Wednesday, February 4, 2009

"Big Bang" Financial Madness

Diane Francis in the Financial Post has speculation about how crazy the stimulus and bailout mania might get this year with the Obama administration. When I read this it's equal parts anger and panic. (read)

-Washington is going to bail out all homeowners in the United States. The U. S. government will guarantee all residential mortgages involving owner-occupants, including mortgages that are dramatically higher than the value of the underlying property.

-In return for removing mortgage loan credit risk, Washington will require banks to stretch out principal repayments to owner-occupants so that they do not exceed, on a monthly basis, more than 38% of family or owner incomes. When values or incomes go up, presumably, adjustments will be made. This will provide a floor to property values, a form of welfare to the unemployed and another unfreezing of bank credit.

This is a double punch to the stomach. People who got mortgages that they couldn't afford are going to get bailed out? All of them? That means there's no value anymore. There's no such thing as buying and selling if there is no risk. It's outrageous that cautious people who waited while the bubble rose, are going to pay for other people's homes. While they rent. Wow!

1 comment:

  1. Talk about icing on the cake. In the US mortgage interest is already fully tax deductible. This policy also helped to inflate housing values. In other words the government policy had the reverse effect. It seems that owning a house will now become a Washington policy, instead of a private ambition.

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