It was Albert Einstein who said that the definition of insanity is, “doing the same thing over and over again and expecting different results”. Congress has now passed legislation that will extend the first time home buyer tax credit deal – that’s the one that encourages people to buy a house now so they can pocket an $8,000 tax credit. Now, even better, Congress has also included in the legislation a $6500 tax credit for people who have owned their homes for five years. The deal is you have to flip the house you are in and buy another house. Then you have to stay in that house for three years. This income tax credit is, of course, in addition to the exclusion from income taxes of up to half a million dollars profit you make on the sale of your existing house.
So, let me see if I understand this. The economy of the entire world has been brought to its knees by a housing bubble and the fix for the global economic meltdown is to create another housing bubble? Is that it? You mean it’s like giving heroin addicts a little more heroin because they are having withdrawal symptoms? So when the symptoms go away everything is OK? So what about those of us who bought a house four years ago? Why can’t we play too? Or what about those of us who are saving up for a down payment for our first home but we know we’ll never have enough until the summer? What about us?
So – this is going to help the economy, right? OK. Whose economy does it help? The people who buy the new houses? Probably not much, after all they are about to be saddled with a new mortgage. How about the people who build the houses? I suppose so. It will probably keep them employed for another six months or so while they build the new houses for the new bubble. How about the banks? Well then, I think now we’ve struck pay dirt. The banks will be giving out their usual, or unusual, 30 year mortgages, thus assuring themselves of at least tripling their investment over time. Sure, this tax credit sort of stimulus will give a multi-million dollar boost to the home construction industry. However, over the period of 30 years, it will create a multi-billion dollar boost for the banks.
So where does that leave us? Congress is making rules that primarily benefit the big banks and a little bit of the money trickles down to the ordinary people, who will naturally wind up paying for this benefit to the banks via their shiny new mortgage payments – or via their future taxes which will be used to pay for the tax credits they just received. In the end the net big time winner is the banks – which is probably the intent of our Congress which has grown fat and bloated, feasting upon the “contributions” from the half a zillion lobbyists who troll the streets and alleyways of our nation’s Capital.
Here’s a question: how many professional economists has our Congress consulted for guidance about this? Has Congress ever talked to Nouriel Roubini, the economist who accurately predicted the worldwide economic meltdown? Has President Obama ever talked to him? How about Paul Krugman, the Nobel prize-winning economist? Is he in the loop? Somehow, I don’t think so. We all know who is in the loop in Washington. It’s the bankers and their lobbyists. It’s the insurance companies and their lobbyists. As they say – we have the best government money can buy.
Here’s another question: what is the grand vision? Where do we go from here – economically, I mean. And how do we get there? Could someone in DC just stand up, preferably the President, and just lay it out for all of us? Or do they just think it is all too complicated for us children? Is that why they are throwing us these scraps of cake to feed on – little stimuli to keep us sated while they figure out how to get the banks on top again?
OK, one more question: if our Congress cared so much about us instead of caring about the wealthy bankers, why don’t they put a limit – a hard and low limit – on credit card interest. Something like 12%. Why don’t they put a hard limit on mortgage interest rates – like maybe 8%? Why doesn’t the Congress protect us citizens from the raptors at the banks instead of allowing them to feed off the flesh of the American people? We know why. The banks own Congress. That’s why we now embarking on Housing Bubble Part 2.
Better find a seat in a lifeboat now.