Critical thinking and detailed analyses have never been strong points among most newspapers and network TV news shows. They know that the majority of their readers/viewers want exciting news about celebrities or the latest on some natural disaster. Understanding economic happenings and the consequences of actions by politicians just aren’t that interesting to most folks, so the media ignores them.
That said, I’m still amazed at how poorly most people understand the impact of higher government spending. They are so focused on the short-term for themselves that they ignore the longer term implications for the country and for their children.
Two examples from the past week illustrate this well. One is the effort by the Obama administration to cushion student debt for borrowers by lowering the amount that they have to pay back to 10% of their discretionary income (from 15% previously) and forgiving all student loans after 20 years. This is advertised as carrying no additional cost to taxpayers, which conveniently misses the fact that less revenues will be coming in.
Of larger consequence is the expansion of the Home Affordable Refinance Program (HARP). In what appears to be purely an effort to gather votes for the election next November, the administration is making it easier for many homeowners to refinance. Under this new plan, qualifying owners who owe even more than 125% of their home’s value can refinance to a lower rate without the need for an appraisal or other due diligence. This lame attempt to fix the housing market will, like other government housing programs before it, cost the government needed revenues while having little impact in the real world.
Worse, taxpayers will take the full hit if the payer later defaults. Currently, banks that submitted loans to Fannie or Freddie (mortgage entities that were taken over by the government and have been continually bailed out ever since) without following safe lending criteria end up eating any losses resulting from homeowners defaulting. The new way removes that legal liability for the banks and basically forgives past illegal actions. Many people believe that all of the Obama foreclosure relief programs are just backdoor bailouts for the banks, and this program looks to be more of the same.
In my view, businesses need to take responsibility for their own actions and the government must stop handing them a crutch every time that they stumble. In owner financing, a trust deed is created and held by the property seller. Even if the mortgage note is later sold to a deed of trust buyer, that deed of trust buyer is then responsible for managing the trust deed note, and will not receive any government handouts if things go south. Some banks and credit unions operate in a similar fashion.
The housing market is dying a slow, unnatural death because of government interference. My feeling is that it would be much more effective to accept all of the pain now so that the bottom of the market can be stabilized and a recovery can truly begin. Of course, I’m not a politician, so common sense solutions are clearer for me.