Wednesday, October 8, 2008

Should We Help Home Owners?

Question: Should we have a bailout for home owners and what should it be? If Wall St. is to blame for financing and earning money off of risky loans, so are the homeowners who couldn’t afford to buy a home in the first place. We’re helping at least the confidence in Wall St. improve, how can and should we do the same for home owners?

Answer #1

There is probably no more distressing or devastating feeling of failure than the prospect of losing your home. It represents shelter and safety, the major investment of a lifetime. However many of the subprime homeowners put no money down, nothing, into their homes and so they really have no investment to lose. They don't need "bailing out" of anything. Even though the value of homes has declined, 96% of homeowners are paying their mortgages on time. Some of these people will need our help. What we want to ensure is that these people are able to continue to make a living, keep their jobs and their home. Housing values recover. One way this can be done is by lowering the corporate tax rate to allow businesses, especially small businesses to continue to grow and create new jobs. The US has the highest corporate tax rate in the world. The one thing that could be the death knell for the economy would be higher taxes on small business. 85% of all small businesses would fall into Barack Obama's tax hike "on the wealthy". For small business to survive and produce credit must be available. It is the credit markets that are frozen fight now. The recent congressional rescue as well as the lowering of global interest rates is designed to do just that by providing credit to banks and a floor to the housing market. Whether this is done by government purchasing of mortgage backed securities or direct subsidies to home owners, we, the American Taxpayer, have already been committed by our congress to do this through the rescue bill and the bailout of Freddie Mac and Fannie Mae. We are paying for the aquiesence of our representatives to the liberal, socialist doctrine of "fairness" made into law by the Democrats and Jimmy Carter through the fair housing act of 1975. This mandated banks to loan money to people of unworthy credit. These loans were implicitly guaranteed by us, the taxpayers, through "Government Sponsored Enterprises" (GSE's) now known infamously as Freddie Mac and Fannie Mae. They bought these risky loans making their CEO's, most notably Tim Johnson and Frank Raines (who are now both prominent advisors to Barack Obama) into multimillionaires. (Even after being dismissed for fraudulent accounting practices at Freddie Mac, Mr. Raines walked away with 90 million dollars.) These CEO's and other officials at Fannie and Freddie kicked back millions of dollars into the campaign coffers of Barney Frank, Chuck Schumer, Chris Dodd and others(1) who continued to defend Freddie and Fannie to the end even when they were supposed to be in charge of oversight. When the stock market reaches a floor and the housing market, aided by the rescue bill, finds its true value, only then will confidence and liquidity reenter our system. Should we aide worthy homeowners? Yes, we should and we must and we are.

1. Wall Street Journal Oct 2, 2008: "What they Said About Freddie and Fannie."

Answer #2


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