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Subject: Rescue Plan: How We'd Pay for It

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rwsinmissionhills
Posts:311

07/23/2008 8:25 AM	Alert
In today's NYT, the budget office says that if there will be a government bailout, the expense will not be taken care of under pay as you go budget rules. This means there will be no actions to offset the expenses with tax increases or budget cuts. The expense would get added to the national debt. Sound familiar? Charge it to the line-of-credit and worry about it later? I don't know much about the federal budget, but we must be putting an awful lot on the line of credit these days: Katrina, Iraq, bailouts. Has any one seen the timetable of when, if ever, the national debt will be paid off or paid down? How does all that work? This infuriates me. I'll get on the stick today and draft some language for letters people can use to send input to their representatives, including language, if people want to use it, to demand the government attach some conditions to any bail out.

78TTop
Posts:88

07/23/2008 8:46 AM	Alert
http://biz.yahoo.com/ap/080723/congress_housing.html "The plan also creates a new regulator with tighter controls for Fannie Mae and Freddie Mac and modernizes the FHA." Just what we need... more government bureaucracy.

dchestney
Posts:158

07/23/2008 8:47 AM	Alert
As I understand it, the US national debt will never get "paid off," nor should it. When the Clinton administration was running/predicting annual surpluses, there was a "fear" that world credit markets, trade settlements, and flow of capital would be adversely affected if US Treasury debt were not available in the capital markets. At that time, "experts" identified some percentage of US GNP as an appropriate level of debt. We seem to have moved somewhat above that level but perhaps not excessively so. The biggest domestic problem the debt creates is that government borrowing competes with private (i.e., corporate) borrowing for funds, pushing interest costs up for all parties. That is somewhat offset by our huge trade imbalance, which gives foreigners lots of dollars to invest, some of which goes into US government debt--so far. As our interest rates go up (bad for us), investing in our debt gets relatively more attractive (good for us) as long as investors have confidence in the value of the dollar (which had been dropping--bad for us concerning foreign investment, good for exports, but basically selling US assets at sale prices).

rwsinmissionhills
Posts:311

07/23/2008 9:25 AM	Alert
I wonder if there is some kind of formula for optimal debt. There must be. And I wonder what happens when it looks like we are below optimal debt. Is there some kind of wish list out there on things we could spend money on to get the debt up? Unless you correct with imbalance with monetary policy... but how boring. Do we build bridges, universities, parks, give loans to businesses... Seriously, I am not being cheeky. This is kind of an interesting topic!

Brian
Posts:1876

07/23/2008 9:41 AM	Alert
Posted By rwsinmissionhills on 07/23/2008 9:25 AM Do we build bridges, universities, parks, give loans to businesses.. How about loans to students? Or free college education? Those are some good ideas to increase the debt, if we need to. How about foreign aid to Africa?

dchestney
Posts:158

07/23/2008 9:45 AM	Alert
rws--I think your question is on target. Debt used for "investments" that improve productivity (of all sorts, including domestic employment) has a higher help/harm ratio than debt that moreor less disappears from the economy. For example, if "bailout" debt reduces bankruptcies, prevents job losses, increases consumer spending, etc. (all of which eventually increase tax revenues) and even improves investments in communities, it can have a net positive effect. Without being political about it, money sent to oil producing countries (excluding US corporate revenues that result from it) has a less positive effect. "Investing" in keeping people from losing homes (jobs, spending power) is not the worst of reasons to increase the national debt.

Boondoggler
Posts:22

07/23/2008 10:02 AM	Alert
The national debt is $9,523,443,448,812.79 The estimated population of the United States is 304,408,555 so each citizen's share of this debt is $31,285.07. The National Debt has continued to increase an average of $1.73 billion per day since September 28, 2007! How do all you savvy renters feel about adding to your share to bail out the mess?

tpc
Posts:401

07/23/2008 10:38 AM	Alert
As was mentioned elsewhere in this forum, the national debt at the time Reagan took office (1981) was just under $1T. Look it up in yo almanac. The numbers are there. And the $1T paid for the first 200 years of the republic and an whole bunch of wars. And now the after just 27 yrs. of tax cuts focused on the upper end, we are at $9.5T. Gee, maybe we didn't get a tax cut after all, we just put it on the nations credit card. And what happened to the "trickle down effects" of all of these tax cuts. Weren't revenues supposed to expand and the deficit go down?? This is all very, very confusing. It sounds like fleecing time again so "Fleecing the sheep, fleeciing the sheep" lets all sing together," fleecing the sheep". HELLO-HELLO- IS ANYONE THERE????

jakob
Posts:343

07/23/2008 10:41 AM	Alert
We're all knife catchers now.

rkf619
Posts:34

07/24/2008 8:49 AM	Alert
Does anyone know how the bailout might affect high priced markets like California? In particular, assuming you can negotiate your lender(s) into taking a haircut so that they will end up with a government guarantied loan, is there a dollar limit on how much this guarantied loan can be?

rwsinmissionhills
Posts:311

07/24/2008 9:02 AM	Alert
Good question. I think the only responsible answer to this is that it is a complete shot in the dark. I would think someone could do some computer simulations and get some somewhat defensible projections, but I don't think anyone had any time to sit and think and model and measure the potential ramifications. Here is my guess at what will happen and my guess for what the law-makers hope will happen: The slide in values will be somewhat slowed and maybe prevented from going to exaggerated lows. I think the effort is more or less to stem an outright massive panic where you induce more cycles of completely irrational behavior and encourage other types of speculation. Not a bad goal, I guess. One of my favorite rules of human behavior and policy: Beware the unintended consequence.

rkf619
Posts:34

07/25/2008 10:58 AM	Alert
According to today's NY Times there are some interesting details about the housing bailout bill: 1) Eligibility for home owners: a) Only mortgages issued after 1/1/08 b) Must be primary residence c) Income verification required d) As of 3/1/08 your monthly housing payment (principal, interest, taxes and insurance) must be 31% or more of your monthly household income e) Restructured terms negotiated with banks, are voluntary by banks and do not have to be better terms than old loan f) No home equity loan(s) allowed for following five years g) Homeowner must pay annual fee of 1.5% of remaining mortgage balance h) Homeowner must remit at least 50% of any gain on sale of house to the government and as much at 100% of gain if sold within five years i) Loan amount limited to 90% or less of appraised value 2) New Home Buyer tax credit a) If primary residence, new homebuyer eligible for $7,500 tax credit or 10% of purchase price whichever is lower b) Tax credit amount phased out for incomes over $75 K for singles and $150 K for couples filing jointly; $0 tax credit for incomes over $90 K and $170K respectively c) Tax credit must be repaid to government over 15 years (So this credit is really an interest free loan) d) Credit is retroactive to homes purchased after 4/9/08 Huge questions remain-- 1) Is the new government guarantied loan limited to a certain dollar amount? 2) Is there an income limit to qualify for loans or could someone making $500,000 a year be eligible? 3) How do we know that 90% of the appraised value doesn't end up to be 120% of the reappraised in two years if the market continues to sink? Would you be eligible to restructure all over again? As far as I am concerned, the whole concept of the bill stinks! Furthermore, the fine print insures that only the most desperate lenders and owners will participate - ie the worst of worst loans for taxpayers to guaranty.

tpc
Posts:401

07/25/2008 11:55 AM	Alert
rkf-thanks for taking the time. As for your conclusions, the underwriting standard look pretty sound to me considering the complexity of the mess we got ourselves into. I think they are trying their best. They are nibbling at a big, big problem and are trying desperately to keep the whole ship from sinking. I think they should keep on nilbbling.

Hegemon
Posts:27

07/25/2008 12:04 PM	Alert
Why not just send everyone making under 75K a check for $7500? What did everyone just learn from this debacle? Next time you get the chance, take out as much equity as you can and spend it. Then whine about how you got duped and need a handout. Make sure you drop your income below 75K though and claim you're too stupid to understand basic economics. The government is now spending our taxpayer money without even a pretense of accountability. Wait until Barak gets in there and the income distribution really takes off. As for me - I am investing as much as I can in tax shelters. By the time I retire, I need to make sure my "official" income is really low so I can actually collect Social Security and whatever benefits they come up with. Grrr...

UnsureBuyer
Posts:195

07/25/2008 1:14 PM	Alert
I'm kind of surprised that there isn't a middle class rebellion/revolution going on after what the government has done to them. Banks colluded with politicians to create a massive bill to bail out financial institutions. Under the guise of helping distressed homeowners, these financial institutions have figured out a way to offload bad credit onto the American taxpayer (in the form of FHA loans). Washington Post Story "Credit Suisse, a large investment bank heavily invested in mortgage-backed securities, proposed allowing hundreds of thousands of homeowners to refinance their mortgages with lower-cost government-insured loans, relieving financial institutions of the troubled debt. After the bank proposed this to Congress in January, it became known as the "Credit Suisse plan" among congressional staffers and lobbyists. It later formed the basis of housing provisions in both the House and Senate. Bank of America, which is acquiring Countrywide Financial, the country's largest mortgage lender, followed with a similar and more detailed proposal, principal negotiators on the legislation said. In approaching congressional aides, the lobbyists suggested that banks take less than full payment for the distressed loans on their books. But the measures would allow financial institutions to get cash out of foreclosed properties that would otherwise sit on their books as dead weight."

alexberg
Posts:5

07/25/2008 1:43 PM	Alert
The only group to feel the short term pain from all this are fence-sitters, waiting for the prices to come down. If you already own a house any measure that prevents/stops/slows devaluation of your property is a welcome one. And even if you are a fence-sitter, what is your loss? You will have to rent a year longer? An average person will not rebel over some anticipated long-term loss. Besides, who would lead the movement? Brian?

Brian
Posts:1876

07/25/2008 1:55 PM	Alert
Posted By rkf619 on 07/25/2008 10:58 AM h) Homeowner must remit at least 50% of any gain on sale of house to the government and as much at 100% of gain if sold within five years As far as I am concerned, the whole concept of the bill stinks! Furthermore, the fine print insures that only the most desperate lenders and owners will participate - ie the worst of worst loans for taxpayers to guaranty. rfk619 thanks for the summary. It's very useful. I totally agree with you. Even if a homeowner is upside down and facing foreclosure, he would have to be an idiot to sign-on to such a plan. Fool me once, shame on you. Fool me twice, shame on me! Better to walk and buy later. This bail-out plan is a suckers' play -- except for the lenders.

tpc
Posts:401

07/25/2008 2:14 PM	Alert
I don't get it. The Republicans want deregualtion because we need to get that damn meddling gov't off our backs. Wall street says "Trust Us". Rush Limbo says "this will be good for every single American. The republicans were in power so deregualtion it is. The "Trust Us" folks deliver on their promise by delivering a $1T toxic waste dump. The estates in the hamptons go from being $2m mansions to $40m mansions. The financial system is put in jeopardy. Then everyone dumps on the gov't as if they were the bad guy and the Wall steet guys, who used the financial institutions as their personal ATM machines, barely get a rebuke. Seems to me, the gov't would have been part of the solution if the deregulation didn't go thru and provided the regulating agencies were properly funded. Live by derugulation-die by deregulation.

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