Another Bailout?

Another week and another groveling industry seeking their turn at the trough filled with taxpayer dollars.

But this week it's the homebuilders, which hits a little closer to home.

First of all, let me say, that this is one bailout that actually could put some money in my own pocket. (Never let it be said I didn't property disclose!)

And, having said that, let's look at the merits (and downsides) of this plan.

First of all, an outline of the plan as found in today's Wall Street Journal:

The plan calls for a $250 billion stimulus package titled "Fix Housing FIrst".

The first part would be a tax credit for home buyers of 10% of the home's value, up to $22,000. Unlike the earlier $7500 credit, this one would not have to be paid back.

The second part of the plan would have the government subsidizing interest rates. A 30-year fixed rate mortgage would be 3% if you bought in the first 6 months of 2009. The rate would go up to 4.5% if you bought in the second half of 2009.

The good news here is that at least someone is addressing the root of the current problem, housing. We've heard of lame plan after lame plan to help homeowners in trouble. This one won't help homeowners much either, but plenty of others will feast at the gravy train.

Here are the problems I see. First of all, why should the taxpayers be helping out the homebuilders and related industries, such as real estate? While I'm not opposed to attempts to increase my income, I see no reason my neighbors' tax money should support my real estate habit. If it was a bad use of taxpayer money to bail out AIG, it's equally bad to use it here.

The homebuilders are in trouble. There's a good reason for that. There are too many homebuilders for what the market will support in the next 20 years. Yes, it will be painful for many individuals and families to see some companies go under. But the end result will be a healthier industry.

This has the potential to produce another unsustainable bubble.  What happens to home prices in 2010? At some point there has to be a balancing of supply and demand. You can artificially influence that, but only for the short term.

And, again, it does nothing for homeowners losing their homes to foreclosure.

The Wall Street Journal article does mention other suggestions that would allow current homeowners to refinance to lower interest rates with the government subsidizing the difference. That actually does have the potential to help, depending on the details.

Meanwhile, I'd say let's stop spending taxpayer money like a drunken sailor, with no oversight or accountability. How can that be in anyone's long term best interests?

RE: Another Bailout?

If we help the homebuilders - they will do what homebuilders do - build.  Given the record amount of inventory out there, the last thing we need is to add to it by subsidizing their propensity for building. 

The flip side is these guys will go out of business adding to the unemployment rolls.  However they have already cut back so much, this additional burden to the taxpayer will likely be negligible.  Thus, I see no use for this.

Im all for bailouts that can cause things to get better or perhaps not worse.  All this one does is add to an existing problem - exactly what we do not need to be doing.   

RE: Another Bailout?

I was a fool. My house is paid for, and I just stayed in it. I clearly should have bought a MacMansion that was way out of my price range, maybe with a barn and a pony. I'd probably end up with that house for much less than the mortgage was worth.

Once Congress sees no apparent probelm with increasingly large deficits, they go out of control (post 9/11/2001). Once Congress puts out the feed trough for business, there is no stopping the gluttony. The costs make welfare and foreign aid seem very small indeed.

I see you a Toll Brothers, and raise you a Richmond America...