The Stimulus Package Unleashed

[guido911]

Support for the current stimulus package at 37%:

http://www.rasmussenreports.com/public_content/business/economic_stimulus_package/support_for_stimulus_package_falls_to_37

[sgrizzle]

quote:Originally posted by Red Arrow

quote:Originally posted by guido911

Folks, it's worse than we thought. According to Pelosi we are losing 500 MILLION jobs a month:

She must be including illegal immigrants,  Mexico, Canada, Europe....

I thought the population of the USA was about 300 Million.

Yeah, every working age adult loses their job 4 times a month.

[Cats Cats Cats]

Right now the max jobs I can lose is technically 2 this month.  That would leave me empty for next month though.  Unless of course Cat Feeder and Dog Feeder count as jobs, though I am not paid in monetary compensation.  Only dead Raccoons and Possums and hairballs from the cat.

[Gaspar]

quote:Originally posted by cmatt1

Right now the max jobs I can lose is technically 2 this month.  That would leave me empty for next month though.  Unless of course Cat Feeder and Dog Feeder count as jobs, though I am not paid in monetary compensation.  Only dead Raccoons and Possums and hairballs from the cat.

". . .but when you die, on your deathbed, you will receive total consciousness." So you got that goin for ya.

[cannon_fodder]

Something new:

The underlying cause for the economic crisis is the availability of cheap capital coupled with governmental encouragement to buy larger houses.  Tax incentives encourage rich people are supposed to buy the largest house they can afford and/or build a new customer house.  Special programs help poor people leverage loans for houses.  All mortgages are given special treatment as securities in tax law as well as priority in bankruptcy - encouraging people to lend.  Some regulations even REQUIRE banks to make certain percentages of loans.  Even more backs lenders with the power of the Federal Government on such loans.

These problems were exacerbated by poor debt rating of securitized mortgages assets.  Which played  major roll, but I would surmise that the above is the UNDERLYING cause.  Without the underlying causes the securities would not have been an issue.

It led to over spending by consumers, over building by developers, and over lending to under qualified borrowers by banks. A self feeding loop that acted like a pump to blow the bubble up.  When the cycle stopped, the pump was turned off and the bubble deflated and the circle goes the other way.  Lenders don't want to loan, a glut of housing means it is less profitable to build, and people are stuck in houses they can't sell so no one wants to buy/no need to borrow (if they could).

The solution in the economic stimulus package?

4% governmental mortgages.  

The new mortgages will allow people to get larger loans and buy new homes.  In such a way they can sell their current houses and build larger homes.  Poor people will be able to afford mortgages.  Builders get back to work, financing companies start turning again... and we hope the bubble starts building (or we are encouraging people to buy property that will further decline in value).


The solution to a burst bubble?  Pump it back up.

Does anyone else see a fatal flaw with this?

[Conan71]

If they keep the cap and terms on the tax credit for purchasing a home as passed yesterday in the Senate at $15K, that would be a real good incentive to purchase a home right now.  My understanding is, they were dropping the first time buyer requirement.

The $7500 and not owning a home in the last three years was good, but the GOP plan should get the housing market going again.

[Gaspar]

quote:Originally posted by cannon_fodder

Something new:

The underlying cause for the economic crisis is the availability of cheap capital coupled with governmental encouragement to buy larger houses.  Tax incentives encourage rich people are supposed to buy the largest house they can afford and/or build a new customer house.  Special programs help poor people leverage loans for houses.  All mortgages are given special treatment as securities in tax law as well as priority in bankruptcy - encouraging people to lend.  Some regulations even REQUIRE banks to make certain percentages of loans.  Even more backs lenders with the power of the Federal Government on such loans.

These problems were exacerbated by poor debt rating of securitized mortgages assets.  Which played  major roll, but I would surmise that the above is the UNDERLYING cause.  Without the underlying causes the securities would not have been an issue.

It led to over spending by consumers, over building by developers, and over lending to under qualified borrowers by banks. A self feeding loop that acted like a pump to blow the bubble up.  When the cycle stopped, the pump was turned off and the bubble deflated and the circle goes the other way.  Lenders don't want to loan, a glut of housing means it is less profitable to build, and people are stuck in houses they can't sell so no one wants to buy/no need to borrow (if they could).

The solution in the economic stimulus package?

4% governmental mortgages.  

The new mortgages will allow people to get larger loans and buy new homes.  In such a way they can sell their current houses and build larger homes.  Poor people will be able to afford mortgages.  Builders get back to work, financing companies start turning again... and we hope the bubble starts building (or we are encouraging people to buy property that will further decline in value).


The solution to a burst bubble?  Pump it back up.

Does anyone else see a fatal flaw with this?

I know.  I listened to that yesterday and couldn't believe my ears.  I guess we're going to try to put this depression off for another generation.

[we vs us]

quote:Originally posted by cannon_fodder

Something new:

The underlying cause for the economic crisis is the availability of cheap capital coupled with governmental encouragement to buy larger houses.  Tax incentives encourage rich people are supposed to buy the largest house they can afford and/or build a new customer house.  Special programs help poor people leverage loans for houses.  All mortgages are given special treatment as securities in tax law as well as priority in bankruptcy - encouraging people to lend.  Some regulations even REQUIRE banks to make certain percentages of loans.  Even more backs lenders with the power of the Federal Government on such loans.

These problems were exacerbated by poor debt rating of securitized mortgages assets.  Which played  major roll, but I would surmise that the above is the UNDERLYING cause.  Without the underlying causes the securities would not have been an issue.

It led to over spending by consumers, over building by developers, and over lending to under qualified borrowers by banks. A self feeding loop that acted like a pump to blow the bubble up.  When the cycle stopped, the pump was turned off and the bubble deflated and the circle goes the other way.  Lenders don't want to loan, a glut of housing means it is less profitable to build, and people are stuck in houses they can't sell so no one wants to buy/no need to borrow (if they could).

The solution in the economic stimulus package?

4% governmental mortgages.  

That Mitch McConnell is a real piece of work.

quote: "You ought to go right at housing first," Sen. Mitch McConnell, the Republican minority leader, told reporters on Monday. "We have already indicated that we think this 4 percent mortgage proposal... is something that can work and make a difference."

I'll give him +1 for trying to target the average homeowner and the skyrocketing foreclosure rate, but I give him -20 for wanting to 1) reinflate the bubble, and 2) essentially reinstate the consumer consumption-based model of the last ten years.  

Also, I'm starting to understand how nationalizing the banks would be socialism, but nationalizing the housing industry would be excellent public policy.  

Actually, I still don't understand that.

[TeeDub]

Why does the gov't keep wanting to reward taxpayers for taking on debt?

Rewards for mortgage interest.   Now they talk about rewards for car interest.

[nathanm]

quote:Originally posted by TeeDub


Why does the gov't keep wanting to reward taxpayers for taking on debt?

Rewards for mortgage interest.   Now they talk about rewards for car interest.

Because sadly, debt is what makes the world go round these days. If you pay cash, you're a deadbeat, since you're not giving any bank a slice of the pie.

Regarding 4% mortgages, I think it ought to be limited to refis, so as to help the people who might otherwise find themselves in foreclosure, thus driving the market down even further, yet preventing wholesale bubble-making.

I'm still pretty gobsmacked that the line that it's the lending to the poor folks that got us into this mess. More like overextended middle class folks and wealthy builders who were trying to cash in by building more and more houses. Additionally, the banks were largely responsible for making the choice to shift to having essentially no underwriting standards. No federal law requires that. The law was on the books for many years and banks were in fine compliance when they chose to loan to people with little funds but good payment history.

But when you run out of middle class and wealthy folks to loan to, why let the gravy train stop? Keep loaning to people with more and more debt and keep securitizing those loans and making a fortune.

There aren't that many poor folks who choose to own, even if the banks would be willing to throw the money at them.

[rwarn17588]

quote:Originally posted by nathanm

quote:Originally posted by TeeDub


Why does the gov't keep wanting to reward taxpayers for taking on debt?

Rewards for mortgage interest.   Now they talk about rewards for car interest.

Because sadly, debt is what makes the world go round these days. If you pay cash, you're a deadbeat, since you're not giving any bank a slice of the pie.

Regarding 4% mortgages, I think it ought to be limited to refis, so as to help the people who might otherwise find themselves in foreclosure, thus driving the market down even further, yet preventing wholesale bubble-making.

I'm still pretty gobsmacked that the line that it's the lending to the poor folks that got us into this mess. More like overextended middle class folks and wealthy builders who were trying to cash in by building more and more houses. Additionally, the banks were largely responsible for making the choice to shift to having essentially no underwriting standards. No federal law requires that. The law was on the books for many years and banks were in fine compliance when they chose to loan to people with little funds but good payment history.

But when you run out of middle class and wealthy folks to loan to, why let the gravy train stop? Keep loaning to people with more and more debt and keep securitizing those loans and making a fortune.

There aren't that many poor folks who choose to own, even if the banks would be willing to throw the money at them.

Plus the fact you had the banks selling mortgage debt in derivatives, under the pretext that somehow the value of real estate "never" goes down.

Until now, of course.

That's the big factor that's causing banks to tighten credit -- their investments suddenly went to crap.

[cannon_fodder]

Tim:

4% mortgages will encourage more people to borrow.  Over borrowing led to over purchasing which enabled real estate to bubble.  The entire intent is to facilitate more purchasing in the housing market (don't forget new tax cuts are in there also).  Certainly that will reinflate the market at least to a minimal extent.  

And per artificial wage floors.  Of course it creates inflation.  Wealth is on a comparative basis.  If you artificially raise the floor everyone else is less wealthy, thus requiring more money to maintain their comparative status.  In addition, by artificially increasing the cost of doing business the price to consumers is increased by a corresponding degree.  Thus, our wealth is further reduced by the extra expenditures we will be charged to offset the wage increase.  So non-minimum wage jobs then need to get a raise in order to have the same purchasing power - which raises the cost of whatever task they are performing, which precipitates higher charges for that service or product.

Artificially raising the minimum wage does not create more wealth.  It's as simple as that.  Now, I'm not arguing against a minimum wage in totality - I'm just pointing out that the effects are without much merit.

[jne]

quote:Originally posted by Conan71

If they keep the cap and terms on the tax credit for purchasing a home as passed yesterday in the Senate at $15K, that would be a real good incentive to purchase a home right now.  My understanding is, they were dropping the first time buyer requirement.

The $7500 and not owning a home in the last three years was good, but the GOP plan should get the housing market going again.

The 7,500 wasn't really a 'credit', it was to be payed back over 15 years (interest free).  While I would be glad to take advantage, the new 15 grand cap for a true credit (10% of purchase) is huge. There is a 5% down payment requirement BTW. Since I have been casually considering buying a house and committing myself to Tulsa, this and the 4% mortgage option has got my attention.  Now its gonna have to happen - I have run out of excuses to put off the commitment (incidentally, this is how I got married - minus any cash incentives). While the 4% may have the effect of getting me into a little more house for my monthly payment, the credit is going to replenish my savings that are dumped on the down payment.  This is definitely going to shore up my personal spending confidence.


The main problem I see with the 4% is who isn't going to refinance?  How can the lending industry even handle the paperwork?

[we vs us]

$780 billion compromise reached.

[nathanm]

quote:Originally posted by jne

Originally posted by Conan71

If they keep the cap and terms on the tax credit for purchasing a home as passed yesterday in the Senate at $15K,

Of course, the $15k isn't really $15k if you pay less than $7500 a year in income tax, so for a significant portion of home buyers, it's not as good as a $7500 0% loan.