Aug
31
2007
Should Government Aid Borrowers?
By Charles Turner
The Federal Reserve said they may lower rates at their next meeting to aid borrowers that are going through subprime woes. The George Bush, speaking at the White House, had similar comments that they might intervene. Both said it is not their job to bail out “speculators” and others that played the market but government action might help the market. A reduction in rates and/or tax breaks might be a part of the solution.Portland Real Estate Blog
As usual, there’s a lot of disagreement over what Bernanke actually said. While some got a hint that he might lower rates next month, others got the idea that he was saying that he’s going to hang tough unless the economy gets really bad – and in his statement he basically said that the economy is OK. That’s just part of the Fed Chairman’s job description: don’t be transparent and be difficult to read.
The tax break that Bush is implying has to do with short sales: apparently he wants to make short sales non-taxable events for the seller. A short sale is when a homeowner in trouble asks his/her lender to allow them to sell the property at a loss and the lender eats the difference. Lenders will sometime agree to this because it saves them the hassle & expense of going through the foreclosure process where they would probably end up selling the property at a loss anyway. Currently, when you sell a property for less than you owe on it, the difference is taxable. Bush apparently wants to eliminate that taxable event for short sales. On the surface this seems like a good thing because people who are doing short sales are doing it because they’re in trouble already, so why add to their troubles? However, some have pointed out that eliminating taxes on short sales will just make it easier for homeowners to walk away by selling at a loss. It could actually accelerate the rate of home price errosion.
Personally, I don’t think we should have any kind of government aid for borrowers or lenders. Doing so would only increase the moral hazard and it would end up costing all of us taxpayers money. No, let the market work: falling home prices is the solution here, not the problem. In fact trying to keep home prices high through government intervention will only make things worse in the longrun.
The funny part is seeing a republican pretend that he wants to “help the people keep their homes” when in fact republicans don’t care about anyone but themselves and actually enjoy seeing others do badly. No, this idiot fratboy president wants to protect the people who bought the bad debt. Believe me when I say that if there is a republican proposing a bailout of the little guy, the rich will get gold-plated pillows to rest their heads on.
We should give people help with their loans on a case-by-case basis. But unfortunately, the most devious and conniving (read “republicans”) will find a way to turn this bailout into gold for themselves while the people needing assistance will get screwed.
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