so are in foreclosure so if you make the bailout deals so good for those 5% what is to stop the other 95% (many of which are barely hanging on) to just default and get some free bailout benefits?

Interest rates in Japan are 2.375% and prices still decline. I think people will start to focus more on the price of assets (homes, cars, TVs) and less on the monthly payment and at that point, it doesn't matter what the interest rates are.

sacramentia said...

What I'd like to see:

* 4% Mortgages for anyone through 2009, if a homeowner is underwater, that's ok, refinance them anyways if they can afford the payment.

* Raise the minimum wage to $10/hr, stop ALL welfare, and eliminate taxes on small businesses that make under 500k/yr.

* Universal payment for our Universal healthcare system. Right now, only a few pay, but everyone receives care.

* Term limits of 8yrs for ALL government employees. Government work should be done as a way to giveback to society, not a lifestyle. Start the clock today and don't replace people until the revenue/expense balances.

* Allow states to issue their own currency so the Fed has some competition to keep them honest.

JOATMON said...

Here's something to consider with that ridiculous spending idea. TAXifornia (I had to choose to move out) doubled its spending in the last decade; now the state is:
1) Witholding a higher percentage from paychecks.
2) Not paying back income tax returns.
3) Mandatory non-paid days off for state employees.
Simply, the state can't pay what it signed up for. The federal budget was 3 Trillion at the start of 2008. TARP was $700 Billion. This new thing is another $800 Billion. Our federal budget will INCREASE by 50% in a mere 6 months. Insane.

Random said...

“* Term limits of 8yrs for ALL government employees. Government work should be done as a way to giveback to society, not a lifestyle.”


Do you really want Law Enforcement, Computer Programmers, Nuclear Power Plant Inspectors, Pilots, Mechanics, and so on to have less then 5 years of experience before reaching the top of their field!?!

Please consider as just ONE example the Head an FBI field Office.

As the system currently stands this individual goes to the FBI academy and spends the first TWO YEARS on probation. She then spends another FOUR years doing field work. After that if she is lucky she might become a lead investigator. FIVE years after that she becomes a supervisor of the LA field office. After FOUR more years of learning the job she becomes the head of the LA Field Office where with her FIFTEEN YEARS of experience she serves for TEN more years doing a great job. Total time served TWENTY FIVE YEARS.

Using your system we rush the applicant through training and probation in LESS THEN A YEAR. Then shove them in the field for LESS THEN A YEAR. And then with only two years total we shove them straight into a Lead investigator position (Do you want an FBI LEAD investigator tracking down bad guys with ONLY TWO YEARS experience)!?! One year later we shove the person into a Field office as a supervisor overseeing Dozens of agents. Yep In less time then it takes to get a Masters degree we have a field office supervisor. Two years after that we put her in charge of the entire LA Field Office. That’s right. The entire LA Basin FBI is being overseen by a person with less then FIVE years TOTAL experience in Law enforcement. After serving three REALLY BAD years she is forced to retire under your system.


sacramentia said...

"Do you really want Law Enforcement, Computer Programmers, Nuclear Power Plant Inspectors, Pilots, Mechanics, and so on to have less then 5 years of experience before reaching the top of their field!?!"

I think you missed the point. I don't see government as being 'top of the field'

I'm arguing that government should hire those who have proven themselves to be at the top of their field in the real world of the private sector where compensation equals the value you provide.

Law enforcement is a good exception, but the rest I disagree with. It is far from the worst idea ever.