The Center for American Progress has an article praising the (tentative) Obama mortgage relief plan. Overall, I'm not sure about all the details of the still sketchy plan, many make sense, but some comments.
"The administration estimates that the average homeowner will be protected from $6,000 in price declines on their homes as a result of their plan."
Since this administration has already thrown out clearly imaginary and unmeasurable numbers on the numbers of jobs that will be saved/created by the stimulous plan, without some hard data I don't believe this. However, even if true, the recent 1 trillionish stimulus plan adds about $3000 in debt to every American. And surely more debt to the wealthier types who own a house. So a couple that owns a house easily has $10000 in increased debts. The $75 Billion in TARP funds to be spent on just this mortgage plan adds about $250 in debt to every American. If you assume an "average" household of 4 people, that's $1000 debt. Factor in that they are probably wealthier and pay more taxes, and you could estimate more like $2000 and up. So it isn't clear to me that this $6000, even if believable, is worth it.
"Importantly, this element of the Obama plan is expected to be nearly costless, as the losses from reduced interest payments are offset by not incurring high foreclosure costs."
I don't know the exact details of the math to support this, but, even if true, this seems to assume that all these houses will be foreclosed. So, if you assume the worst, we aren't paying any more than the worst. Not exactly high praise. Plus, I wonder if this math assumes that none of the newly "saved" mortgages will face foreclosure. I've been seeing recent figures that these "saved" and refinanced mortgages are still defaulting, a few months later, at a near 50% rate.
Don't get me wrong. I do want to see housing prices stabilize, which can only happen with fewer foreclosures, plus incentives (tax breaks, lower interest rates) to encourage first time buyers into the market. I've proposed my own "brilliant" plan. Obama's program has some interesting ideas. But I don't think that claims that it will cost nothing and prop up housing values by some imaginary number they pulled out of their backside are good arguments for it.
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Sounds about right.
There are two arguments to be made in favor, though.
The first is that we can borrow money from the Chinese and Japanese now, and pay it back later after the economy has stopped imploding. If it stops the economic collapse, assets may be more valuable five years hence and it is easier to pay the money. Time is valuable.
The second is that the Obama administration is an essentially centrist regime, not a moderate leftist one. You can see this in the emphasis on bipartisanship and the failure to exploit anger over the Wall Street bailout to push through wealth redistribution. If it does not intend to redistribute the wealth, all the government can accomplish is to borrow money from those who have it at a low rate {because everyone else is trying to de-leverage, demand for money is low} and lend or give the money to people who are in trouble.
I'm a cynic and I don't think this will be enough. Over the last 5 or so years, the US wealth distribution has been about what it was in 1929. Wealth distribution in the US economy had been substantially more equal between 1945 and 1995. There is probably a connection between the wealth distribution and the economic problems. To restart capitalism, we're going to have to take some wealth from the rich and spend it on infrastructure in a way that permanently increases the wealth of the debtor classes.
On the other hand my views are well to the left of center. Also, when you are a member of the debtor classes like I am, wealth transfer from creditors to debtors is more appealing than when you are a creditor.
The Obama administration proposal seems to be reasonably sound within the limitations imposed by its objectives and context.
Republicans should count themselves lucky they are dealing with Obama and not FDR. Obama worked hard to get into the establishment and has a fair amount of respect for it. FDR was born into the establishment, and thought it had more than its share of scoundrels and idiots.
Ray,
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