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Sunday, January 3, 2010

Can-Kicking Economic Policy

It would seem that the people running this country should be smarter than me, but I am often left wondering if they have any sense of reality at all. When the government announced the "Making Home Affordable" program earlier this year, it seemed a very bad idea. This is $75 billion dollar program is intended to protect homeowners from foreclosure by reducing interest rates on home loans for a few months. Certainly there are circumstances where temporary relief does make a difference in one's budget, but in the majority of these situations homeowners are in way over their heads, in homes they cannot afford and that are underwater in value. A temporary reduction in interest rates does nothing but stave off the inevitable.
The Obama administration’s $75 billion program to protect homeowners from foreclosure has been widely pronounced a disappointment, and some economists and
real estate experts now contend it has done more harm than good.

Since announced the program in February, it has lowered mortgage payments on a trial basis for hundreds of thousands of people but has largely failed to provide permanent relief. Critics increasingly argue that the program, Making Home Affordable, has raised false hopes among people who simply cannot afford their homes.
It is unfathomable to me the folks in charge didn't know this would be the result of temporary relief-especially when done like this. There is no value in staving off most of these foreclosures, they are going happen anyway. It's only a matter of time. The only thing accomplished with this program is some folks went into foreclosure right away and some will go into foreclosure over the next several months. While I'm sure a reduction in interest rates did help a few, there is no way it was worth $75 billion. Many spent tons of money and time only to find they lost (or will lose) their homes anyway. We cannot continue to think the way to save this economy is to put off that pain which must happen. We are loading up future generations with debt in the form of health care, stimulus, bailouts and pork. To undermine the natural ramifications of a bubble burst only adds to the burden that will be carried by our children and grandchildren.

An economic policy of "kicking the can down the road" is not sustainable or realistic. I wonder if the next President will just say "I inherited this mess from Obama....wadda you want me to do about it?"

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