Rant For A Friend

Okay, very long time, no blog. I've been busy, with work stuff; writing, performing and rehearsing music; and visiting my daughter in college on fall football weekends. But I'm having lunch this week with a friend who's a follower of this blog, so for him, a rant.

And boy, is there ample material. Today's topic is bailout mania. Oh, I've ranted about bailouts before. But now we get to see some of the aftermath. And what we see is very rant-worthy indeed. Actually, for the long-read-challenged, I'll break it down into a series, covering one bailout a day until I'm done.

At the series' conclusion, I'll present a little scenario that will explain just what the real purpose of all these bailouts was. (I know, I'm a tease.)

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First up: the first-time homebuyers' tax credit. Rolled out shortly after President Obama was sworn in, it provided a credit of up to $8,000 for people buying a home who hadn't owned one in the previous three years; had incomes no greater than $75k single or $150k married; and closed on the purchase by November 30.

How did it go? Well, as with most stimulus - including the others I'll discuss today - we don't really know. How many people bought a house that otherwise wouldn't have? (Answer: gee, when unemployment is at a 26-year high and you fear you might lose your job, do you take on a mortgage payment because of an $8,000 tax credit?)

As with cash-for-clunkers, it did probably front-load some demand; September's existing home sales jumped 9.4%, a sizeable increase, and that was probably a last-gasp move by buyers to get in before the incentive expired. But September new home sales were unexpectedly weak, meaning buyers were focused on the low end of the housing market.

(The incentive is more likely to affect existing home sales than new home sales for two reasons. First, existing homes are typically lower-priced than the new market, and that's the market where people who need a tax incentive to afford a home tend to concentrate. Second, with all the foreclosures out there, existing homes in foreclosure are a huge bargain relative to new construction, as the banks that own them are slashing prices to get them off the books.)

What we do know is that the housing industry - builders, realtors, etc. - have been lobbying Congress to extend the credit, using fear-mongering (something politicians can relate to): "If the incentive expires, people will stop buying houses, and the recovery will sputter" ... (Those last two things are going to happen anyway, but that's a topic for another day.)

As is typically the case when a special interest group has their hand out - with the other hand surreptitiously slipping cash into Congress' collective pocket - Congress has apparently acquiesced.

They're not only extending the program, but expanding it. The credit stands, with a new final date of April 30, 2010 - but that's just the date by which the contract has to be signed. Closing doesn't have to take place until June 30. And the income limits have been raised, to $125k for single filers, $225k married. (Wait - in the original version, the married income limit was double the single limit. Yet another instance of the tax code screwing married people.)

In addition, a credit of up to $6,500 will be available for people trading up, who already own a home, as long as the home they're selling has been their primary residence for at least five years.

Now, as I said, we don't really know how effective this thing has been in moving real estate. But we do know what a Treasury Department watchdog uncovered from auditing returns claiming the credit in the initial go-round:

19,000 filers claimed the credit for homes they hadn't yet purchased.

74,000 filers claimed credits totaling $500 million for homes they already owned.

And 580 filers claimed $4 million in credits, said filers all being under the age of 18.

One of them was four years old. Probably Tim Geithner's kid.

Now, I don't fault these people one bit. First, if Geithner et al can cheat on their taxes and be rewarded with cabinet posts, anybody should be able to do it. Second, people are sick of being responsible, not buying more house than they can afford, making sure they understand their mortgage terms, paying their bills on time, then seeing their tax dollars go to bail out other people. So why not get yours, however you have to get it? It's understandable.

I'm thinking about each of my three dogs filing returns for 2009 and claiming the credit. Even though I'm the only one around here who ever sleeps in the doghouse.

So, we have widespread fraud and abuse of a bailout, and what does Congress do (they learned of the watchdog's findings before they began deliberations on whether to extend the program)? Not only do they extend it, they expand it. Awesome.

And the deficits keep rising, folks.

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Up tomorrow: Cash-for-Clunkers.