It's often said that the difference between the powerful and the powerless is that the powerful get to walk away from their mistakes while the powerless suffer the consequences. The first-time homebuyers' tax credit provides an excellent example of the privilege of the powerful.
The first-time homebuyers tax credit was added to President Obama's original 2009 stimulus package. It was introduced by Senator Johnny Isakson, a Republican from Georgia, but the proposal quickly gained support from both parties. The bill gave a tax credit equal to 10 percent of a home's purchase price, up to $8,000, to first time buyers or people who had not owned a home for more than three years. To qualify for the credit, buyers had to close on their purchase by the end of November, 2009, however the credit was extended to buyers who signed a contract by the end of April, 2010.
The ostensible intention of the bill was to stabilize the housing market. At least initially it had this effect. There was a spike in home purchases that showed up clearly in the data by June of 2009. House prices, which had been falling at a rate of close to 2.0 percent a month stabilized and actually began to rise by the late summer of 2009, as buyers tried to close on a house before the deadline for the initial credit. There was a further rise in prices around the end of the extended credit in the spring of 2010.
However once the credit ended, prices resumed their fall. By the end of 2011 they were 8.4 percent below the tax credit induced peak in the spring of 2010. Adjusting for inflation, the decline was more than 12.0 percent.
The problem was that the credit did not lead more people to buy homes, it just caused people who would have bought homes in the second half of 2010 or 2011 to buy their homes earlier. This meant that the price decline that was in process in 2007-2009 was just delayed for a bit more than a year by the tax credit.
This delay allowed homeowners to sell their homes for higher prices than would otherwise have been the case. It also allowed lenders to get back more money on loans that might have otherwise ended with short sales or even defaults. The losers were the people who paid too much for homes, persuaded to get into the market by the tax credit.
This was the same story as the in the original bubble, but then the pushers were the subprime peddlers. In this case the pusher was Congress with its first-time buyer credit.
According to my calculations, the temporary reversal of the price decline transferred between $200 and $350 billion (in 2009 dollars) from buyers to sellers and lenders. Another $15-25 billion went from homebuyers to builders selling new homes for higher prices than would otherwise have been possible.
While this might look like bad policy on its face, it gets worse. The tax credit had the biggest impact on the bottom end of the market, both because this is where first-time buyers are most likely to be buying homes and also an $8,000 credit will have much more impact in the market for $100,000 homes than the market for $500,000 homes.
The price of houses in the bottom third of the market rose substantially in response to the credit, only to plunge later. To take some of the most extreme cases, in Chicago prices of bottom tier homes fell by close to 30 percent from June 2010 to December of 2011, leading to a lose of $50,000 for a buyer at the cutoff of the bottom tier of the market. The drop in Minneapolis was more than 20 percent or more than $30,000. First-time buyers in Atlanta got the biggest hit. House prices for homes in the bottom tier have fallen by close to 50 percent since June of 2010. That is a loss of $70,000 for a house at the cutoff of the bottom tier.
Many of the 11 million underwater homeowners in the country can blame the incentives created by the first-time homebuyers credit for their plight. This was really bad policy, which should have been apparent at the time. Unfortunately, it is only the victims who are suffering, not the promulgators of the policy. Welcome to Washington.
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Mortgage Crisis - What Caused the Mortgage Crisis
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--was the principle cause of the recent economic meltdown
--was intentionally caused by the Fed, via instructions from the big banks (with Bush admin approval)
--resulted in the consolidation of power in the largest US banks due to the failures of smaller banks without the power to get bailed out
--resulted in a MASSIVE transfer of wealth from the American middle class to the American super-wealthy, the people who own and run the very largest banks
First time homebuyers, in the middle of a housing slump, most likely did not buy the home as an investment primarily. They probably bought it as a home.
If that is the case, as long as the person is employed, the value of the house has no bearing on his / her finances.
There were two fundamental moral sins involved in the Great Recession.
1. The decoupling of the stated value of a commodity from the commodity (derivatives).
2. The social phenomenon of treating your home as an investment as opposed to, gee, a place to live and raise a family.
Funny how economists keep on ignoring the second.
I am pretty sure the numbers worked the same way in the "Cash for Clunkers" debockle.
So let me get this straight. The government gave people money, some people took it and did something unwise in the process, and it's the government's fault?
To keep the market fooled requires an authoritarian government, at or over the edge of a dictatorship.
Yes, some powerful people who were greedy, and some powerful people who were stupid (or inept) may have contributed. But it was those millions of prospective homeowners, who put their signature all over those documents, who made it possible. Yes, government is supposed to protect the citizens from the most egregious abuses. But without the willing and gullible consumer, none of this would have happened.
And the consumer will remain willing and gullible as long as the consumer insists on clinging to the belief that the government can keep the market fooled.
That is WRONG to the point of being pathologically ill. Every person who bought a home during the inflation of the housing bubble needed a place to live. They had to buy a home in a market that was absurdly inflated--they had absolutely no choice. They didn't inflate the market, and they didn't cause it's collapse.
For these people to HAVE A PLACE TO LIVE IN, they had NO CHOICE but to participate in a market that was being manipulated by the Fed (and the big banks that control the Fed) so as to bleed them dry.
They either signed documents, or they lived on the street. It does not make a person "willing and gullible" to choose not to live on the street, buddy.
Your "vision for America" eludes anyone who possesses intelligence and human decency.
Absolutely 100% wrong. A) they were already living somewhere, they could have just stayed put. B) they could have rented, as rents were historically low and actually the better financial choice in an inflated market. (today rents are historically HIGH, so purchase is becoming a better option).
The fact is that few of those purchasers were competent to evaluate the options, either functional or financial.
I doubt that I'll hear anything more from you, so good bye.
So, if your house is presently underwater, and you feel like blaming someone, first look in the mirror. Simply because if the house was presently worth more than was paid for it, most homeowners will be patting themselves in the back, claiming to be smart investors.
http://www.counterpunch.org/2009/10/29/housing-rebound-not-so-fast/
"The senate bill is nothing but a $6,500 bribe to keep people in their homes and out of foreclosure. It’s another giveaway to the banks so they don’t have to face the mountain of debt they generated through fraudulent loans. The banks aren’t satisfied with merely blowing up the financial system and extracting trillions of dollars from taxpayers to fix the mess they left behind..."
"Housing prices will continue to tumble through 2010 no matter what the Fed does. In fact, on Wednesday the Commerce Dept reported that sales of new one-family houses in September dropped to a rate of 402,000, down 3.8 percent from August. That’s 7.8 percent below 2008, well below economists worst predictions."
Almost all the inflation occured from 2003 to 2006 when Wall Street became dominate in the home loan market and with no lending std... and paid 2-3 times more for mortgage brokers to wrte subprimes.
Wiki http://en.wikipedia.org/wiki/Subprime_mortgage_crisis
400% increases in energy, food, and 300% in health insurance under Bush ( massive extraction of avg workers income to wallstreet speculators, with declining wages, made people unable to afford loans, while wages dropped and there was vritually no jobs creation as 60,000 factories closed...
The fed to stop the inflation cause by run away speculation.. raised interest 5%-points, which sent all the variable interest rate loans payments sky high, adding the increased drop in affordability, busting the housing market.
Wiki http://en.wikipedia.org/wiki/Subprime_mortgage_crisis
We did not have this mess for almost 80 years until we again deregulated Wall Street and it is only repubs trying to kill any re regulation of Wall Sreet.. as if nothing could go wrong
.
regards
Fannie/freddie were created to supply the funds, although thye dont and never have made any loans...in 1936.
Worked well, then in 1972 privatized by Nixon... still worked well... Then mortage instruments allowed for private lenders under reagan, non conventional and more exotic loans. .... Then in the late 1990s, but basically between 2003 and 2005 Wallstreet took over the market, and all loan std were thrown out the window.
W/O this high risk loans being rated tripple AAA, this mess could not happen.. correct ratings alone would have ended this pseudo credit /housing bubble..
By 2000 they started doing loans with limited or no appraisals
We had a great system until politicians started using it as a social planiing tool and Franklin Raines destroyed the "investment grade" metrics and underwriting standards.
Angelo Mozillo and Franklin Raines should be in jail.
BS,,.first they dont make loans. Thats not what the Congressional investigations show...
Now should Raines and most of wallstreet be in jail.. thats agreed. Mozillo was Country Wide by the way.
remember.. they were companies traded on the NYSE,, officers elected by stockholders..since Nixon made them go private in 1972..
Wiki http://en.wikipedia.org/wiki/Subprime_mortgage_crisis
Regards
His other solution is that are home prices are still also too high, but yet lower than in the EU, Cannda and 3rd world countries.. and way below new construction costs.
The repub solution has always been a race to the bottom for the 99%, while the top one percent wages are tripple the rest of the world.
Thi race to the bottom of low wages works so well that the red states have been welfare states for the past 50 years getting back on average 50% more in Fed money than they pay in..they are our national debt, poorest 15 states, bottom in education, highest in per capita food stamps, welfare and etc... highest per capita rate of min wage jobs.
Low wages, means poor customers, poor customers means poor business and in both cases low tax revenue.
If you think your wages are too high, and your house is worth way too much, then Vote Romney!
Germany also has a retirement age of 68. And they have "Schuldenbremse" ('debt brake', a balanced budget amendment that forbids the government from running a deficit). Just 30% of German HS graduates go to college, the rest enter apprenticeships. As I said, you are cherry picking.
The Germans can have what they have because of who they are: a) they are deeply patriotic and love Germany and all things German (including each other ... google the German national anthem: "German women, German fidelity, German wine and German song", b) they respect the trades and crafts, no German would speak other than with great respect of a machinist, welder, or electrician, c) the Germans are frugal to the roots of their souls, they always save and they always live below their means.
Now you know.
Thye have a national industrilaization policy, and anti outsourcing regs and a min wage of over 15/hour..