Well Intended Government Help Doesn’t Help Much
September 25th, 2010To have a meaningful economic recovery, the housing market needs to recover. For the housing market to recover, the jobs market must recover to create demand for homes.
The well intended Stimulus plan failed to create the 3.5 million jobs predicted. Yes there were hundreds of thousands of government jobs saved and created, but 2.7 million private sector jobs were lost. That made the unemployment hole deeper.
The presidents foreclosure rescue plan has had nary an impact as a record one million homes will be foreclosed in 2010. Only 3% of the applicants in 20 months have succeeded in rewriting the terms of their loans. Half of those still went into default again. In order to stabilize home prices the flood of foreclosures must be cleared from the market first. This hasn’t helped much.
The small business jobs bill passed this week will suffer the same fate. As I have repeatedly stated on Let’s Talk Real Estate, small businesses don’t want loans, they want customers. The AP reported in the SJR today that most community banks and small businesses will not participate in the loan program. Why? Too many rules and regulations enforced by government bureaucrats to make it profitable. One banker said it best, we don’t want the federal government as a partner in our bank. This bill is like racing your car against Tim Wilkerson’s Funny Car. It doesn’t have a chance. This doesn’t help much.
The Bush tax cuts are set to expire on January 1, 2011. President Obama wants to increase the taxes on the top two tiers of the brackets, commonly referred to as the richest 3% millionaires and billionaires. Sounds fair doesn’t it? The problem is over 50% of small business owners will see their taxes increase according to the NFIB.
You see in Obama’s eyes millionaires and billionaires are those single people who make over $200,000 a year, and couples who earn over $250,000. In my opinion Obama has a math problem. These are dual income families, and small business owners that hire people. Taking money away from job creators during a recession brings up an issue with logic and common sense. This doesn’t help much.
To rein in abuses by large banks that received government bailouts the pay Czar limited CEO and top staff pay to $500,000 a year. The idea was this would force banks to be more responsible and would free up more money for banks to lend. Failed miserably. Why? Ceo’s and top staff are taking minimum salaries as low as $1 and then are paid bonuses in stock. Why? Their income tax rate which would have been 35% compared to a capital gains rate of 15%.
Here’s a math lesson for the pay Czar. If a CEO gets paid $500,000 the amount over $250,000 at 35% would incur a tax of $87,500, A 15% capital gain on $500,000 is $75,000. The CEO pockets an additional $12,500 and was exempt on payroll taxes for social security and medicare taxes saving thousands more. That doesn’t help much.
The tax credits to home buyers were meant to add buyers to the housing market. It did not to any measurable degree. Looking at the local market buyers merely shifted the timing of their purchase to get up to $8,000 in free taxpayer money. Sales increased 15.7% the first half of this year in Springfield directly as a result of the artificial demand created by the tax credits. In less than three months with sales falling over 30% each month, year to date closed home sales have fallen into the red by 3%.
At a time interest rates are at record lows, there is no increase in the number of buyers, there is a decline in the number of buyers. Smart Springfield buyers who changed buying times resulting in fatter wallets compliments of the U.S. taxpayer pushed home sales up in the first half of the year. This doesn’t help much.
Obamacare was sold to Americans on the basis they would see their premiums decline on average of $2000 a year said Obama. What happened? Insurance premiums are increasing an average of 20% the next two years so insurance companies will have the money to cover the additional costs imposed by Obamacare coming in 2014. When asked at a press conference why this was, President Obama replied, you can’t insure 30 million more people and expect it to be free. Special, driving down a families disposable income when consumer spending is desperately needed doesn’t help much.
Financial regulation reform was passed to quote; prevent future financial meltdowns. The increased reserve requirements for banks is a good thing long term, but short term will leave less money available to loan. Guess it really doesn’t matter when as we said earlier, small businesses don’t want loans, they want customers. Economists say they will get customers when there is a job recovery.
The bottom line is everything the government has done has not solved the problem but have made the problem worse when Americans have to pay back the trillions the government borrowed to create jobs that weren’t created. That sure doesn’t help much.
Maybe just maybe I was right when the TARP program, The Stimulus , Obamacare, FinReg, and now the Small Business jobs bill were passed; I said don’t do it, allow the market to correct on its own. Would there have been pain? Yep, much deeper pain would have been suffered for the first six to twelve months, but we would probably have recovered by the 18th month, the average time of a recession since WWII, and without the trillions in debt our children and grandchildren will now pay.
Perhaps I was foolish not to believe the actions being taken that failed throughout history would somehow work this time, but not according to the results. Ahh, the unintended consequences of good intentions.
The opinions expressed here are solely those of Fritz Pfister or identified sources, and not necessarily those of RE/MAX Professionals Springfield or RE/MAX International.
