Mortgage Bailout or Voter Buyoff?

President Obama unveiled his latest bailout plan today. It is a $75 billion plan to give irresponsible homeowners a partial free ride on a home they could not afford.  This is done by burdening all responsible homeowners with ever increasing federal debt AND even worse, preventing the market from clearing the home inventory overhang. In fact, the aura of housing market price manipulation is perhaps the least appreciated flaw in this bailout scheme.

By and large we aren’t talking about homeowners who were laid off or who have suffered medical setbacks. They certainly exist and may, emphasize may, be deserving of some assistance. No this bailout is aimed directly at the reckless and the stupid who bought homes they could not afford with money they did not have.

The pro-bailout argument, heard repeatedly on CNBC and elsewhere is that if “we” don’t bail “them” out then homes in “our” neighborhood will be foreclosed and “we” will suffer a price decrease. It is hard to believe that people with a triple digit IQ making, well, lots of money can make that argument with a straight face. By that logic if my neighbor loses money in a mutual fund I need to bail him out in order to preserve the value of my mutual fund. If my neighbor is at risk of having his car repossessed I need to bail him out or my car will lose value. Apparrently no one anywhere should take any kind of loss ever for any reason whatsoever because it will lower the value of everything everywhere. Where does it end?

Asked another way, what reasonable person will now trust the manipulated “market value” of a home? The claim that a foreclosed home in my neighborhood will diminish my market value may or may not be true. If it was the buyer who bought what they could not afford and a new set of responsbile home buyers appears then I suffer little or no drop in value. If the home was overpriced as well then I deserve to lose some value since my home too is likely overvalued. Too bad for me.

But if homes that should have been foreclosed upon are left in the hands of reckless buyers in order to prevent a drop in value then the market value of all homes are being manipulated by the government. Why would a responsible person trust such a manipulated market value. Who will buy a home whose value is manipulated? What would be a fair price? How would anyone know? What will now happen to home prices? And if I want to sell will the government let me price my home lower than my neighbors? Won’t that also lower their value? Will we end up with a socialized housing market?

Frankly, I believe that all the bailout schemes are directed not at economic salvation but the salvation of the Democrat voter/donor base. Now to be honest I believe the Bush bank bailout was aimed at friends of Ben, principally the Goldman Sachs crowd that has run the treasury for multiple administrations. If you look closely at the Obama bank bailout it isn’t quite as friendly on the surface but underneath the noise the banks continue to get what they want. The car company bailout and the mortgage bailout, every bailout actually is aimed at protecting, preserving and rewarding the Democrat voter/donor base.

For me this Machiavellian outlook explains a great deal about the  design of the bailouts since Economics 101 is clearly not at work. If a bailout is not expressly aimed at the voter base, as in the UAW in the case of the car companies then step back and ask where’s the money? Goldman Sachs, all the former investment banks as well as most corporate executives are big time donors to the Democrats. Got to protect that voter/donor base. So, let’s buy their financial support and votes with taxpayer money and we’ll call it a bailout to protect the little guy. Nice.

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One Response to “Mortgage Bailout or Voter Buyoff?”

  1. Robert K Minniti, CPA, CFE, Cr.FA, CFF, MBA Says:

    Here is a link to a commentary on the government’s proposed mortgage bailout program that you might find interesting 

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