Sunday, September 28, 2008

$700 Billion Bailout

I have been reading about the $700 Billion bailout issue and been pondering about it for a while. The more I think about it, the less it makes sense to me. The government wants to buy foreclosed homes from banks and hold on to them till the market improves. It doesn't take a genius to figure out that this not a plan to help the foreclosure crisis. Its a plan to help the corporations write down a lot of bad decisions at tax payer expense. Why should any one have to think that this is going to work? Theoretically, It will give the banks much needed cash to get them to start lending again... essentially getting the tax payer to dole out $700 Billion to the banks, just to have them lend it back to us at a higher interest rate. Why does this sound like trying to beg from a beggar's bowl, promising to give back less than what was taken out, or trying to kill a bee with its own sting?

What's the guarantee that the bailed out banks wouldn't take the money and go invest it outside the USA, and then claiming they need more money? Didn't we already see the Fed injecting money into the market several times, only to have it rise back from the dead? If the government is serious about fixing foreclosures, wouldnt preventing foreclosure by addressing the real issues be better than waiting for people to go into foreclosure and buying them with taxpayer money? All this plan does is to move the problem from one place to another, without addressing the real underlying issues. This is like trying to avoid fixing a leaky roof by placing a pots to collect the water.

A a lot of smart people have determined the ROOT CAUSE of the current mess in credit markets to be the deteriorating real estate market. Though this seem to be the immediate culprit, I don't know if we can pin the blame on it as the only root cause.  With a large number of jobs getting outsourced, and practically all manufacturing being done outside the USA, is it any wander that we are in such a bad mess? We have successfully outsourced most well paying jobs, with the exception of the service sector that needs to have certain jobs locally. The whole country has been turned into consumers, and the few that produce and service, have their heads buried so deep in policies, they have effectively turned workers into nothing but robots.

When people have no jobs to pay for their mortgages, naturally, the next step is going to involve foreclosure. Why don't we then recognize outsourcing, instead of housing, as the root cause of the current mess? I guess its because no tax payer would want to bail out the greedy companies that outsourced their jobs. Housing is a much easier scapegoat that the taxpayers may give into. So, instead of pointing out the real root cause, a politically correct root cause is found that we can all relate to.

I wander if this $700 Billion is the end of it all. Does the government know how long they have to hold these houses for the markets to stabilize and start moving up again? What about the cost of managing the infrastructure for all these government owned homes? What about maintaining these houses? Have they considered lawn care, vandalism, frozen pipes from cold winters, home insurance, marketing costs, etc? The cost of home insurance for a vacant home tends to double or even triple, as insurance companies consider it to be a higher risk than occupied homes. So, by the time all these costs are taken into account, does the government still plan on making a profit? Are the taxpayers going to end up holding the bag for that too?

You can do a lot with $700 Billion, and I'm sure we can come up with 700 Billion ways to spend that money more constructively! For one thing, we can put that money towards projects that reduce our energy dependence, and create jobs. Why not use part of that money to create an efficient Mass Transportation system that works well, be affordable and convenient so that people can reduce driving, and thus the dependence on oil? Wouldn't a project of this size create a lot of badly needed jobs for the American economy? Ford and GM are also begging for $25 Billion of tax payer money for a bailout. Instead of blindly bailing them out, why not get them to make busses and trains for the Mass Transportation system? That in turn would allow them to keep employing their workforce for a project that would help us for a long time. The people that worked on housing can be employed to make bus and rail stations. If people have jobs that earn them money, they wouldn't have to go into foreclosure. Wouldn't this be a better way to reduce foreclosures at the root cause, rather than waiting for people to foreclose, and then buying those properties with taxpayer money? Isn't this better than blaming the people who worked hard to earn the American Dream? I am not denying there were speculators, or that bad loans were made, or that some lenders were preying on unsuspecting borrowers... what I am saying is that we are addressing the problem by putting band aids in the wrong places, instead addressing the REAL ROOT CAUSE.

Assuming we have a population of 300 million people, that should make each of us liable for about $2340 per person. Remember that $600 tax gift that President Bush gave us to go shopping? Well, it looks like the government has picked my pocket for nearly 4 times that amount! Just to be on the safe side, I think we need to get the government to give us in writing, which Billion they are referring to; the one that is a Thousand Millions, or the one that is a Million Millions!!! After all, we have been taken on several scenic rides before. When a $7000 Tax credit for the purchase of a new home" turns out to be a 15 year loan, and when we have to payback 4 times the tax break we got, all I see are lies, lies and more lies. Oh, I just forgot. Did we find those WMDs in Iraq or catch that Bin Laden guy yet? Are we still playing Porky and Bugs Bunny with the bad guys?

Its good to see that a lot of people are taking action to prevent the government from sticking it to us. Please support them by digging their stories, so that Washington will take note. It may be futile, but doing nothing is worse. Keep the American spirit alive, and Long Live the American Dream! digg it

I don't have a background in finance. My formal training is in engineering, so a lot of my thoughts are based on the simple principles of managing money. I got into real estate as a backup plan, because the only thing I knew was about computers, and the way things are going doesn't give me any comforting thoughts. I have learned a few things having gone thru the .com crash in 2000, and I needed to learn something different. I figured what I learn from real estate would not be a waste at all, as I would learn people skills, marketing skills and learn about an industry that directly and indirectly touches every part of our daily lives. All of these skills would be applicable to technology in one way or another. This is my way of dealing with uncertainty, allowing me to broaden my horizons and acquire new skills.

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