Barack Obama Protecting the Stupid People From Themselves

I was reading about Senator Obama’s economic policy and once again something jumped out at me.

*Protecting Homeowners: Obama has proposed a fund to offer direct relief to victims of mortgage fraud and would ease the burden on struggling homeowners by offering a tax credit to low- and middle-income Americans that would cover ten percent of their mortgage interest payment every year.

I can sort of see offering some relief to those who have been the victims of fraud, but really, the people struggling to pay their mortgage? Can Senator Obama be any more of a pimp? If a person makes a bad decision why should those who don’t make bad decisions be punished? Also, by reducing the costs of bad decision making, you are implicitly encouraging more bad decision making.

This “point” in Senator Obama’s economic policy is nothing other than pure pandering.

FILED UNDER: Campaign 2008, Economics and Business, US Politics, , ,
Steve Verdon
About Steve Verdon
Steve has a B.A. in Economics from the University of California, Los Angeles and attended graduate school at The George Washington University, leaving school shortly before staring work on his dissertation when his first child was born. He works in the energy industry and prior to that worked at the Bureau of Labor Statistics in the Division of Price Index and Number Research. He joined the staff at OTB in November 2004.

Comments

  1. C.Wagener says:

    Steve,

    What’s with the critical thinking?

    We live in a world where there is “Big Oil”, “Big Pharma”, Big Tobacco”, “Wall Street fat cats”, “the rich” and insurance companies. Everyone else is a victim.

    Now isn’t that a lot easier? Now go watch some tv or play some X-Box.

  2. Ugh says:

    Pimp?

  3. jeff b says:

    Both Hillary Clinton and John Edwards were/are offering to subsidize gasoline. Tax credits for homeborrowers sounds almost sane by comparison.

    I don’t agree with this proposal by Obama, but I ask you why this would be any different than the vast and various tax breaks already given to homeborrowers?

  4. Hal says:

    So, no fraud, eh Steve? Just pure rational choice.

    Oh, and I’d really watch the “pimp” bit. You, unlike the gentleman who got fired for using it recently, understand precisely what it’s effect is and you are – I’ll wager – doing it quite quite conciously.

    Bravo!

  5. anjin-san says:

    Can Senator Obama be anymore of a pimp?

    I don’t know Steve, could you act like a bigger asshole?

  6. alphadog says:

    I don’t know Steve, could you act like a bigger asshole?

    Good question, Steve do ya think you could really act like anjin?

  7. Hal says:

    I don’t know, anjin. Alphadog certainly is making the object lesson that there’s a bigger asshole: himself.

  8. Christopher says:

    What a guy you are, Hal! So self-righteous! So judgmental! So smart! (not)

    Maybe you can explain to us what the economy was actually like back in the 1400’s, Mr. Intelligent, so we know what to expect when the CDS pile goes bad. We can all sit at your knee here and listen with wide-eyed wonder to your imparting of wisdom! Oh glee!!!

  9. Steve Plunk says:

    I thought I’d throw in a little grown up commentary.

    jeff b makes a reasonable point. We already allow tax breaks for mortgage interest so what would be fundamentally different with a tax credit for a portion of that interest? I don’t agree with it but let’s work through the issue.

    Personally I would argue that a limit must be set and adhered to. The interest deduction has been in place for many years so I would set the limit there. We could subsidize further home buying with something like this but we could subsidize a lot of things for poor and middle income Americans.

    This is just one more give away from the Obama campaign. What makes it so terribly bad is the fact so many other give aways have preceded it. I see zero fiscal discipline in this candidate.

  10. Triumph says:

    Can Senator Obama be anymore of a pimp?

    This doesn’t make any sense. Pimps find customers for prostitutes–they don’t go around giving money away (at least none of the pimps I know have ever done that).

  11. Hal says:

    Oddly, I agree with Steve. Not on the “zero fiscal discipline” remark, but much of the rest.

    And Triumph makes a great point about pimps. Odd the way Steve decided to use that particular word wrt Obama.

  12. Christopher says:

    Oh Hal! You are so smart! If only you were running the world!

  13. Dave Schuler says:

    I have no problem whatever with assisting people who are genuinely in need. However, the details of any assistance plan trouble me somewhat.

    Generally speaking, it hasn’t been our practice for the government to compensate people who are the victims of a crime (other than crimes perpetrated by the government itself). It seems to me like a bad precedent to begin doing so. Unless, again, people are genuinely in want.

    Also, I’m concerned when politicians start talking about “middle income Americans”. Consider the venue in which Sen. Obama was speaking. Although I’m sure they think of themselves as “middle income”, the average auto worker makes $28 per hour. That means that a lot of them (if not most of them) are not in the middle income quintile or below but in the fourth income quintile or above. For some reason or other Congressmen seem to think that anybody who makes less than a Congressman is middle income but it ain’t necessarily so.

    If “middle income” means everybody who isn’t in the lowest or highest quintile it by definition includes 60% of Americans. Should 60% of Americans be receiving government payouts? I don’t think so and I don’t see how that’s going to work.

  14. Ross Judson says:

    This isn’t just a giveaway to “struggling” homeowners; it’s a giveaway to the mortgage industry. There are two bad decision makers involved — the borrower AND the lender. Making these 10% payments is a big shift of risk-free cash into the mortgage lenders pockets, compensating them positively for their bad decisions to make the loans.

    Any mortgage lender that accepts these payments should be required to permanently reduce the rate of the mortgage, or convert it to a reasonable fixed rate (if it’s variable, which it almost inevitably will be).

  15. Hal says:

    Isn’t the key phrase “Obama has proposed a fund to offer direct relief to victims of mortgage fraud

    The problem I have with Steve’s post is that he’s made the assumption that people who’ve made a bad decision based on fraud are just being “pimped out” by Obama (believe me, the use of the word “pimp” doesn’t make any sense to me, either, but it’s a meme Steve seems to think is appropriate). Which is a truly baffling position to take. By definition, fraud implies that the bad decision one made on the basis of it wasn’t your fault. I mean, this is just basic and elementary criminal law.

    Dave Schuler’s comment then, in the context of fraud doesn’t make any sense either. It doesn’t matter one whit whether the people who had the fraud perpetrated against them were middle income, upper middle income or top 1% earners. It’s a bizarre metric to use to determine whether someone should be compensated for massive fraud.

    Ross’ comment is more on mark because – by definition – the fraud would be perpetrated by the lender, which this is mostly benefiting, seeing as how they would be the ones holding the bag for more than just a single mortgage, presumably, and therefore the ones who are going to take massive losses if they have a lot of defaults.

    But Steve’s post just doesn’t make any sense at all – much less his “pimp” characterization.

  16. Dave Schuler says:

    No, Hal, you’re just ignoring what I wrote. Fraud is a crime. Can you give me an example of the federal government reimbursing victims of a crime (other than a crime perpetrated by the federal government)?

  17. Hal says:

    The payouts to the 9/11 victims? The bailout of the Savings and Loan industry? I’m sure I can dig up others.

  18. Triumph says:

    And Triumph makes a great point about pimps. Odd the way Steve decided to use that particular word wrt Obama.

    Thanks Hal.

    Here is a more appropriate example of pimping:

    When the lobbying firm Alcade and Fay send their little Vixen Vicki to Senator McCain to curry favor. McCain “pays” for Vixen Vicki’s services with his vote supporting Alcade’s clients.

    In this case, McCain isn’t the pimp–rather John is acting in a most eponymous fashion.

  19. Hal says:

    rather John is acting in a most eponymous fashion.

    Ouch! Good one.

  20. Tlaloc says:

    I can sort of see offering some relief to those who have been the victims of fraud, but really, the people struggling to pay their mortgage?

    How does the country benefit by people, even dumb people, becoming homeless? Your argument is bordering on social darwinism.

    Oh, and I’d avoid any more “pimp” comments. It really doesn’t sound good.

  21. jeff b says:

    They won’t be “homeless” they’ll just go back to owning a smaller/cheaper home or renting like everybody else. It is perverse that the government should be helping the wealthiest Americans, who can afford to buy a home, while at the same time neglecting the safety net for genuinely helpless Americans like the chronically homeless, the mentally ill, and the impoverished. And don’t give me any bull crap about home ownership being the essential American dream: sure, the number of people who claim to own homes is at an all-time high, but their actual equity in their homes has been falling since the 70s. So in essence the term “homeborrower” is much more appropriate than the common “homeowner”. We should stop subsidizing the leveraged speculation in real estate and use that money for a higher purpose.

  22. Hal says:

    They won’t be “homeless” they’ll just go back to owning a smaller/cheaper home or renting like everybody else

    I guess you haven’t studied the recent (couple of years now) changes to bankruptcy law, and I guess you’ve never tried to rent a home with a bankruptcy, much less try to own another home.

    I agree with your general statement, but I don’t think it’s very accurate at all to characterize the issues as you have – especially considering that one of the largest populations hit by this, from the home owner’s perspective, are relatively poor people. in fact, this population of the relatively poor is precisely where the most fraud was perpetrated.

    Those who were flipping almost are not the target population of Obama’s suggestion – again, I’ll point out “fraud” is the operative word here.

    Surely those who were deceived by fraud aren’t people making poor decisions the should have known better about – despite Steve Verdon’s “pimptastic” suggestion to the contrary.

  23. jeff b says:

    I guess you’ve never tried to rent an apartment after getting out of prison, either. Those for whom foreclosure looms may be relatively less wealthy than mortgage borrowers in general, but there is a much larger class of people who could never even have dreamed of applying for a home loan in the first place. It would be more economically productive to get that huge underclass into the mainstream economy than to enrich banks by bailing out their borrowers.

  24. Hal says:

    Again, the operative word is “fraud”. Someone who obtained a loan because of fraudulent practices isn’t a jerk, isn’t a criminal and I don’t think you can fault them for thinking they could afford something they couldn’t because of – you know – FRAUD.

  25. jeff b says:

    I don’t think we disagree really. If people were victims of actual fraud they should seriously consider legal action against their lender. But I doubt there’s many cases of that going on. Certainly not millions. On the other hand, we know for a fact that millions of stated income, stated value, and undocumented loans were made. Are these cases of fraud on the part of the borrower? In those cases, should be the government be sending checks to the lender?

    I tend to think that the government should stay out of this mess and let the jerks on both sides reap their rewards. I don’t remember anybody getting bailed out during the last asset bubble.

  26. Hal says:

    I don’t remember anybody getting bailed out during the last asset bubble.

    Good point.

  27. Tlaloc says:

    I don’t remember anybody getting bailed out during the last asset bubble.

    I don’t think most assets are nearly as fundamental as the home. Losing your stock portfolio may hurt but it doesn’t leave you literally with no where to go.

  28. Hal says:

    Not quite true. Around here, at least, there were a lot of people who got burned by their options and ended up literally owing multiple hundreds of thousands of dollars (sometimes millions), not simply losing any money they had invested. Rather than being a story about a few, it was uncomfortably common. Lots of people lost everything they owned in the process.

    But back to the issue at hand, there’s a non trivial number of people who have 2 houses – the bought the second on speculation. I have my doubts that this set intersects to any significant degree with the set of fraud which is actually the focus of Obama’s proposal, though.

  29. floyd says:

    Many millions of people in this country pay more in real estate taxes than than mortgage payments. The taxes on primary residence real estate will continue to rise while politicians wring their hands over “high” interest rates, which are ,after all, voluntary!
    The irony is deafening, since Obama was silent on real estate tax relief as an Illinois State Senator.

  30. Ed says:

    Two forms of help are being proffered. One for the victim of fraud, the other the “struggling homeowners”. The second just amounts to a subsidy of the mortgage industry. I believe that is not necessary and if fact would just prop up an industry that is just now getting a dose of reality due to the misnamed “crisis”.

  31. Hal says:

    Actually, it depends on how you look at it. 8 million home owners with negative equity starts looking pretty damn scary to a lot of people, and I doubt tired bromides regarding the self flagellation with invisible hands will have much impact on that fear.