|
Tony Rubolotta
House Poor & The Liquidity Crunch
October 2, 2008
A friend called several months ago
to let me know a house was being auctioned in his neighborhood, which is
right next to the apartment I live in now. He went on to say the house
was identical to his and the minimum asking bid was well below market
value. When I asked what it was, he said $430,000. I told him I didn’t
have the 20% down payment for a mortgage. When he said I didn’t need a
down payment, I thanked him for the information and let it drop.
Ten to 15 years ago, my friend’s house would have sold for about
$175,000. Today he says he can get $500,000. I doubt that is the case in
view of recent events, but that kind of appreciation struck me as
"unnatural”. This same friend also claims he has no savings. My friend
and I are in some respects in the same boat, we are both house poor, he
because of his mortgage and me because I’m trying to accumulate the down
payment. My problem is that housing prices were rising faster than I
could save the money.
I’ve been looking to buy a new car for several years in a row now, but
my priority was buying a house. The car would just have to wait.
Actually, a number of other purchases I may have made are being
postponed for the same reason. My wife and I are disciplined spenders
and keep our credit card balances at zero. I would say we live well but
certainly not beyond our means. Because of this, I am going to be
punished by the government and forced to give money to people who showed
no spending discipline. While they were enjoying a home essentially
gifted to them by the government, I did without, by choice because it
was the right thing to do.
The latest scare tactic being thrown out by Democrats and Republicans is
that without the bailout plan, the economy will be ruined by a lack of
"liquidity”. In other words, the credit and cash required to enable
people to spend beyond their means won’t be available. The second
mortgages used to buy autos and pay for college won’t be available
because the artificially pumped up home equity won’t be there. Bankers
and lenders forced to make high-risk loans to unqualified buyers won’t
make loans at all to avoid charges of discrimination and subsequent
prosecution. There is some truth to this, and housing prices falling to
their real market value is going to hurt those who were foolish enough
to believe they could get something for nothing. One way or another, the
spending spree by people that never had the money to spend in the first
place and should never have gotten credit in the second place is going
to end.
Without a bailout plan the economy will adjust and heal itself, perhaps
not fast enough for some people in time for their re-election, but it
will happen. With a bailout plan, the real beneficiaries are the
thieving politicians and their thieving CEO chums, several now sitting
as advisor to Obamessiah. Here is how it works.
The Fannie Mae/Freddie Mac thieves stole millions of dollars and got
away with it thanks to their political connections, like Barney Frank,
Chris Dodd and Obamessiah. Those millions will be used to buy bundled
mortgages at 20 cents on the dollar from bureaucrats appointed by their
political friends and following the rules crafted by other political
appointees. Those bundles will be too large for you or I to afford and
the government will say it has to be done that way to keep
administrative costs down. The profits will be reaped when a new flock
of unqualified high-risk borrowers spend money they can’t pay back to
buy those same mortgages at 60 cents on the dollar. A part of those
profits will get back to the politicians as campaign contributions.
The bailout plan, by
the way, has absolutely no provisions for repeal of the regulations that
have led to this fiasco. The bailout plan is designed to maintain the
illusion that government can rescue a troubled economy. Nothing else
will change and the government mandated practices will still be there.
The economic laws that grind away at this folly will not suspend
themselves based on scare tactics. It’s a vicious cycle that must be
broken. |
