Just How Bad Is It?
When
I told family and friends our family was relocating to California, there were many jokes about the end of the world. “You just wait!” they told me. “One day there will be an earthquake and California will break of into the ocean causing a massive tidal wave and it will be the end of the world.”
I laughed it of dismissively, but seriously folks I’m wondering about just how bad it is. I mean, this weekend I had a half-serious conversation with a friend regarding converting all our savings into yen in order to protect assets, the bailout/rescue plan gets passed, and Beverly Hills Chihuaua is number one at the box office.
Not to mention that tomorrow’s Bloomberg news (in Asia) reports that, ”Japan’s stocks fell, sending the Topix index toward a five-year low, as the global credit crisis deepened in Europe and the U.S. lost the most jobs in five years.”
These are strange times my friends! Strange times indeed.
We’ve obviously heard all the talks of the bail out/rescue plan and there seems to be varying views on why it is or is not going to work. But what I haven’t heard is what it really means to us and the real estate market in particular.
Bloomberg had a great bit of FAQ’s from regular taxpayers. Here are some excerpts that might give you some guidance on the issues surrounding the bailout/rescue and how it affects you.
What will the program do for people in danger of defaulting on a mortgage?
The bill contains vague language encouraging the Treasury to implement plans to help endangered homeowners. Many mortgages, through the securitization process, were broken up into pieces and sold off, making it difficult for lenders to alter them so homeowners can afford rising payments.
“This bill does little to remove the existing obstacles that have made it all but impossible over the past year for the housing industry to help enough people avert foreclosure,” said Kathleen Day, a spokeswoman for the Center for Responsible Lending in Washington.
Will taxpayers lose or make money on this deal?
The assets the Treasury purchases could increase in value, allowing the government to sell them later at a profit. In addition, in return for buying the impaired investments, the Treasury will receive warrants, or contracts allowing it to purchase shares in participating companies at a preset price. If those companies’ stocks rise, taxpayers could benefit.
The non-partisan Congressional Budget Office estimated the net cost of the plan will be “substantially less than $700 billion but is more likely than not to be greater than zero.”
If, in five years, taxpayers have lost money, the president will have to submit legislation — most likely some kind of fee on financial institutions — to recoup losses.
How will it affect my taxes?
That depends on what the next president does. The initial borrowing of funds for the program will add some $2,300 in government debt for every American. Yet the Treasury will get assets for its money, many of which may increase in value as the housing market and economy improve.
“Much of the $700 billion is expected to be repaid, and there could even be a profit made by taxpayers,” said Alex Brill, an economic consultant at Washington law firm Buchanan Ingersoll & Rooney and a former policy director for the House Ways and Means Committee.
Photo courtesy movieblog.com
