Monday, February 23, 2009

US mortgages, curious perspectives

Visiting the US it is curious to watch the old hands and old thinkers groupthink en masse behind the mortgage bailout programme announced last week by the US government. "Saving 9 million homeowners" and "Maintaining price stability for communities" are two of the oft-heard mantras being repeated en rote via those supporting.

The curious perspectives result from the very same old hands and old thinkers being baffled by the visceral reaction of most Americans to this latest bailout programme. The nettle which is not being grasped by the fossilised among us seem to be quite clear:

- There are approximately 70 million owner-occupied households in the US. The announced bailout programme will "assist" 9 million owner-occupied households. This means that over 60 million US owner-occupied households will not be "assisted".

Ahh, but these non-assisted 60 million owner-occupied households will be assisted, our old hands and old thinkers would say, by home prices being stabilised by lowering foreclosures. Win-win all around. This argument fails utterly as there is a much bigger picture out there for the 60 million:

- Retirement and 401(k) plans have been decimated (wealth of the individual, down)
- Taxes will currently and/or eventually rise in order to pay for all the bailout goodies being churned out of DC (wealth of the individual, down)
- Housing values have already been cut or slashed, stabilising will do so at a much lower value (wealth of the individual, down)
- Jobs are shaky and/or being lost at a record pace (income - and future wealth - of the individual, down)

Each of the above are impacting most households in the US, all push the wealth/income of large numbers of individuals lower, taxes being the only "rising" indicator. It is this larger picture and context which the old hands and old thinkers are failing to grasp in terms of the reax of the US citizenry nobly embodied by the likes of CNBC's Rick Santelli.

As it relates to the 9 million households helped under the mortgage bailout, why should the other 60 million households suffering economic reversal as well be on the hook for this very small group?

This post assumes politics is playing no part in any of these bailout programme - yes, a real flaw in the thinking. All other perspectives welcome.

No comments: