Obama's real estate socialism

A day after signing a bill that will likely cost American taxpayers more than $3 trillion over the next decade, Barack Obama announced today that his interest in interfering in private contracts and forcing all Americans to absorb the losses for bad decisions by some Americans remains as strong as ever. As the media continues it’s fawning with headlines like “Obama’s housing plan ‘to help 9m’” and “Obama aiming high with housing plan”, Obama is announcing that he will have the government redistribute $75 billion of taxpayer money to homeowners who are near foreclosure or help people make their mortgage payments. The disgusting truth is contained in Obama’s statement that “All of us are paying a price for this home mortgage crisis.” Indeed, Obama is forcing those of us who either bought only as much home as we could afford or those of us, like my former business partner, who decided to rent because he thought real estate was in a bubble, to pay for the investing (or often more like gambling) losses of those who took out loans they never should have taken…and probably wouldn’t have been given except for pressure from government. My taxes and my former partner’s taxes will be higher forever because Obama is forcing us to pay for other peoples’ stupid or greedy decisions. It reminds me of a bunch of people going out for dinner with the understanding that they’ll all be splitting the check. Every person but one orders a beer and a modest dinner. One person orders a bottle of Dom Perignon, an appetizer of caviar, and a main course of lobster tails, knowing that he’ll be laying off most of the cost on the others. Actually, the situation is worse than this. It’s more like people who all went to dinner separately, and then the restaurant manager comes to several tables and tell them they each must contribute to the last guy’s extravagant meal because he can’t afford it…even though he knew he couldn’t afford it when he bought it. Had I known this was coming, I would have bought a much bigger house and then let the government force the bank to let me have it at a discount! It's true that the proposal isn't quite as bad as it could be, aiming at people who are currently paying mortgages. But the bottom line remains: The government is forcing the losses of those who made bad decisions on to the rest of us. Imagine the furor if a Republican President suggested that people whose stock market investments had dropped should get an transfer of money from those who for whatever reason lost much less in the market. In addition, Obama also wants to let judges modify mortgages…and not just the interest rates, but also the principal amounts, letting them reduce it to “fair market value”. This interference in a private contract is an extremely dangerous precedent to set. Can you imagine the pall that will cast over an already-reeling mortgage business? What banker will ever give a mortgage except to someone who really doesn’t need it, knowing that a judge can just say that the borrower suddenly doesn’t have to pay back the whole loan? What’s next, car loans? Industrial loans? What contract is sacred in the world of Obama? And don't forget: Fannie Mae and Freddie Mac guarantee the principal on billions of dollars of mortgage securities (essentially bonds whose interest payment comes from mortgage payments on the mortgages contained in them). Any reduction in the principal amount of the mortgages contained in those securities will have to be made up to the bond holders by the GSE's, whose primary source of funds is now taking money from taxpayers! So, reducing principal amounts isn't just screwing the lenders (which the Democrats seem to think sounds like fun), but it's also screwing the responsible taxpayer in essentially the same way that the proposed outright cash transfers do. Here’s a thought: If the law passes, it should include a provision that the judge also has the authority to raise either the interest rate or the principal due on a loan. Much in the way that a loser in a court proceeding can be forced to pay the winner’s court costs, as a bit of incentive not to bring frivolous or merit-less lawsuits.
  • Milton Friedman
    Comment from: Milton Friedman
    02/19/09 @ 09:39:29 am

    Well said. Bravo. There are many who understand. We are out here. You are not alone. Say it loud! Our country and our freedom depend on it.

  • Steve
    Comment from: Steve
    02/23/09 @ 07:37:49 pm

    Obama is leaving no mystery as to the level of socialism he and his cabinet intend to force upon us. Prepare to join Rick Santelli's tea party in Chicago.

  • andrew @ Obama's Plan for Saving Homes

    A very fair argument. I do not disagree. However, we were already paying a heavy price for the irresponsible behavior of lenders and investors. That's what got us here in the first place. We are paying out of the ying yang in all sorts of ways because of them....all my friggin retirement savings are gone. Obama didn't do that. It is easy to criticize Obama's administration for what they're doing. It would be even easier to criticize them if they didn't do anything. Nothing like this has EVER happened before at this magnitude so I don't understand why there are so many who are absolutely positive that this plan is such a horrible move. If you were President, what would you all suggest we do instead?

  • Comment from: Rossputin
    02/24/09 @ 12:02:54 pm

    Andrew, There is plenty of political blame to go 'round, but at the end of the day you have to take a hard look at Carter and Clinton for what's happened to your retirement savings. Not that Bush did a good job in terms of government spending or clamping down on aggressive housing lending. But I disagree with your premise: Why would it be easier (or at least more sensible) to criticize them for doing nothing? The Great Depression was much much greater than this in magnitude. This is worse than other recessions since then, but much closer to them than to the Depression. If we should have learned anything from economic history, it's that government "doing something" tends to make the problem worse -- sometimes much worse -- and not better. So what would I do? I'd make the Bush tax cuts permanent, slash the corporate tax rate, and if necessary as part of a political compromise, include a modest amount of true infrastructure spending. What the government just did was a catastrophe for our children.

  • Thanks for the response. I haven't formulated a concrete opinion on this matter, I'm simply trying to understand what is happening, so thanks for your thoughtful response. That being said, with regards to Obama not doing anything, right or wrong aside, you honestly don't believe he would be more criticized by doing nothing? From what I have gathered, yes, the best way to fix our economy is to let it go on its own. Let the markets do what they need to do to fix the problems. But, try for a moment try to put yourselves in Obama's shoes. Do you seriously think that he could have just done nothing? It doesn't help any that the Republican party seems to be waiting with bated breath to see Obama fail so they can regain power. If he did nothing, they'd prance on him, and now he's doing what he's doing and they're prancing. Using this crisis as a way to regain favor and power is doing nothing but furthering the separation between the people of this country at a time when we can ill-afford that. And pardon my french, but it's pissing me off. As far as Clinton and Carter, they were far from the only ones pushing for deregulation. It seemed that was a bipartisan issue that everyone wanted. So I still blame the irresponsible shmucks who abused the deregulated systems for the evaporation of my retirement savings.