Obama’s Housing plan and the Responsible Renter

There is a cry of injustice in the air.

This is from people who have been responsible renters. They question the fact that they are being asked to bailout irresponsible homeowners who have bought larger homes than they can afford and are now going into foreclosure. They point out the unfairness of Obama’s housing rescue plan to people who have been renters .  They aver that it is better for home prices to fall due to foreclosures, so that finally, they too, can afford to buy homes that they can now afford.

A completely fair question. A very fair concern. And a very fair free-market expectation.

Let me see if I can help address this concern. Before I start to make my point, I want to clarify: I do not personally stand to gain from Obama’s Housing rescue plan. Not a cent. While I am not an Economics expert, I do try to see both sides of the coin and am trying to look at the economy as a whole.

This downturn has affected all of us and is a danger to this country’s long term stability. From that standpoint, it is important to go to the source of what started off this cascading disaster. The subprime loan fiasco and the foreclosure of homes has been identified by experts as the root cause of this economic meltdown. So, it makes sense that we fix the cause and not the symptoms of the illness.

Job losses, failing banks and auto companies, unemployment lines, disrupted children and families, increase in number of people without health care… all these are symptoms of the disease that has taken hold of our economy. The root cause is the housing market collapse.

As long as most people were diligently paying their mortgages, the banks continued on their merry route to making more and more money. Everything was fine. The sun shone.

As the subprime market started to melt, we felt the first tremors of the housing market. Like any untreated illness, the disease soon spread to other areas and now we have otherwise healthy mortgages failing, sometimes due to a job loss, sometimes due to forces beyond a homeowner’s control and sometimes due to the sheer irresponsibility of being overextended on debt. As more and more homes started to foreclose, it brought home prices down all across the country. Responsible homeowners were now upside down on mortgages that they have been paying diligently. They owed more than their house was worth. And so began more defaults leading to the avalanche of sliding home prices.

In order to staunch that bleeding, the Obama administration has correctly addressed the root cause: stem the foreclosures.

But what does that do for renters?

Now, there are two types of renters: ones that will probably always rent their whole lives for a variety of reasons – maybe they are nomadic, or they love the freedom of not being tied down to a home or they choose to rent for a variety of economic reasons. The housing meltdown does not affect them significantly, other than the fact that their rents probably came down a bit - they now have more bargaining power because there are many more homes for rent in the market.

The second kind of renter is the one who, with the falling prices, can now finally afford to buy a home. These are the people who have protested Obama’s Housing rescue plan vociferously. They feel they can now finally afford a home because home prices are where they should be.

Nobody is arguing the validity of their point.

But here is my opinion: if a renter can now finally afford to purchase a home, there is no dearth of foreclosed homes to purchase. Allowing foreclosures to continue unchecked will cause great danger by letting the markets go into a free-fall  until the entire economy collapses. And a collapsing economy will certainly hurt everyone. Even though a renter can finally afford to purchase, he/she may not be able to get a loan as banks which have been singed by defaulting homeowners will now be extra careful about giving loans to new homeowners. In addition, even if banks are willing to lend, they do not have the money to do so.

This situation reminds me of the “dog and pebble” story that Indians love to tell – When one finds a stray dog and wants to aim a pebble to chase it off, one cannot find the right sized pebble. And if there is a right sized pebble, a stray dog is nowhere in sight.

Likewise, this feeling of being able to take advantage of the foreclosure market. Homes are now available and affordable, but loans are harder to get. And with more homes being foreclosed, the cascading effect on the economy as a whole, is terrible to contemplate.

So, Renters! The govt. is not just using our hard-earned tax dollars to benefit irresponsible homeowners. The dollars are actually being used to prop up our economy by fixing the root cause of the disease, so that we all may have jobs, stable homes and health care.

Foreclosures are a lose-lose for EVERYONE – homeowners, lenders, banks, renters and new purchasers. If we take a step back and look it from a bird’s eye view, we will see that Obama’s plan, while not perfect, will eventually help prop up the economy, IF carried out without interference from vested interests.

But that’s a big IF.

Party at Capitol Hill Dunk Tank!

There is something to be said for the party at the Capitol Hill Dunk Tank that periodically invites the creme-de-la-creme from the Wall Street and Financial fraternity for cake, since they don’t eat bread. Even as we are crying foul at the massive re-distribution of wealth that is taking place under our noses, our house reps, in an effort to wipe our tears and divert us, have hauled up various economic criminals (bank and auto heads), real criminals (peanut tycoon), camouflaged criminals (Treasury and SEC officials who plead incompetence rather than malicious intent), and financial criminals (Madoff et al), to a Capitol Hill Dunk Fest.

Our brave leaders have put their heads in the lion’s jaws for our sakes. They recognize that we are yelling for blood. And that we want justice. Because we know, in our heart of hearts, that the money the CEOs have earned is not for an honest day’s work. It is “earned” with a loaded dice – by knowing the “right” people, “lobbying” for their interests, and fighting against legislature that benefits the country.

So they drag these suited, booted, arrogant, smirking, know-it-all, talking heads to Capitol Hill.

“Did you know that you were indulging in risky behavior when you encouraged your loan officers to push high interest mortgages to people who couldn’t repay them?
Dunk!

“How much money did you lend out last year after you took TARP money and how much did you lend out the year before when didn’t have access to TARP money? Why are both amounts the same?”
Dunk!

“How many millions did you pay as bonus to your employees with one hand, when your company was in the red and grasping taxpayer money with the other hand?”
Dunk!

“Weren’t your companies the ones that fought hard against legislation for building energy-efficient cars? Now why are you coming to us for help when gas prices make your cars unaffordable to run?”
Dunk!

“How did you come to Capitol Hill today? Did you use the Corporate jet?”
Slam Dunk!

Oh, I know, I know, one cannot shame the shameless. To all intents and purposes, a tongue-lashing is not the same as a lashing.

Our only hope of reprieve from yet another bubble is to enact strict and loophole-free laws before we hand out our money to the grubby hands of the banks. But since our interests are not protected here too, we must rely on Wall Street’s sense of shame and well concealed patriotism in order to help dig our nation out of the mess of their making.

Even if the dunkfest does not accomplish its goal – to shame the CEO’s into good behavior, it at least indicates that at least our lawmakers feel our pain, while they are handing out the futures of our children and grandchildren to dishonest and avaricious people. We should be able to take comfort in that.

If only we would stop to THINK before rushing in to FIX!

“Folks! A lot of people miss those old drive-in theaters. But I say, any theater can be a drive-in, if you ram it with your HUMMER!” So, quipped Stephen Colbert in his Colbert report.

Seems to me that this is how we Americans solve our problems. Just ram in, preferably with a Hummer and you will be fine! This is exactly how I see our latest economic crisis being handled. First, Paulson convinced the Congress and the Senate to dish out $700 B of taxpayer money with no questions asked, so that he could ram it through the financial system, regardless of whether the banks wanted it or not (according to some reports) and hoped that it would solve the problem.

It didn’t.

All it did, was create a situation like the one I have seen in India before. When one goes to a temple in India, there is usually a loooooong line of beggars seated at the entrance with their palms stretched out. And you better decide upfront if you want to give alms that particular day. Because, be prepared, when you start doling it out to one person, the other beggars appear out of the woodwork and you cannot escape. So, you keep delving into your purse to find more cash until you run out of the green stuff and then and only then, will the beggars disappear.

So Paulson created a situation like that, only on a MUCH larger scale. We now need to ram more money into the system. Just what exactly the system is, no one knows. All we know is that it is NOT middle class American people.

So we do what we are best at doing: American problem solving – there is a problem, pour in cash, it will go away. We don’t blink, we don’t think, ala Sarah Palin. We just dive in and pour the cash. That’s what we are now trying to do with the Big three Detroit Auto makers. There are already reports of many more companies asking for a handout.

…While Middle class America is left seated at the temple door.

Can we stop for a moment and THINK? Can we try to identify the problem before rushing to fix it? I know, I know, the auto makers say that they wont last this month without money. But it cannot have happened in a jiffy exactly like Paulson said the financial storm happened in a jiffy.

What, exactly, are we trying to solve here? What is our major problem?
1. Is it the American auto manufacturing that we want to save?
2. Is it American jobs we are trying to save?
3. Is it both?
4. Are there not other options for creating jobs and other futuristic options for personal transportation?

For instance, I just read in Fortune magazine that Abu Dhabi is creating a completely self sufficient city in the middle of the desert. Read, “A Green city blooms in the desert” by Julia Joffe in the December 2008 Fortune magazine. The city is called “Masdar” and it will be home to 1,500 businesses, 50,000 residents, and 40,000 commuters, will use 75% less electricity and 60% less water. Personal transportation pods will be powered by lithium batteries and will replace cars.

The cost of building this city: $22B, about 2/3rds of what the Auto makers have requested Congress to pay for their initial bailout. It is estimated that they will come back for more before 2009 is out. Experts suggest it will cost the taxpayer between $75B and $125B. And we are not even sure if cars are the transportation mechanism of the future!

Wouldn’t a project like the one planned by Abu Dhabi create jobs immediately? Wouldn’t it create renewable energy, help America lead the world in urban planning and pour money where we need to be in the future? Wouldn’t it also solve our future transportation needs? Are cars the ONLY way to travel? And are the auto manufacturers predictions of car sales for the future going to hold out? Are we pouring money before stopping to take a breath?

Don’t get me wrong: I have tremendous admiration for the good men and women who represent the American public in the Congress and the Senate. I think they are doing a fantastic job, to the best of their ability. They have been tough on the Auto makers and have learned from their experience of handing Paulson money with no strings attached.

Only, if only we would stop to THINK before rushing in FIX!