Politics & Economics (Two Great Tastes. . . )
Just read this on CNBS (somewhat to my dismay). One especially quotable bit is as follows.
“To address the mortgage crisis, the package raises the limit on Federal Housing Administration loans from $362,790 to as high as $729,750 in expensive areas, allowing more subprime mortgage holders to refinance into federally insured loans. To widen the availability of mortgages across the country, it also provides a one-year boost to the cap on loans that Fannie Mae and Freddie Mac can buy, from $417,000 up to $729,750 in high-cost markets.”
Oh, good. So if the mortgage holder defaults (again or still), it’s guaranteed by the government. Wait. I hope I understood that incorrectly. I’m sure I must have. Anyways.
It makes me wonder where common sense has gotten to. This tax rebate plan seems to be mostly about tax rebate checks to workers. Okay, so if the economy has become bogged down because everyone has been spending more than they earn and, finally, are having to pay the piper – and can’t, the cure to that would be to give away some cash in hopes that it will drive more consumer spending? I guess ‘WTF’ would be the technical term here. Not counting the mortgage things-n-stuff highlighted above, in a nutshell, the offer is this; $600 per person and $300 for each child. Um, note that I didn’t say ‘taxpayer’ because people earning below the taxes-required level would not be overlooked. Perhaps that bit is the sanest part of it, but there you go. Overall, we’re talking about some $150 billion dollars. Yeah, billion with a “B”. So what’s not good about free money? Well, a whole lot isn’t good about it.
For example, let’s say you’re running a family – a large one with some financial troubles - and you come into a chunk of change. Perhaps it came from an inheritance from an unknown eccentric Uncle that nobody’s met*. You have choices to make about how to use this money and want to get the biggest bang for your buck for the whole family. You could simply divide it up amongst the family members according to some simple algorithm involving need and age, you could invest the whole bundle, or you could do some combination of those plans. Which would do the family more good; to buy or put a down-payment on a car that could safely and reliably get some of the family members back and forth to work, or perhaps just let each person spend the smaller divided amount any way they please? Think ‘higher consumer spending’. Can this even be a question? Of course, to invest in the future earning power of the family will be a greater return on investment! It has to be. Okay, I’m not a Confucian myself, but I have to admit that Confucius had several Great Ideas. At least I think that’s the attribution. I paraphrase; give a man a fish and he won’t go hungry today, teach a man to fish and he need never go hungry again. They (our fearless leaders) were trying to think of some of that as evidently there are some business incentives built into the package as well, but that money is a drop in the bucket really. It won’t be any more of a long-term fix than the tax rebate to individuals. I wish somebody would take a moment think about return on investment . . . but maybe that’s just me.
* Not really the best illustration, as this money cannot have appeared out of thin air. It came from the pool of taxes we pay, and whatever was being done with it, either will not be done (program ended) or will be spent even though the government doesn’t have it *to* spend (deficit spending). Oh, hey the government has maxed out all its credit cards too! Cripes.