News, Congress approves 300 billion housing rescue fund (loans, calculate, real estate)
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Location: Georgia, on the Florida line, right above Tallahassee
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It's like using gas to put out a fire.
Correct me if I am wrong, here. 300 billion = $300,000,000,000.
$300,000,000,000 divided by 400,000 homes saved='s $750,000 per home.
There's about 1 million homes in forclosure.
Another million is due to foreclose next year.
That's $1,500,000,000,000 worth of $750,000 chunks to save everybody.
I think I must have calculated that wrong.
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The Associated Press: Housing rescue bill heads to Bush for signature (broken link)
WASHINGTON (AP) — Congress passed a housing rescue bill Saturday aimed at sparing 400,000 struggling homeowners from foreclosure. President Bush is expected to sign the measure quickly.
The bill is not suppose to help everyone, just a particular set of borrowers.
Also, congress is not forking out 300 billion in funds. That would only happen if every mortgage they dealt with foreclosed again and the house was worth zero after the fact.
In the bill, they've approved Paulson's "bazookanomics" of a blank check available for Fannie/Freddie. Not only will Paulson have to pull out the bazooka (he claims he won't have to), he'll blow away the dollar with it.
The fact that Frannie/Freddie are having trouble is deflationary not inflationary. The contraction of credit is deflationary not inflationary.
Non-exportable assets such as US real estate and services will depreciate but consumer good prices will go to Pluto.
What the OP is speaking about is monetary inflation, which may even cause home prices to nominally increase, although you might need $10K to fill your fridge.
on-exportable assets such as US real estate and services will depreciate but consumer good prices will go to Pluto.
Right thats your prediction. But what does that have to do with my post?
The OP seems to misunderstand the housing bill. Firstly the bill predicts to help around 400k households with an aggregate loan amount of $68k. The $300 billion figure is the max. Furthermore, the government is not forking out $300 billion it is merely guaranteeing loans with an aggregate of at most $300 billion. The government is only on the hook for any loses which should be relatively minor as the bill requires that the lender write down the mortgage to 90% of the appraised value. The bill also requires the borrowers to pay fees which will help offset any costs. It is estimated to cost taxpayers $1.7 billion over 5 years. Of course this estimate is overly rosy, but the cost will be no where near $300 billion.
Anyhow, the housing bill is not going to fuel inflation.
The fact that Frannie/Freddie are having trouble is deflationary not inflationary. The contraction of credit is deflationary not inflationary.
But the increase in money aggregates (ie: u.s. dollars via treasuries) will increase prices, as the market realizes there are more dollars than what was expected, producers will raise there prices for items denominated in dollars to compensate for the additional monetary units (ie: dollars) that are competing for the same finite stock of goods.
Also please note that different industries will see prices changes at different times. Not all increases will happen uniformly, it depends to a point on the amount of turn over of goods in the industry and how far in advance manufacturers purchase their supplies. There are many other factors but a increase in the stock of the money supply with a gain of population or productivity is inflationary.
It is estimated to cost taxpayers $1.7 billion over 5 years. Of course this estimate is overly rosy, but the cost will be no where near $300 billion.
And we're not supposed to mind this? If 400,000 households isn't so many, why not let them solve their own problems? The lenders helped them get into this mess; let the lenders help them get out.
This inept bill passed by desperate politicians is just window dressing in an election year. If it would solve the problem, it would be more palatable. But it's like pouring a glass of water on an inferno. The government can only take on so much debt. Once our credit rating is downgraded in the world market, that will be that.
The lenders will select their loans most likely to default and have it reinsured via this housing bill. This means that the default rates will be sky high. The borrower will lose the house anyway but the lender gets paid by Fannie/Freddie. It is another way to bail out the lenders and nobody else...it's corporate welfare.
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