In response to predictions of recession and key indicators showing that the American economy is limp-ing along. Many people in America are calling for a stimulus package.

The concept is that by investing into the economy today we can lessen the slump of our economy and by doing so maybe even collect more government revenues overall by spending money today.


The White House and House leaders made concessions from the Republican and Democratic goals for a stimulus package this week and announced a compromise package that has Bush's full support.

Questions for debate?

Do you support a stimulus package? Why or why not?


Do you like the Bush-Pelosi compromise package? Why or why not?

What element of this compromise package do you think will do the most to help our economy in the short term? Income tax rebates? Payroll tax rebates? Greater federal support for mortgage refinancing packages to dull the pain of the bad sub-prime mortgages of the past few years?

The general premise of what we have been told so far, I would say that it can help, especially since the rebates and tax cuts are directed towards the income levels that need it the most. Will it help is another topic. Most people will use the extra money to pay down debt. With that said, this proposal has to survive both the House and the Senate without getting massacred. I will support this proposal as long as it doesn't pick up a bunch of pork along the way. Before making any definite endorsements, I would like to see the details, which I have not found yet.

As far as people using the extra money to pay down debt, I think that in the long run will benefit our economy. If we can assist people to reduce their personal debt, that will allow them to have more money down the road to put towards more discretionary spending. To expect an immediate boost to our economy I think is unrealistic. Too many have gotten too far behind. I wish I could be more optimistic, however our current state of affairs is looking bleak. I think in the long run, we will see improvements.

This post is to provide a link to a brief overview of the compromise proposal



link

Also there is the mortgage component.

Help for mortgage market included in stimulus plan

What source can you supply to backup this assumption?

Hey- your CT link is register- subscribe only.

Scubatim- I think you made a statement of fact rather than phrase it as your opinion- one that I happen to agree with- but you should have said "IMHO people will pay bills with this money" or something like this- unless you have a source to back it up as fact.

Not trying to start nuttin'- just sayin'.




I am quite interested in this mortgage issue, as my ex-wife is still on the title and she ruined our credit as we divorced. I need to refinance, and badly.

I'm just saying that it appears I get called out, when others don't on the exact same statements. ie:

For some reason, I get called out to provide resources, but other posters don't. I can post any number of polls found online, but those are usually done through newspaper websites, and at least one person on this board will point out the fact that it isn't scientific. I am just sorry that most threads take this turn. I have been guilty of participating, however I am really trying hard to avoid this nonesense.

Do you support a stimulus package? Why or why not?

No, while there are many predictions of an economic downturn one bad week at the Stock Market isn't enough to warrant this kind of government intervention. This is purely a political move by the White House and Congress. It's sad that rational governance has been replaced by irrational reactionary policy.


Do you like the Bush-Pelosi compromise package? Why or why not?

No, for the same reasons as the question above... it's too early to be passing this kind of legislation.

What element of this compromise package do you think will do the most to help our economy in the short term? Income tax rebates? Payroll tax rebates? Greater federal support for mortgage refinancing packages to dull the pain of the bad sub-prime mortgages of the past few years?

Helping people who are in bad loans only makes the problem worse. This is textbook example of moral hazard. If we keep baling people out when they make bad decisions, they're only going to keep on making bad decisions. I worked as a loan officer for a sub prime lender a few summers ago and people were refinancing their loans every two years. These people were calling us for the loans, it's not like anyone was taking advantage of them. If we didn't loan them money, someone else would do it.

The country has no stomach for hard times. So instead we're throwing the burden decades into the future. This is a sad time in the nation's history. Oh well, I can't wait for my $600 check!

I happen to agree with most of what you said here Nemov- I do believe the money is more of a timely vote buying package, more than an economic stimulus package.

However- one of the things that really set the US apart from the rest of the western world is home ownership. In this, I believe there is no country like the US. I also believe it is the strength of our nation and economy.

We aren't a nation of "flat dwellers"- and I think that is what also drives our over-work ethic. No developed country works harder, longer, for less, and I believe this to be the product of owning a home. Nothing drives a person to work harder like the threat of losing one's home, and there are only a couple things more stressful than losing one's home.

I do believe some kind of limited bailout of home owners is a good idea, while allowing the mortgage industry itself to fail to some degree- or achieve some sort of equilibrium anyway. The 1800 bucks a family of four will get would probably pay a house payment for many people- but I don't think it is all that big of a "stimulus" package- like scubatim, I believe most will pay down bills, instead of buying that flat screen TV from China.

Ideologically, I am all for giving back taxes to the people, especially those in the "working poor" to "middle class" types.

But what we really need to do is stop the overseas spending- we are looking at 1.6 trillion for the war in Iraq, at least. It would be a far larger stimulus package to unload that white elephant.

I agree in principle on this. The real problem is that people were taking a risk in order to get some equity built up and the products being offered to people were reckless. Now the damage is real to our economy and it has hurt not just the lenders and the direct borrowers but the major financial engines that drive our economy like Chase and Merrill Lynch.

I don't think a bailout is in order as much as I think that people should have a chance to refinance loans at low cost so that they can face a stable payment. This will dull the mounting wave of foreclosures as bad loans reach a date that people cannot make. The people in this situation will simply walk away and we need to give people a better chance to meet their mortgages instead of walking away from them. The reason I say this isn't a bailout is because a lot of these people are upside down in their houses and walking away is easier. Let them pay their mortgages but allow them to get into a manageable fixed rate mortgage instead of letting interest only, variable rates, and balloon payment products push them out of their houses.

Finally the mortgage industry needs more clear oversight. The architects of these unsafe loans are the real problem, not that people didn't take horrible risks, but it is like the loose financing leading up to the stockmarket crash. When the average Joe risks everything he has on a speculative venture and it goes splat, he is out his money. When he does it and borrows money that is not properly secured against the risk, then he loses his money and a banks. When bad loans go out ten thousand or a million fold it places the nations monetary system at risk. If that goes, then people who have not taken unsafe risks face having their life savings erased unless they are holding onto gold.

Because of the public value of our fiscal, monetary, banking, exchange systems, we need a government to regulate the acceptable business practices. We failed in 1929 and 1987 to do this. We failed recently to do this in the mortgage industry as well.

One thing I'd like to point out since I have some experience in this industry. Most of the people that received these sub-prime loans are huge credit risks. Even if the rates are lowered, a great deal of them will still default. Obviously there are always exceptions, but people who are bad with their finances don't magically change. The main problem here is that people who should have never gotten loans, got loans at good rates, with adjustable arms. Now that the arms are adjusting they can't afford the payments.

Scuba- on the Reaganomic post, I did just that- I went and looked up as many facts as I could on wikipedia, and then went and chased down the footnotes to original sources.

BOF is niether flippant nor 'starting anything"- everyone gets called on thier sources here- I have been many times- it is then incumbant upon you to find these sources- this is not a bad thing either my friend- this is the kind of thing that makes you research your own position more thoroughly- and, in the course of debate, occasionally even change your own way of thinking, or at least modifying your own beliefs at some point.

I did do your research for you BTW- check the Reaganomics thread on revenues going up when taxes are reduced and the misunderstanding of the Laffer Curve (like I know what the heck a laffer curve is )

But on this- it is entirely appropriate for you to do a little research- or claim it is a belief instead of a fact- an "educated guess" if you will-

like I said- I happen to agree that most will probably spend it on outstanding bills- I certainly will- but I can find no proof of that, and will not say it is a empirical fact- just a gut feeling, and I think I am right on this one.

It is logic that makes me say "I am behind on bills, I have a family of four, my 1800 bucks will go to a house payment"- anecdotal evidence is no evidence at all- but you can make a pretty good educated guess on life experiance as well.

If you do have some source for this claim- I would love to see it, simply because it would bolster my current OPINION.

Like I have said, I can provide numerous polls, but you know those are not scientific. One would believe that given the reason behind the need for this package, most people that would be receiving these funds would need them because of debt incurred due to the lagging economy. I don't think this situation qualifies for someone needing to provide resources to prove that many people will use this rebate and the increased income through lower income taxes to pay down debt. Demanding sources on this is only trying to muddle the debate. If I had said that no one would use the money for anything except debt, I could see the point. I said "Most people will use the extra money to pay down debt." For someone to demand a resource only shows the desire to create conflict, in my opinion, especially since others that made the exact same statement as I did are not called out, and those demanding the sources were involved in the other thread as well.

Thanks for the research, but I did post a research paper myself, but I appreciate the help!

I have studied this issue relatively closely and I have a good industry source that I test my research with quite often. Sure the sub-primes went often to high credit risks or people who had a history of misusing credit. But I think that is less a part of the problem than the other type of credit risk, loans that went to people who, despite having a relatively good credit history, were either insufficiently varified in having the income to support the new debt, or were given loans with very little or no money down when the customers ability to pay as acurately measured but very debatebly able to support the mortgage.

Also no money down zero interest loans were created to try to allow a customer to hold a house long enough to accrue interest. Some of these products actually accrued debt and were less than interest only loans.

The heart of the problem was that customers were trying to squeeze inton houses that they could not really afford because of skyrocketing housing costs in markets such as California. The temporary mortgage product of course was ideal for an industry that gets revenues per transaction or mortgage.

My brother bought a house in a very risky situation as a liar or stated income loan. It was a nearyl $700,000 house and he lost his job two weeks later. (He is still paying for the house and is in a better place despite a dramatic loss of income because he sold a house in Phoenix that was not sold at the time of buying the new house)

I have a fixed rate mortgage but I was able to secure a zero money down, no PMI loan for my house. It worked out for my needs, but it was a risk I don't think the mortgage company should have taken.

Pardon the rant. I stick by my assertion that the government failed to properly regulate and should take action to shore up the mortgage industry. Because the industry has gotten so scared today that it rejects loans that would have been considered low risk three years ago. As customers get tied up in ARMs and look for a solution, they find they are not eligible for a refi at any rate and that will add to the pile of foreclosures.

Sub Prime lending is by definition offered to people with higher credit risks who are unable to get loans with larger banks. I handled hundreds of credit reports and we never lent to people with a credit score over 650. Obviously there are countless examples of regular loans that people have struggles paying, but let's be clear about the current crisis. It is a sub prime crisis, and the sub prime mortgages were mainly made to people with poor credit. I even saw some loans go out to people with less than a 500 credit score.

The crisis is happening because people's arms are adjusting, and because they're losing their jobs (to a lesser extent). The only thing increased regulation will do is make it more difficult for people with good credit to get a loan. It's seems ridiculous to me that we're talking about bailing out people who made poor decisions while making it more difficult for people who made right decisions to get a loan. Increased regulation only helps wealthier people get loans, because every loan will need a lawyer. A small businessman like my Dad who has made a series of loans to build his business the past ten years would have increased barrier of entry with more regulation.

I am of the opinion that we need to face a some real hardship to figure out a sane way out of this. Now I admit I am not a mortgage expert, but I do know that we used to have an ARM loan. When it began to rise, we walked into our bank and got a locked in rate. We knew that the locked in rate might be a little higher than where the ARM was, but we also knew that we weren't going to be able to afford to hope that the ARM rate dropped. We made a decision, and we still live in the same wonderful house we purchased in 2004 with no real threat of not being able to pay our mortgage. I do feel bad for those that are facing a very tough decision, or that are really on the edge of losing their home. On the other hand they if they are responsible enough to sign on the dotted line, they should be responsible enough to deal with the consequences. So, I have inner conflict on the issue, but I assure you I will put my check to good use. I think it is good that we are taking care of our own people, but I also think that people should be responsible for their own decisions.

Though I do believe that there is blame to go around- a mortgage is the most complex deal most people will ever deal with in thier entire life. Buying a house has you sign so many papers that you literally get writers cramp. Easy pickins' for the shrewd mortgage broker to get some serious points added to his loan origination fees, and to possibly get them an ARM or some not so good mortgage when they might have very well qualified for something better.

There is the "buyer beware" of all capitalist structures- being an informed buyer and all that- but you really need a real estate license and some experiance in the lending/real estate industry to really get a handle on it- no way your average homebuyer is that sophisticated.

here is one report that half of the homeowners (now former owners ) were victimized by mortgage brokers and real estate agents.

Nationally, mortgage fraud is one of the fastest growing white-collar crimes in the United States, the Federal Bureau of Investigation says. The number of pending FBI mortgage-fraud cases has nearly tripled since fiscal year 2003. The number of reports it received of suspicious activity related to mortgage fraud is up nearly sevenfold in the same period, totaling some $813 million.

"It's affecting every single class of homes: affordable homes, middle-price homes, upper-end homes, condos," says Ralph Roberts, a realtor and coauthor of "Protect Yourself from Real Estate and Mortgage Fraud." He estimates that in some markets, 40 to 50 percent of all transactions contain some element of fraud - a major driver, he believes, for the current housing bust.

Regulation is not just to make businessmen's job harder- it is to stop criminal behaviors. And they should be treated as criminals. And there should be laws against this kind of things.

Once again- I point to the S&L crisis- a direct result of deregulation.

There is a difference between streamlining paperwork and making NEEDLESS regulation- but 9 times out of ten- a regulation is there because someone abused the system and weren't honest players. And they got away with it because it wasn't illegal and there were no penalties for thier behaviors.

There was a major case here in Alaska- I will post the link when I find it- of mortgage brokers doing the same thing- predatory practices.

The challenge is always to protect people from fraud while allowing the honest people to do business.

At the risk of putting in a one liner, I will say the answer is a big NO.

When it comes to accounting, neither Congress or the President can ever seem to balance a checkbook. And certainly, not be able to pass a test in Economics 101. The Nation is trillions of dollars of debt at all levels, whether it be educational loans, subprime mortgages, or Government borrowing. Too much debt is what is causing America's economic woes today. With the subprime mortgage mess unfolding, there are millions of people who are either facing a house foreclosure, or seeing their investments get swallowed up by the subprime mess like the schoolteachers in Florida are. For the people being affected by that mess, their losses far exceed the $600 dollar check that Bush is proposing. When Bush proposed his $600 rebate, he did it with the idea that Walmart sales would pick up and the stock market would stabilize. Would it be fiscally responsible for a person facing foreclosure to take his $600 check and spend it on a large TV as opposed to paying off his existing debts?

Living in the same domicile as an economist, a former Army-man-turned insurance broker, and a former account-turned-artist mother, I kind of get too much economics in my dinner-table conversation. We've basically exhausted all avenues of conversation when it comes to stimulus packages in general and in our little think tank, it's been established that people are more inclined to hold that money in savings accounts. Some historical trends and figures were cited, but I would be lying if I said I did not tune them out.

People react to the big goodbye by holding out resources. Doomsday cults stockpile food, water, and fertile women. When facing economic crisis, people will spend less, save more, and ride the storm out. Shelling out money just to be put back into the banks of American citizens is a noble gesture by the government, but it doesn't really come with the string attached that it must be spent.

It all reminds me of France giving arms to Native Americans during the French and Indian War with the hopes that the munitions would be used to crush the British. Well, they kind of were; but largely the weapons were simply stockpiled for later use. I think the same situation could arise in this case. Giving money back is indeed nice, but it won't do anything if it sits in the bank collecting interest.

While I think that many Americans would see the value of saving this money for the future, I think that reality of Americans saving in drives is unlikely. In 2005 we had a negative savings rate, how we can go from that to a 100% savings rate for this check is unlikely.

Polling data too will likely be inaccurate. Good intentions plus the American tendency to think of 3 good things to do with every dollar will let us pick the best or most responsible soun ding answer more often in a poll.

Many Americans are too strapped with debt or bills to take themselves up on the pledge to save much of this money.

The more likely equivolent will be to pay down debt. I wonder if that would stimulate the economy if Americans paid off a big pile of debt? Would that ease our credit crucnh or would the industry take that money and shift it to a safer sector of the business world?

Still, I think Americans pledging to save the money will still often be seduced by a piece of consumption by our massive advertizing industry. The sirens' call and our own consumer tendencies (and those little things that always come up that must be addressed) will take the pest intention to save or pay bills and divert much of the funds to consumption. IMHO of course

edited to add a link

I agree. Despite the best of intentions, Americans will tend to spend the money rather than save or pay down debts. The stimulus package idea is, in fact, predicated on the idea that the money will - for the most part - be pumped back into the economy rather quickly. Prediction is a risky venture, but it is my guess that those people who pay off or down credit cards will soon max them out again. The maxing out again might also be a stimulus. Being a cynic is also a tough job.

BTW: At the tax service I am working for, people are coming in for "refund anticipation loans" (once mislabeled rapid refunds) much larger than the proposed rebate. These people are willing to pay dearly to get their money quickly and I have yet to hear any of them talk about saving it or paying down debts.

Very good points, CR, and there will always be some scum of the earth types that work very hard to earn a dishonest dollar. The entire sub-prime lending industry falls into that category, in my opinion. I don't have a problem with regulation, but we as consumers and business owners need to force a strict line that government should not cross to keep a balance between regulation and governmental control.

I would suspect that the fact that there was a huge boom in home owners would be a contributing factor to the increase in fraud. It would appear as an obvious point that if you have a larger number of players, there will be an increase in victims. I would also suspect that greed would be the driving force. Now that we are on the other side of the fence, all of the predatory lending and fraudulent activities has put our nation into a real pickle.

I wish I could say that we should trust others, but we can't. This is where finding a reputable real estate agent and spending a relatively small amount of money to hire an attorney would be beneficial. You are right about the fact that when purchasing any type of home, the vast majority of Americans are completely vulnerable. A few hundred bucks, even a thousand dollars is reletively small compared to the tens of thousands some people are facing to keep their homes. By doing a little research, and making an investment in professionals that are working for you, I think a person can save themselves unknown tens of thousands of dollars in the long run. By being smart about who you hire, I think we can make the case to have minimal governmental activity in the form of regulation. Like I said, I am not against regulation, but I think we as consumers need to be smarter when making this type of purchase. We need regulation to provide us the tools to stop, and punish those that take advantage of hard working Americans. We also need to take some responsibility for our own selves to ensure we don't get taken advantage of.

(This is not a reply, I just wanted to talk about pork.)
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So, what's wrong with a little pork? Or a lot of it?

In defense of pork, let me say this: If you want to "inject money into the economy," why not do it in the form of pork projects? $150 billion in bridges, libraries, infrastructure improvements, monuments, schools, whatever - it's money that goes 100% back into America (at least in round one), in the form of new jobs, new stuff, and new business. In round 2, the beneficiaries of that money can spend it on whatever they see fit - food, mortgage penalties, or Chinese TVs - pay taxes, pay into FICA, etc. And we get a few (or a bunch) of new, improved roads.

Doesn't that make a little more sense than showering everyone with $600?

I think you are right about benefits of pork, but if these programs are worthy of our tax dollars, and I am not saying they aren't, why can't our elected officials simply create a bill that is about the spending of that money. Why hide it in a different bill and not bring it out into the light of day? When things have to be attached and politicians try to put under the radar, I can only jump to conclusions about the actual intent of the pork. Those conclusions may be wrong. If everything is on the up-and-up, let the politicians put their name on it, the name of the beneficiary of the spending and the reason we need to do the spending. The process of adding the pork, as I understand it is a little shady. Like I said, if those spending issues are important, introduce them in the light of day, not under the guise of a popular bill.

I would argue that infrastructure investment is not pork and is needed in our country to shore up our roads, bridges, and electrical grids. Federal money would be better used on this than making interest payments. However, the stimilus of the economy probably would happen as quickly with an infrastructure program alone. And when infractructure gets put on the table it will be met with calls for corporate tax cuts and making other tax bills permanent.

Which means at this point a bill probably won't get passed and it would likely get vetoed if an amended bill did get passed.

Those aren't really your tax dollars, it's borrowed money. Maybe it will be your grandchildren's tax dollars. Our tax dollars don't even cover the normal federal budget. This package was added right on top of that. And they seem to think that it's worth borrowing for.

Under normal circumstances, your instincts are completely right - pork stinks. But here, when the decision has been made to borrow $150 billion and give it away anyway, pork makes a lot of sense. But it still looks bad to voters, who only see "pork." Way too much policy in this country is done simply on the basis of what will keep elected officials in office. That is why you don't see too many of them trying to raise taxes or screw with Social Security. In this case, once the idea of checks going straight out to everyone hit the wires, there was no way they were going to be able to change that without incurring the wrath of voters. But had pork been put on the table before word got out, it would have been fine with most people.

You know what, John, I would agree that pumping that $150 million into the economy through spending projects could be just as beneficial, in fact, I could use some money to help my business, but I still would like to be able to have the projects laid out in the light of day. I personally like the idea of getting a check in the mail from Uncle Sam, but if we as a nation decided to draw up a spending plan that would pump the money into our economy more directly, that could be ok too. Hiding pork is, in my opinion, unethical.

I agree on the "pork" issue- we get slammed for our "bridges to nowhere" and the DOT money that comes into Alaska as "pork"- funny- I don't see those same people claiming the highways and bridges THEY travell to work on as "pork"- as Alaska is essentially in the same place developement wise as the "lower 48" states were in the 50s. We want our share of federal dollars to build our infrastructure, and then use private and state funds to develope businesses.

We have spent 500 million of our own money getting our Knik arm bridge "groundwork" done- and we are going to need federal money to finish it- it is a big project. There are millions of acres of undeveloped land, for residential and industrial uses, right across the inlet from Anchorage- and all we need is a good bridge to make it happen.

We are a rich state- but not so rich we can afford to take on a project like that on our own- it will have to be federal money, and a toll road as well. We need the federal money just to get it started, so the tolls aren't prohibitively high either.

Another infrastructure investment that the "lower 48" should SERIOUSLY be looking at is the gas pipeline- from Prudhoe bay- running right next to the pipeline we already have.

Personally, I have always thought "screw the oil companies- let's just build that one ourselves, I don't think natural gas prices are going to fall far or even at all in the future"-

If youwant to help the economy- that is the place to do it- there is a saying "Prudhoe bay is a medium to small size oil field ona super giant gas field"- it is believed to be as large as Russias or even some of Saudi Arabia- and getting a gas pipeline flowing to either the west coast- or the midwest (most likely scenario) will see an IMMEDIATE drop in day to day bills of the US citizen- your heating and energy bills would see a drop, depending on what your region uses for power and heat.

WE always talk about "opening ANWR" - that will do nothing for our energy dependence or to see fuel prices fall- besides, if we started drilling tomorw- the US wouldn't see a dime of that for 10 years. If then. A gas pipeline is moving out a resource we already have- we don't have to find it- we have the wells there already. And there are trillions of cubic feet of natural gas- clean buring fuel.

I paid around 350 bucks last month on heating bills- it was very cold last month. With a spur line to Anchorage- all figures come around that every alaskan citizen would see his/her gas bill drop by 50-60 percent.

Now- I am no accountant- but, 150 bucks a month x 12 is more than I would recieve in one year of the "stimulus" package- and this will go on for years- not just one year.

Doesn't that sound like a much better investment- that could cost as much as 40 billion dollars for this pipeline.

I think that would be a much better return with a lower initial investment-AND on top of that "well head royalties" would pay all that back in 10-15 years.

There are ways to stimulate the economy that make pretty good sense, even if I do think I could use 1800 bucks in may.

To support my own claim:

Financial Planners not sold on stimulus package.



The House Stimulus Package: The Good and the Bad



Would you spend a stimulus package

Most people posting here stated that they would use all or some of it to pay debt.

I would use it to pay down debt. Most people I've spoken to about this say they will use it to pay down debt. I think it's pretty safe to say that most people will use this to pay down debt.

Do you support a stimulus package? Why or why not?

I don’t support the silly tax rebates. It didn’t work before and it won’t work now.

Do you like the Bush-Pelosi compromise package? Why or why not?

In my opinion, this “package” is a feel-good sop more than anything concrete. All this plan does is borrow more money and increase the national debt . How is that an economic stimulus? It has the bad smell of a delaying tactic to forestall a disastrous economic recession in an election year.

What element of this compromise package do you think will do the most to help our economy in the short term? Income tax rebates? Payroll tax rebates? Greater federal support for mortgage refinancing packages to dull the pain of the bad sub-prime mortgages of the past few years?

I believe the mortgage refinancing plan will do more to forestall that downturn than a few hundred bucks tossed the taxpayers’ way. While much has been made of unqualified or unscrupulous sub-prime borrowers, I believe there are far more honest people (like me) who had to use “creative” financing, including adjustable loans in order to buy a home. We are hard-working people who pay our mortgages on time, but cannot afford double-digit interest rates when ARMs adjust, and need the availability of reasonable interest rates to refinance. An excellent show last night on 60 Minutes examined the whole “mortgage crisis”, and what it boils down to is greed; from the realtors, to the lenders, to the Wall Street investors, everyone was grabbing the brass ring at the expense of ill-informed or equally greedy prospective homeowners.

So, who’s really at fault here for the “mortgage crisis”? The overeager person or family who wanted a home, the greedy scamsters who were looking to live in a nice house and turn a pretty penny doing it (see below), or the many, many financial entities who were willing to throw money at them? Countrywide is a prime example of those greedy companies looking to turn a quick buck qualifying loans that should never have been written. And now it has bitten them on the collective posterior.


IMHO, trying to help homeowners by offering them an affordable way to keep their house rather than foreclose will do more for the economy than passing out 300 bucks to every Tom, Dick and Harry.

You had to choose an ARM? What about buying a cheaper house, or waiting and saving more? Did you think that those low interest rates you started with were never going to rise? Or did you take a calculated gamble that home prices would continue to increase, you would earn more money in the coming years, or otherwise be able to refinance out of the ARM?

Now, I think a mortgage bailout is a worthwhile way to spend money, if it will be effective. Lots of actual money is lost in the foreclosure process on both sides of the table, and if the country can spend $10 to save $11, it makes good sense for the country as a whole. But there is no getting around the fact that a bailout is letting bad judgment off the hook, and that goes against market principles. As I have said before, there is lots of sentiment, on AD and elsewhere, to just let the chips fall where they may and hope people are smarter in the future, no matter what happens to the housing market. I mean, where is my reward for choosing the 30-year fixed? Countrywide is my lender, too. They offered all kinds of mortgages, as I remember.

Do you support a stimulus package? Why or why not?
Do I think anything that has been proposed in Washington will be effective quell the causes of the economic problems? No. Do I like the idea on a purely personal level, sure...I could always use the extra cash to pay basic bills. And who knows, maybe in the next round of taxes, the burden to make up the shortfall will fall disproportionately on someone else making more money.

Do you like the Bush-Pelosi compromise package? Why or why not?
It doesn't address the underlying problems affecting either inflated housing market prices or the associated recession. It was reported the other day on the news here that 1/6 of American homes are in foreclosure now. The underlying problem to the housing slump is that the median income for individuals has not risen substantially in the last 30 years, - in inflation adjusted values it is only vaguely higher. The more noticeable rise in median household income over that period, however, has risen only because of the sharp increase in the number of women (or other in-house partners) spending more hours at work, and because women's wages relative to men's has become more equivalent over the years. That social phenomena of two-incomes however, is starting to saturate the market, and there really is no socially or culturally acceptable path beyond that, since if you start linking multiple partners together, or even non-resident investors, the most attractive intrinsic allure of home ownership, that is, one's full ownership of that American Dream, is diluted in some bureaucratic nightmare. Do you really think people will buy a sliced up home?

The US Census also reports other ways in which people have allowed themselves to pay more than they should for a home to the overall detriment of their standard of living:

(1) There are more people in households working more hours. Again, there will be a saturation point since no one can work more than 24 hours a day, and the natural expansion of household income by division of labor, by having a spouse or partner work, has already been done or is close to its saturation point already.
(2) Families have fewer children. This has been a constant multi-decade trend. The only group continuing with high fertility in the US are immigrant Latinos who have fertility rates 2 times that of any other group, white, black, or asian. As the realities of assimilation set in, that fertility rate is unlikely to continue more than one generation, I would guess. The problem with lowering population growth in the majority, though, is that it also reduces demand for housing in the long term.
(3) Households have more debt. Three decades ago 20% of a person's income ended up in savings. Today, people spend 120% of their income. By assuming housing appreciation will exceed the inflation rate, most homeowners have become real estate speculators. However, there is no historical or fundamental basis for assuming housing will exceed the inflation rate, except in localized settings under transient periods of demand.

The overly inflated home prices across the US are not just the result of that multi-decade social trend either. As the media keeps reporting:

(4) Bank rules for lending loosened in the 70's to allow consideration of a spouse's (read wife's) income, in the late 90's banks loosened lending regs again because they could repackage loans in ways that pushed the risk to someone else...but that turned out to be a disaster. So tell me, where can banks loosen lending rules to fuel continued house appreciation?
(5) The rising tide of boomers gave people a false sense of inevitable demand. The boomers speculative days are probably over, or nearly so, especially so if this housing slump drags on for several years.
(6) The declining value of the dollar made speculation inevitable by foreign concerns, but will they return to such financial instruments? I suspect that cycle is over for the duration of the slump. So who remains to absorb the risk?

The fundamentals are that American wages are no where near what they should be to sustain growth in housing at current price levels. You would have to turn house prices back to 1998 levels in order to get back to where it should be according to some economic indices, like Case-Schiller's. Simply increasing the availability of jumbo loans does nothing to affect affordability, and in fact, suggests a certain obliviousness to the fact that prices must go down at this point in time, and stay down until there is noticeable upward movement in wage growth, combined with continued low lending rates. The Fed drop in interest rates is only one half the the equation...the other half is wage growth. And that has not happened to any great degree in 30 years (except for women). What makes anyone think it will happen in 1 or 2 years now, or that the role of spousal income will continue to expand indefinitely?

Of course, one also has to presume the American public will continue to tolerate the decline in standard of living which emerged in the last few decades, tolerate it by making it permanent, by locking in the trend which reports more people in a household working, working longer hours, and having fewer kids. I suspect such lifestyle hardships were tolerable with the expectation of good appreciation rates in their investment, but I would doubt people would be fooled by that expectation any time in the near future.

Any attempt by the government to subsidize affordability of homes through tax rebates or deductions only makes them more expensive in the long run, as any windfall is immediately absorbed a one-time boost in home prices. Ultimately its only lasting effect is to make processing one's taxes more complicated. I tend to dislike the long-running mortgage interest deduction for the same reason. Since prices are slumping now anyway, and people being shaken out of the market, it would be the least intrusive time to eliminate that deduction, and would hasten the price corrections in housing. The faster prices correct, the sooner and speedier the recovery.

I like the idea, and I would support it as you have laid out. What I don't support is the hiding in other bills idea that our current politicians like to do. This, as it has been simply explained by you sounds like a good plan. I am sure there are many details coving many issues that are above my pay grade, but if there was a bill put into Congress for this particular plan, I don't know why the majority of America would be against it. Unfortunately, our elected officials try to hide these plans in more popular bills that don't have anything to do with this topic. I am sure some environmentalists would oppose it as there is possibly some risk of pipe lines leaking etc. which might be why these ideas get hidden in other bills.


I don't disagree with you at all.


This is kind of where I stand. I had an ARM and as it started to rise, I locked in a rate. I don't see any forseeable problem with making my payments, and I am current. I even put a little extra towards principal each month, but that doesn't mean that I am living the life of luxury. I still only put a small amount away each month in my IRA and savings. Why don't I get equal amount of releif?

First of all, let me make one thing crystal clear; my loan is NOT a sub-prime loan (and it is not held by Countrywide; I would never in a million years go through those scumbags. Mine is through Wells Fargo.) My credit score is good enough to secure a fixed loan, but I would not have been able to afford the payments. I live in Los Angeles Country, where the median home value is over $500K, even with the housing market slump. So, the house I bought IS the cheaper house. PLUS, I bought in a so-so area, and my house is old and small. And yes, I knew the interest rates would go up; that’s why I refinanced. BUT, I had to refinance with a 5-year ARM to be able to afford the payments. In 5 years, I’ll try to refinance again, hopefully with a fixed 30-year loan. I did not buy a house as a “gamble to make more money” in equity. I bought a home to LIVE IN. I was tired of throwing rent money at a jerk landlord. And I have several pets, and the availability of pet-friendly rentals is dismal. It was worth it to me to sacrifice the substantial amount of money I pay in house payments in order to be a homeowner.

It always amazes me how some people lump everyone who bought a home as someone with “bad judgment”.

I'm not looking to start a flame war here and I hope you can turn this thing around in 5 years but... You did buy a home using bad judgment. You bought a home you couldn't afford. End of the day DaffyGrl that's more house than you can handle. You said so yourself. You need a lot of things to go right but only one thing to go wrong and you could lose the house. Any moderately talented money manager would have told you what I just did. Hell, the Wall Street Journal guide to home buying would tell you that.

Again, I'm not looking for a flame war, or calling you any names - and I really do hope things work they way you're expecting them to - but you bought more house than you should have.

Hey, I wasn't trying to attack you or anything, nor was I implying that you were speculating - my point was that any ARM is a gamble. You don't know what is going to happen to your income or to interest rates 3 or 5 years down the road - but you can be pretty sure that your mortgage payment is going to go up. You're still gambling on being able to refinance every 5 years. Maybe that isn't bad judgment, risking your position on being able to refinance every five years - but if you couldn't afford the house using a 30-year fixed, some would say that you simply couldn't afford the house, period.

Now a lot of people who took that gamble, good intentions or not, are looking to get bailed out at taxpayer expense (or, national debt's expense, really). But that gamble was undertaken at their own risk. If the stimulus money is going to be aimed directly at the mortgage problem, somebody who doesn't deserve it is going to get a pile of money - either homeowners who bought over their heads, the banks, Wall Street, or all of them. I feel bad for the homeowners, but if this were not a widespread problem and it was just a few people going into foreclosure, I'd say "tough beans." Let everyone learn a good, hard lesson from their losses.

Let's remember the fix that homebuyers are in in many parts of the country. If they do not buy, they face retiring while maintaining rental payments after working. THen they will be called stupid for renting all of those years and becoming burdens because they face homelessness. They cannot qualify for high payment mortgages and industry packages have worked to squeeze these buyers into homes at prices they really couldn't afford for over a decade. ARMs are some of the safer packages out there. But why is it not understandable for a home buyer to make that first step in shakier footing and plan on needing to refi at some cost later, hope for a continued increase in income and a little equity appreciation for the next loan appraisal.

It is either rent forever or take a chance.

Had many of these silly products not been around with the very low interest rates of the past five years, the housing market probably would have been more sane in California.

And if anyone knows California real estate, $500,000 homes are likely not living in Jed Clampett's neighborhood.

My house is a whoppin' 750 square feet and was built in 1929 (and I think it had the original plumbing...I KNOW it has the original knob-and-tube wiring). It would probably be classified a "teardown" by many here. If I truly was gambling, I would have bought a much bigger, more expensive house in a more desirable neighborhood through a less scrupulous lender. If it hadn't been for the plumbing going south 3 months after I bought the place, and an unseen mold problem, I probably would have been able to afford the fixed loan after 2 years. ARMs aren't the bugaboo some here are making them out to be. A lot of people actually opt for them.

For all of you looking down your noses at me and my "bad judgment", I feel privileged to have bought my home...you know, being a single woman and all. The lending industry isn't known for its generosity to single women.

Traditionally, loans were given based on a buyer's ability to pay on principal + interest over a 30 year period. Then, ARMs became popular. Until relatively recently even ARM loans were given based on the ability to pay principal + interest over a 30 year period using some sort of expected-value/weighted-average interest rate. At some point, even this restriction was thrown out. People began getting interest-only (or partial principal) ARM loans betting that they could refinance later. Ultimately, this new financial tool contributed to the rise in housing prices. If everyone can get interest-only loans (for, say, a five year period), then they could bid *higher* on a piece of property -- ergo, higher housing prices.

DaffyGrl, I don't look down on your decision to purchase a house; I think it's great. But, you are taking a *huge* risk getting an interest-only loan when you know that it's the only way you can "afford" the property. In real microeconomic terms, you are banking on either (1) rates going down & credit being easy to get (so you can refinance with payments you can afford) or (2) earning more money in the future (so you can pay interest + principal). You must do either (1) or (2) OR you'll need to sell. Note that unanticipated housing costs (such as repairs) complicate the decision.

When the housing market was more "rational" (back in the 1990s), you probably would never have gotten the loan in the first place. This is *not* because you are a single woman but because you wouldn't have been able to pay on the principal. If we were still in that housing market, you would have saved longer to make a larger down payment and increase your earnings.