Friday, February 20, 2009

Redistribution -- Part 1 of 4

This is Part 1 of 4 on this subject—the promised “rescue” of families having delinquent mortgages by spending $75,000,000,000 through yet another federal "bail out" over and above the other "bail out" and "stimulus" money to be printed and spent.

When I write here that “The federal government is taking your real estate equity,” you might be thinking “He’s nuts” or “Prove it.” Fair enough, so please follow—

Suppose for the moment that federal government politicians want you to help fund an existing or new project— like the new currently proposed $75,000,000,000 ($75 Billion) “homeowner mortgage foreclosure rescue plan.” It is claimed that the plan will assist between 7 and 9 million people who applied for and received home loans with little or no down payment, and who have not been making their mortgage payments for some reason. (Defaults of these “sub-prime” mortgages appear as threatening liabilities on bank balance sheets).

It can be argued that other taxpayers and responsible homeowners have already paid enough to help delinquent buyers get into their houses and condos and stay there. Consider the “affordable housing” policy of the federal government . . .

The federal policy to provide “affordable housing for all citizens” has been advanced for several decades during both Democratic and Republican administrations through programs such as the Community Reinvestment Act (CRA). Also, the “fractional reserve” scheme of the Federal Reserve (to be discussed in a later posting) has helped facilitate the policy. Fannie Mae and Freddie Mac are quasi-private institutions which encouraged such risky sub-prime loans through assurance that any losses would be covered by the taxpayer.

These programs and policies were utilized to sell houses to people who wouldn’t otherwise qualify to afford them (whether it was a “poor” person buying a modest home, or a working couple trying to get into a more “expensive home,” or a speculator trying to “flip houses”).

President Obama has announced that he intends to enact such a "rescue" into law.

Thus, $75 Billion will be needed immediately to pay the investors and banks holding the mortgages on the houses owned by the people not making their monthly payments. The money needed to fund this new program can’t come from those who have not made their house payments because they have no money or have chosen to not pay.

Those who are in default will be getting a big gift by this program— because somebody else (you) will pay for part of their housing (as well as your own). (We haven’t quite reached the point yet where the government will simply tell the banks they can’t collect the loans at all . . . and can’t get their collateral back, either). You the taxpayer must pay for the “bail out” of these defaulting homeowners. You can voluntarily surrender and give your money to the government by sending in a check (in addition to what you are already paying as income tax, sales tax, real estate taxes, gasoline taxes, vehicle excise taxes, etc., etc.). Or . . .

(Continue to next posting on this subject, Part 2 of 4).

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