Tuesday, November 11, 2008

“Congress has allocated hundreds of billions of dollars to reset mortgages"

Floyd Norris considers the plight of a luxury home builder in the NY Times:

"Today, Toll reported its fourth-quarter revenues. They are down again, with cancellations ticking up. A bit belatedly, Mr. Toll realizes his fleeing customers were right: There really is an economic problem.

He has a solution:

“We urge Congress to stimulate demand by reducing mortgage rates and fees and by providing incentives such as a buyer tax credit for the purchase of all types of homes. We believe these initiatives would offer the greatest benefit for the taxpayer’s dollar.”

The way he sees it, stabilizing home prices is the only way to keep all the other efforts from failing.

“Congress has allocated hundreds of billions of dollars to reset mortgages, help people who are in foreclosure, and protect those who have been the victims of rapacious lending practices. We believe all of these goals are very worthy. However, we believe that, if home prices are not stabilized, these efforts will be for naught, more mortgages will go under, and the taxpayers’ money will have been wasted.”

Others might say that tax breaks and unreasonably low interest rates helped to get us into this mess. Making new buyers overpay runs the risk of a repeat of what happened after the Japanese bubble burst, when artificially high prices simply prolonged the pain."

Do I hear a second for a Nobel Prize in Economics for Mr. Toll?

"Mr. Toll was asked in the call if any members of Congress were on board to back his plea to subsidize home prices. He said there had been talks, but he had no endorsements.

As to why the government should be subsidizing home builders when there is an oversupply of houses, he said the country needed the construction jobs."

Here's my comment:

He has a solution:

“We urge Congress to stimulate demand by reducing mortgage rates and fees and by providing incentives such as a buyer tax credit for the purchase of all types of homes. We believe these initiatives would offer the greatest benefit for the taxpayer’s dollar.”

Technically, I believe that he’s asking the Congress to pay to lower and stabilize prices. The demand is there. They’re just asking for better terms for themselves. Lowering the price even more by themselves or easing terms should accomplish the same object. It’s called supply and demand. Oh, and let’s add Ricardian Equivalence just for fun. To the extent that the government chips in, it forces the private sector out. I knew I had a use for that concept.

— Don the libertarian Democrat


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