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Obama; If This Is True, then Shame on You
I can’t believe what I just read in the Washington Post.
Apparently,
The Obama administration plans to overhaul how it is tackling the foreclosure crisis.
And…
The first key element is that the government will provide financial incentives to lenders that cut the balance of a borrower’s mortgage. Banks and other lenders will be asked to reduce the principal owed on a loan if the amount is 15 percent more than their home is worth. The reduced amount would be set aside and forgiven by the lender over three years, as long as the homeowner remained current on the loan.
I own a little house in the ‘burbs of Phoenix, which I bought with a variable-rate mortgage at the end of 2004. It is now worth about half of what I paid for it.
A few months ago, the principal on my mortgage was comfortably more than the place was worth, and my low income was in decline. So I did the responsible thing, cut my expenses back to the bone, and raised and moved whatever money I could to cover it, and to try to pay it down. I wanted to deal with the fact that I was upside down on the mortgage and dangerously exposed to future rate increases; most of all, I wanted simply to reduce my monthly payments.
Why did I bother?
If I had not been so responsible, Obama’s plan (I still cannot quite believe it) would have given me (via my bank) YOUR money, humble tax-payer, as a gift to reduce my mortgage, and I would have gained to the tune of many thousands of dollars.
However, because I did the responsible thing, MY tax money will be going to help those who were in exactly the same situation as I, but weren’t responsible enough to live within their means and meet their obligations, perhaps because they bought a bigger car than they needed, were paying interest on credit cards they shouldn’t have been using, or whatever…
How dare the government do this? How dare they? This isn’t capitalism. It isn’t even communism. It is some upside down, messed-up mediocracy.
And it’s worth asking why I, with my low income, pay any taxes at all to reward the misfortune (at best) or irresponsibility (at worst) of others? 53% (last time I checked) of adult Americans pay no income tax. The overwhelming majority of them pay no tax because they have deductions for children. I am not one of them because I have no children. And I have no children because I cannot afford children. That too, I believe, is a responsible decision.
So now, not only will I be subsidizing the procreative choices of others that I, out of my own sense of basic responsibility (Thanks Mom) will not make, but also, my wealth will be transferred directly to a subset of them for the particular purpose of bailing them out of exactly the same situation that I had to bail myself out of – and was only able to do so precisely because I have been so careful to live within my means and save what I could for an emergency.
Libertarians like to say that “taxation is theft”. There are many good theoretical arguments for that, but somehow it just “feels” not quite right in practice. That word “theft” just feels too dramatic… and there is the (admittedly weak) argument that the theft is not quite theft because it is at least indirectly sanctioned by the majority (in theory).
But THIS does feel like theft. It feels personal. It feels like a violation. It feels like an element of society wants to exploit my carefulness and sense of responsibility to serve those who don’t live their life like me. I don’t feel like part of the investment class, barely even the middle class, but this feels like, if not a class battle, then at least a values battle – and one that I did not ask for. Are the new classes the responsible class and the irresponsible class? God knows.
For years, I have voluntarily sponsored children in the third world. I am happy to help those who are in greater difficulty than I, and I appreciate that many of them are victims of an economic system into which they are born and which is far from perfect. My neighbors in my Phoenix suburb are not those people. And even if they were, how dare you bring the force of law against me in this way when the only difference between me and those who will benefit from my money is my prudence?
When it comes to those who live in the richest country in the world, let us make our mistakes, and learn, and do better next time. Losing a house is horrible, but not the worst thing that can happen to a person. Denying the basic human right to learn from failure – think about it; it is a corollary of the right to the pursuit of happiness – and taking from those who try keep their failures from hurting others will be the death of us.
115 Responses to “Obama; If This Is True, then Shame on You”
Seriously?
From the 3rd McCain-Obama debate:
“what I've done throughout this campaign is to propose a net spending cut…. What I want to emphasize … is that I have been a strong proponent of pay-as-you-go. Every dollar that I've proposed, I've proposed an additional cut so that it matches.”
To argue that the citizens of the 50 states should pay to artificially raise the value of houses in Phoenix for a period of time doesn't make much sense to me unless you believe that the value of those houses today is artificially low.
I'd agree with you if there was some special policy to simply raise Phoenix's housing values 'artificially'. There isn't. The policy described above sounds like it is tailored for the person who is on the edge. They want to make payments, are willing to make payments, but the banks are refusing to work with them for much the same reasons the banks made thousands of horrible loans to begin with. On the other hand the 'heroic effort' to be 'responsible' is sounding more and more like a fool's effort when it is being meet by banks who yank the foreclosure lever without even trying some modest adjustments that would improve the whole market. If there's a fire in a theater, running to the exit is a good choice for the individual but if every individual does it most will die whereas walking orderly will save many more lives. That's not 'artificial'. When one bank hits the foreclosure button, they may get back a good portion of their money. When every bank does it they probably won't.
Now as for personal responsibility, I think my earlier post addressed that very well. If the author's story is true (and I'm starting to think it is 'embellished'), it is almost certain nearly all of his 'victory' is due to the massive drop in interest rates and not his noble 'paydown' effort he made over a 'few months'. Where did that massive reduction in rates come from? Not because his paydown efforts created such a sense of calm in the credit markets that interest rates fell!
I wasn't going to comment on the comments.. but since you've asked a fair question and integrity is important…
I was able to pay down a chunk of my mortgage with the cushion I had built up over a long time by being careful with my $$$. I moved that money from savings to mortgage principal. It was getting effectively 0$ saving (Thanks Bernanke) but my mortgage rate is obviously much higher than that.
This was part of a more general push to reduce my outgoings, which involved more than just paying down my mortgage (obviously).
Those numbers mean nothing without looking at the corresponding shift in income inequality over the same period of time. The reason the top 1% are paying more of the total share of taxes than they were before is because they are making more of the total share of income. According to the data underlying the tax foundation article, the average tax rate for the top 1% was 27.5% in 2001 and fell to 22.45% in 2007 (http://www.taxfoundation.org/publications/show/…).
My position is that our tax/entitlement system is too progressive on the lower end of the income scale (effective marginal tax rates can exceed 100% at some points), and not progressive enough on the higher end.
I don't think that's right. If you look at the data from the CBO that I posted upthread, it shows that the tax rates fell the most (as a percentage of the initial rate) for the lowest income earners from 2000 to 2006. I don't know why the Tax Foundation has different data than the CBO but that's a different discussion.
So technically your pay didn't happen because you rolled up your sleeves and decided to live light for a few months and bank the savings in extra mortgage payments. Instead you had a nest egg already. This is somewhat unusual since most people end up putting down a large down payment on a home and have little left over in their savings (aside from maybe 401K's).
I'll grant that I'm sure you are living light and have cut back due to your lower income but its not quite the story you initially depicted. Nonetheless, I suspect your situation is still better off than anyone aided by this program. To even qualify you have to be on unemployment which means basically someone who had income, was probably making payments (otherwise they would have lost the house by now) and now can't due more to the economy than themselves. The fact is you're better off seeing such neighbors keep their house with modified mortgages (which still hurts their credit and 'locks' them into their homes) rather than letting the banks snatch them all now and they rot as they lay empty for months to years.
steveinch,
You're right. I'm also not sure why the numbers are different. But in any case, of the various sets of data to look at, the most deceptive of all is the “total share of taxes” numbers, which is what the tax foundation article used to try to show that tax policy has become significantly more progressive. That was the main thing I objected to. You get a much more accurate picture by looking at the effective tax rate (not share of all taxes) by income percentile. However, even that doesn't isolate the variable completely because it doesn't fully account for the change in the distribution of wealth. If the top 1% make a higher percentage of the total income than before (and they do, according to the CBO numbers: http://www.cbo.gov/publications/collections/tax…), then they would pay a higher effective tax rate even if tax policy doesn't change.
What we really need to answer is this: how much does someone making $X (inflation-adjusted) pay in year 1 and year 2, varying X to reflect typical examples of poor, middle class, rich, and super-rich? I don't have numbers for that. But, in any respect, again my main objection was to the use of “total share of taxes” numbers.
Fair point although imo, you'd actually need to look longitudinally by HH rather than by cohort since people move in and out of cohorts.
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It's a documented fact that the government forced banks to make up to 10% of their mortgage loans to “sub-prime” borrowers. If the banks had to make the loans, they may as well have repackaged them and tried to make something out of the pile of crap they'd been fed.
No, he didn't just roll up his sleeves. He already HAD been rolling up his sleeves and living w/in his means. THAT'S why he had a nest egg.
That's not what he said. He said he discovered himself with a house worth less than he paid for it, a mortgage more than the value of the house and as a result he 'rolled up his sleeves' and paid down the mortgage in a few months. Now he said his income was decreasing so scoring a big raise or nice new job doesn't fly. He also said he had a variable rate mortgage, which means he should have seen lower payments just due to the collapse in interest rates.
Now I called him out on the fact that for most people even devoting 100% of their paycheck to their mortgage 'for a few months' will not make only a tiny dent in a mortgage balance (let alone an upside down one….). Now the story is he had previously saved up a lot of money, brought a house leaving this fortune in the bank rather than using it as a down payment. Now because 'the gov't' is giving him no interest he opt to lower his monthly bills by paying down the mortgage.
Now unless he got a mortgage with an exceptionally low rate, it's very hard to make this a plausible story. I can understand keeping some cash aside but it strikes me as very strange to have a large portion of the purchase price of a house sitting in a savings account but opting to take out a huge mortgage….unless you got a 'funny mortgage' with say 'interest only' or something like that because you were trying to flip the house and got caught when the market crashed.
More likely IMO is that he did cut back, made some extra payments and maybe tapped some of the old savings account but most of his savings is coming from lower rates. Complain all you want about low interest yielding savers very little, fact is its highly unlikely he was in a situation where he was making more interest on his savings account than paying on his mortgage.
It's a documented fact that the government forced banks to make up to 10% of their mortgage loans to “sub-prime” borrowers.
No its not.
. If the banks had to make the loans, they may as well have repackaged them and tried to make something out of the pile of crap they'd been fed.
So why would a 'pile of crap' command top dollar in the market?
As I said in my original article,
“So I did the responsible thing, cut my expenses back to the bone, and raised and moved whatever money I could to cover it,”
You will see that I “raised and moved” whatever money I could to cover it. The moving money was exactly that. Because I have never paid a cent in credit card interest, never bought a car for more than $1500, don't have a plasma TV, don't eat out except very rarely, don't have children, and buy fresh food rather than the more expensive processed stuff etc., I had built that little bit of savings over the period I've had the mortgage. I then used it as part of my attempt to pay down the mortgage. It was not anything like enough to actually pay the mortgage OFF. I still have the mortgage, but it is now smaller than it was, and the impact on my monthly payments is significant – not least because it represents a large fraction of my outgoings, which I keep low.
I certainly did not seek to give the impression that I had in fact paid down all my mortgage in a few months (although given the fact that I had any savings at all because of the decisions I made, it would note have altered the point of my article if I had). Anyway, apologies for lack of clarity.
The lowering of my monthly payment due only to applying the money I have saved and am saving by living below my means (and I keep an eye on that on a monthly basis) was much greater than any lowering due to a drop in rates. In fact, my drop in rates is minimal, as my mortgage is on a rather slow-moving index, the COSI (not a LIBOR or suchlike), and is still around 6%.
My point is that some people have bought themselves wiggle room – and therefore the ability to meet our financial obligations – by being prudent. Others cannot do so now because of, sometimes in large part, decisions they have made.
Hope that clarifies.
Then you won't mind showing me the documented fact… And Hot Air, Redstate and company don't qualify as documented fact.
[...] is the link to the original article from The Washington Post and this is the link to the thread on The Moderate Voice The article is about Obama’s plan to bailout homeowners and the fairness of this bailout to [...]