GRASS IN REVIEW

GRASSROOT INSTITUTE OF HAWAII

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 WEEKLY GRASS IN REVIEW   -    June 18, 2008

Bailout Bonanza
Privatizing profits while socializing losses is becoming routine
By Deroy Murdock

Hot on the heels of its $307-billion farm-bill giveaway, Congress is plunging into another multi-billion-dollar spend-a-thon. The next targets of its affection are mortgage holders, soon to be seduced with other people’s money. Maddeningly enough, part of this courtship will be billed to America’s 83 million equity-starved renters who only fantasize about home ownership.

The House has approved and the Senate presently will consider legislation to provide federal insurance for $300 billion in refinanced home loans. Taxpayers will have to shell out hard cash if borrowers default on this government-guaranteed debt. This new program is expected to cover just 500,000 to 1 million homes. Thus, these taxpayer-insured mortgages would average $300,000 to $600,000. This is not exactly low-income housing.

This bailout, the Wall Street Journal reports, would cover more than just those Americans who struggle to pay their mortgages. It also would benefit those whose home prices have sunk below the value of their mortgages. It is unfortunate if someone possesses, say, a $1 million mortgage on a home now worth $900,000. But so long as that person’s monthly mortgage check does not bounce, there is no reason for government to rush to the rescue. Impending homelessness due to negative cash flow is one thing. Steady, positive income that finances a lifeless housing investment is something else and does not merit public relief. Only 2 percent of mortgages are in foreclosure. The balance are current or at least manageably in arrears.

Congress’s lavish scheme is a particularly shabby deal for renters. While politicians routinely ignore apartment-dwellers and other renters, people like us inhabit 34.7 percent of America’s 108 million households, according to the National Apartment Association. More than one third of U.S. homes are rented, yet rent payments are not tax-deductible, as are mortgages. Where is the social justice in that?

This massive bailout will suck tax money out of renters’ bank accounts and swallow savings that some are salting away for home purchases. If this plan achieves its purpose, residential prices will rise again, pushing the American Dream of home ownership back above many a renter’s reach.

Congress could level this playing field by making rent checks as tax deductible as mortgage payments. Despite being totally overlooked amid the political pampering and promises that homeowners enjoy, renters are no less patriotic and decent citizens than mortgage holders. And if there is something unsavory about occupying apartments rather than actual houses, that’s fine. Just kindly pry Uncle Sam’s sticky fingers off of our unsavory wallets every April 15.

Is there a sunnier path out of this swamp?

Banks that hold mortgages should let borrowers with financial troubles pay a portion of what they owe every 30 days, on a month-to-month basis. Meanwhile, prospective new owners could inspect these homes. If owners’ money woes vanish, they could bring their accounts up to date, and then stay put. If not, they would have one month to clear out once new buyers have cleared escrow. This makes much more sense than for residents to suffer foreclosures, vacate, and then leave banks holding inventories of deserted houses that yield zero income, flood the market, and depress real-estate prices from sea to shining sea.

The worst news is that this $300 billion boondoggle is just the latest example of America’s burgeoning bailout culture. It is becoming routine in the land of the free and the home of the brave to privatize profits and socialize losses. These include the $125 billion savings-and-loan bailout of the late 1980s, the Federal Reserve’s $3.6 billion bailout of Long-Term Capital Management in 1998,this year’s $30 billion bailout of Bear Stearns, plus $106 billion in Keynesian stimulus checks for nearly everyone, and the never-ending budget-busting bailouts of U.S. farmers via Stalinesque, five-year plans. Americans who are wealthy enough to afford beach houses periodically watch them wash away in hurricanes, only to see them repeatedly replaced at taxpayer expense.

The United States is devolving into a social plutocracy. A relatively small number of often affluent Americans cushion themselves from the consequences of their failed risks by sponging off of this nation’s 130 million prudent but exhausted taxpayers.

Deroy Murdock is a columnist with the Scripps Howard News Service and a media fellow with the Hoover Institution. He is a member of GRIH’s Board of Advisors.

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LIBERTY NETWORK

1. GRIH President Jamie Story's response to critiques of her earlier commentary, “From VOG to SMOG: Rail Transit’s Impact on Hawaii’s Air”, was published by Hawaii Reporter on 6/13/08: “Shouldn’t the People of Oahu Have a Say in Whether the City Builds a Multi-Billion-Dollar Rail System?”

2. GRIH Editorial Consultant Brandon Bosworth wrote the cover story for the Friday, June 13, 2008 edition of MidWeek Magazine, “The Amazing HUMAN BODY.”

3. GRIH Grassroot Insights Podcast #3: Richard Rowland, co-founder and President Emeritus of GRIH, is the featured guest in the third of GRIH's periodic podcasts with leaders in the community and beyond.

4. Grassroot Scholar Ken Schoolland, who is also Associate Professor of Economics and Political Science at Hawaii Pacific University, lately has reason to celebrate. His book Jonathan Gullible: A Free-Market Odyssey has been endorsed by ABC's John Stossel. "I believe the adventures of Jonathan Gullible provide valuable lessons for us all," Stossel said.

   The book also comes in a new hardback, full-color illustrated edition, and an audio CD is forthcoming. This will be the 7^th English edition of the book, and it is now published in more than 40 languages with an additional 10 languages soon to be added.

   "I'm thrilled by this because John Stossel has done more to popularize free-market ideas than anyone in the country today," said Schoolland. "Every week his "20/20" program reaches 20 million viewers and his classroom materials reach as many students."

   For more information please visit: http://www.jonathangullible.com/newsletter.htm

5. The Law Now Free Audiobook! One of the favorite books around the GRIH offices is Frederic Bastiat's The Law. First published as a pamphlet in June 1850, the book is more than a hundred years old but the truths it explores are more timely than ever. And the book is now available FREE as an audio book from freeaudio.org.

   FreeAudio.org is a nonpartisan organization dedicated to the spread of liberty by providing audio books to the public in either a free or an easily affordable format. People can download the audio books and listen to them on their MP3 player or burn them to CD.

   Bastiat (1801-1850) was a French economist, statesman, and author. He did most of his writing during the years just before -- and immediately following -- the Revolution of 1848. This was the period when France was rapidly turning to complete socialism. As a Deputy to the Legislative Assembly, Bastiat was studying and explaining each socialist fallacy as it appeared. Even though it was written over 150 years ago, The Law is still timely today, as socialist ideas are sweeping across America.

   To hear the book, please visit the FreeAudio.org web site at http://www.freeaudio.org/fbastiat/thelaw.html

6. Please let us know of any candidates who may be interested in signing the Taxpayer Protection Pledge. For more information about the pledge, please visit www.atr.org.