Our Sub-Prime Government

ReinflateTheBounceThe only thing missing from this cartoon is you, the taxpayer, driving the truck.

Tax credits for home purchases are just re-distributions of wealth taken from all of us and given to first-time home buyers.  Unfortunately for the rest of us, the government is doing everything it can to keep home prices inflated and homes overvalued.  That makes a first time home buyer the government’s new BFF.

The government is doing everything they can do to stop the slide in prices and sales.  This is absolutely the worst thing they could do.

“Lawmakers [that’s just a big word for politicians, sharks is another word] said they want to prevent home sales from slipping as the economy struggles to recover from the worst drop in home prices since the Great Depression.” ~Bloomberg.com [italicized words are mine]

It should be obvious to everyone that the percentage of loans being financed through the government’s FHA program rising from 2.7% to 23% in just three years means the government is increasingly becoming the lender of only resort.  Not last resort…only resort.  As I mentioned in a previous post, an increasing number of those loans are now defaulting which has consumed all of the FHA’s reserves for such defaults now putting you and I on the hook for yet another bailout.  And also as I’ve mentioned before, just like with subprime borrowers, just about anyone with a pulse can qualify for a loan through the FHA.

Banks will not underwrite buyers who can’t afford overpriced homes, or don’t have any money for a down payment, but our government will.  The federal government is not, and was never meant to be, a mortgage loan company.  To make matters worse, as those buyers default, which they are in record numbers, the government just uses the bottomless pockets of the American taxpayer to cover its losses.

This is wrong, wrong, wrong.

So keeping in theme, the lawmakers…err…politicians, in our government have decided to vote on extending and expanding the new home buyer tax credit.  However, because the free market system is such a beautiful thing and it inevitably trumps all efforts at distortion and manipulation; political efforts to suspend the descent in prices have been unsuccessful, so the politicians have decided to double their efforts.  This will ultimately succeed only in delaying the house price correction, not preventing it.

There are several pieces of legislation that include variations of the tax credit idea.  These include an expansion of the credit to include individuals and couples with much higher incomes, a tax credit for people who already own homes and have lived in them for more than five years, a tax credit for people who trade up to larger homes, and of course a tax credit for first time home buyers (which only means they haven’t bought a home in the last 3 years, so that’s like pretty much everyone).

What is the recurring theme in all of these ideas?

To encourage Americans to take on more debt.

This is no different than the Cash-For-Clunkers program I talked about which encouraged Americans to take on debt.  No different than the government forcing interest rates down and keeping them there, which encourages people to spend rather than save.  Nothing the government has done actually encourages Americans to save, which is what we need.  The government wants us to spend to drive the economy and once we spend every penny we have, to take on debt.

The politicians might talk a good game about how we should become savers but while they mesmerize and distract us with one hand, they perform tricks quite the opposite with the other.

The government does not care that home prices will continue to fall and what that will do to everyone who stretches themselves to their financial breaking point to get into a house under their encouragement.  They are only concerned about gimmicky tricks and legislation that slow down the descent in prices so the pain is spread out and shared by as many people as the government can trick into buying  a house.

Who cares about an $8,000 tax credit when the home they buy will drop $8,000 in the first six months they own the property?  The government is hell bent on continuing this economically destructive and counterproductive plan of driving the economy through debt spending, malinvestment and propping up inflated home prices.

The government will not be satisfied until every person is either underwater on their home, crushed by a mortgage they should never have qualified for, or stuck on the sidelines renting while their taxes go up to pay for it all.



Categories: Housing Market

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