Most newspapers and TV news channels have never had a strong reputation for critical thinking and detailed analysis. They are aware that most of their viewers/readers want the latest news on celebrities and natural disasters. The media doesn’t pay attention to the economic consequences and political actions of politicians because they aren’t interesting enough.
Despite this, I am still shocked at how little people know about the effects of increased government spending. They focus so much on their immediate needs that they forget the long-term implications for the country as well as for their children.
This is illustrated by two examples taken in the last week. The Obama administration attempted to ease student debt by lowering the amount they must repay to 10% of discretionary income (from 15% earlier) and allowing borrowers to forgive all their student loans after 20 year. The government claims that this will not increase taxes, but it conveniently overlooks the fact that less revenue will be coming in.
A larger consequence is the expansion and maintenance of the Home Affordable Refinance Program. (HARP). The administration appears to be trying to get votes next November. They are making it easier for homeowners to refinance. The new plan allows homeowners who owe more than 125% of the home’s value to refinance at a lower rate, without the need to have an appraisal or do any due diligence. Like other government housing programs, this lame attempt at fixing the housing market will cost the government the necessary revenues and have little impact on the real world.
Worse, the taxpayers will be responsible for the entire amount if the payer defaults. Currently, any homeowners who default on their loans to Fannie and Freddie are covered by banks that made them. This new method removes banks from legal liability and forgives previous illegal actions. Many believe that Obama’s foreclosure relief programs are backdoor bailouts of banks. This program appears to be even more of the same.
I believe that businesses must take full responsibility for their actions, and that the government should stop giving them a hand-up whenever they fall. A trust document is created for owner financing. It is held by the property seller. Even if the mortgage note is later transferred to a trust buyer the trust deed buyer will still be responsible for managing it and will not receive government handouts in the event of a default. Some credit unions and banks operate in the same way.
Because of government interference, the housing market is suffering a slow and unnatural death. I believe it would be more efficient to accept all the pain right away so that the bottom can be stabilized and that a real recovery can begin. Common sense solutions seem to work for me, even though I am not a politician.