Hey, it may be overused, but I like it.
Continuing on the theme of the financial bailout, I had a request for information on the mortgage market. Figures are courtesy of the US Census Bureau and the Federal Reserve.
As of 2007 the total value of mortgages held was: $14,557,000,000,000
Of this figure 11.136 trillion was for home mortgages (defined as 1-4 family dwellings).
831 billion was for multi-family residences (which I am assuming is any apartment larger than a fourplex).
2.5 trillion was held on commercial properties and 117 billion on farms (I wonder if agri-business is considered commercial, or farm).
1 trillion is a little less than 10% of the current mortgages outstanding, but estimates on the future cost of the bailout have reached as high as 8 trillion in some quarters. One is left wondering how efficient this whole process is going to be. Theoretically, we could, for 5.5 trillion dollars, reduce mortgage payments roughly in half (by eliminating half the principal and refinancing under the loans current terms), probably less if we only apply this to single-family home mortgages. This would in effect create an increase in spendable income that would be sure to stimulate the economy to a far greater effect than any other program thus far.
The median household income in the United States in 2007 was $50,233. Given that the rough rule of thumb is that mortgages are not to exceed 28% of income, (and yes I know, I am being overly simplistic), this should generate and additional $586 dollars per household per month in spendable income. For 7 trillion this could be extended to renters as well, by offsetting mortgages on multi-family dwellings on the condition that the landlords reduce the rent tenants pay by 40% (the landlords get to keep 10% of the mortgage savings per unit for themselves, and of course the program would be voluntary, but market competition should promote it).
So, 7 trillion dollars for a significant increase in relative income in all houses in the US, add a trillion in overhead and we are at the 8 trillion dollar figure being espoused by some as the cost of fixing this mess.
What would a 586 dollar increase in spendable income per household do for the economy?
Even spending half that would be the equivalent of a economic stimulus check every four months.
But back to that 1 trillion dollar figure, apply that and you have roughly a 10% reduction in mortgage payments generating and additional $100 in spendable income per household.
Currently, the mortgage bailout plan is in essence a relief act for those who made poor financial choices. We are providing relief to those who gambled on the market (adjustable rate mortgages), who leveraged themselves beyond their means (on more house than they could afford), and who have been unable to keep up with their payments. The bubble burst and now everyone pays the price, not only in the foreseeable increase in taxes to pay for all this, but in lost equity in homes and investments. Those of us who purchased homes within their means, securing fixed rate mortgages, and taking responsibility for ourselves now and in the future (retirement funds) get screwed coming and going.
I would venture to guess that those defaulting on their ARMs have greater financial problems than just their mortgages. Presuming that most people actually try to pay their mortgages, one can assume that they are also burdened with high credit card debt in which they are also in default. Providing mortgage relief (as has been done thus far) is not in my opinion going to induce any great stimulus into the economy. One need look no further than GM and Chrysler to see the impact of a restricted credit market, and if companies start failing it is just going to spiral downhill from there.
12 trillion pays off every home mortgage in the country.
I am not advocating nationalizing the mortgage industry, even partially, my point is simple... watch the money! The government can only throw money at problems for so long... the Fed can only lower interest rates so far, and we are rapidly approaching the end of the rope. We can not afford to devalue our currency, and what happens when the Fed can't lower interest rates any further and the market is still in the hole? How many trillions should we spend? Certainly no more than 12. Keep in mind we could probably pay off all delinquent and in foreclosure mortgages for 1 trillion. Watch the money and make sure we get what we pay for... and in the meantime?
What can we do? Party like it's 1929!
~Finntann~
3 comments:
wow, i feel so rosy cheery happy now!
It's sad, Silverfiddle, but there are a lot of 'progressives' who would give their first born children for such a plan (or knowing the tendencies of Socialists, they would give away your first born children for such a plan).
I've been a little more than amazed to find out just how far down that road leftists will go before they'll say, "You know Communism would great fun if it weren't for all of the poverty and dead people."
Baron de Montesquieu anticipated this problem. That's why he came up with separation of powers. He wanted to put roadblocks in the way of those who would give into the quite predictable tempation to infringe on liberty when it suited their notions of the world.
For all of our huff and puff about enough power to solve all of our problems, it's the genuinely liberal commitments of folks like Montesquieu, Adam Smith, John Stuart Mill, Milton Friedman and such who ground us and keep us on track even when we have plainly lost our minds, as we have this political period.
For all of my disgust with the illiberal impulses of supposedly liberal peoples, this period, there is some silver lining in the fact that proposals like this bailout violate our basic values: they appear to be serving as a wake-up call that maybe our illiberal direction is not quite the land of milk and honey we thought we'd ordered.
This last 10 years, as far as I'm concerned, have been one long orgy of illiberal impulses against our more decent liberal and conservative values. Now it's Democrats' turn.
But the one saving grace when the world gets more hostile to our basic values is that it is our values and not our policies or our power that has final say. Always. No matter how much those who covet power bullshit us and themselves.
Socialist propaganda to the contrary.
Yo Ben. I agree completely. Finntan wrote this one, by the way.
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