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Monday, August 12. 2013
Fannie, Freddie, and the Destructive Dream of the 'Ownership Society' - Unwinding the mortgage giants won't cure Americans of their
What's your opinion?
Posted by The Barrister in The Culture, "Culture," Pop Culture and Recreation at 13:15 | Comments (11) | Trackbacks (0)
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If you could get the same good results from handouts as from earning wealth, we wouldn't see such depressing stories from lottery winners and trust-fund babies.
It's not just about owning. It's about coupling work and reward.
Ownership isn't for everybody. The 'dream' is one thing - the reality quite another.
Good friend of mine is a real estate lawyer/mortgage broker and has often counseled buyers OUT of purchasing homes. She's got a good eye for troubled couples or people who are misspending their income.
She'll do the deal if they insist, but she does make sure they understand the full scope of what they are getting into. You don't just buy something because everyone else has 'it'.
The "Dream" of owning should be discussed more along the lines of the responsibility of owning.
My son wants to buy a dog when he becomes senior in college. We have told him, based on his unwillingness to feed or walk the current 'family' animal, it would be a poor idea. He still doesn't understand the connection between the fun he has with the dog, and the fact the dog is well-cared for.
Many people view owning a home the same way. It would be a great thing to own - and indeed it is. But when the sometimes harsh reality of actually caring for a home becomes apparent, people lose the connection they once felt.
I will add that I think the article itself misses the point.
First of all, if these agencies are suddenly 'successful', then why shutter them? While they are making paper profits, nobody has questioned what will happen when the current bubble bursts (as it will, inevitably, when rates rise). Perhaps this is the reason - both agencies are close to 'paying off' their loans, better to shutter them and call it a win.
Second, there is every reason to blame the banks and government for the culture of ownership. They promoted it, and people who fell for it were silly to think just owning a home was some kind of special 'benefit'. They got sucked into a clear game of 'greater fool' and they were the fools. Why try to diminish the fault, as this article attempts to do?
Third, the issue isn't one of misguided culture - ownership IS GOOD. When the people doing the owning are motivated and fully invested. The problem, as pointed out in my second paragraph above, is that the issue was NOT culture, but misapplication of culture. This happens all the time:
"America, love it or leave it" is just as detrimental as the current "America, we're always wrong and our president is sorry" mentality.
The truth always lies somewhere in between. In this particular case, the reality is that the rules for housing purchase were perfectly acceptable at the time of the bubble, but the government simply made purchase too easy with low interest rates and subsidized homes.
Fannie and Freddie are 'profitable', in a sense. Mainly because the Fed is hanging on to tons of useless claims to real estate. So the profits Fannie and Freddie are seeing are really being lost over at the Fed.
If all that real estate were accounted for properly, people wouldn't be talking about how profitable these agencies really were, but how the bookkeeping is a mess.
This Atlantic piece seems like an argument for argument's sake.
There is absolutely nothing wrong with the dream of owning a house, nor a cultural imperative of ownership. What is missing culturally (and harmed severely by our political and financial leadership) is what Bulldog and Texan are saying: Earnership.
Despite Mr. Karabell's desire to land more blame on us rubes, the lion's share of blame still has to go to the politicians and high finance geniuses who created a Ponzi of government money, incentives and backstops. They supplied the gas AND the spark.
Citizen irresponsibility existed both before and after the "crisis". It is not our fault that the "rules" took citizen responsibility out of the equation.
My Dad always helped my think about good and bad ideas this way: "What would you do if it was your money?"
"Unwinding the mortgage giants won't cure Americans of their
desire to own a home, whether they can afford it or not."
Maybe not, but removing agents who
(A) were pushing people into buying a home regardless of ability to pay; and
(B) had no skin in the game themselves
can't hurt. IF they really get out of the game.
Some people are now smart enough to own a home, and some are not financially able to own a home, and some other people see ways to make money off of both kinds.
What does it mean to "own" a home?
Is it a place you might or might not actually reside in and then "flip" in a year or two?
Is it a place you might live in for three or four years and then basically abandon or dump on "Ugg, we buy Ugly houses?
Or is it a place that intend to live in for the foreseeable future, care for, improve and enjoy?
Ownership implies effort and investment. No such a well known value in our "give me" culture.
Don't forget the role of the favorable tax treatment of home ownership. (Here I don't mean the tax-deductability of mortgage interest payments; the evidence is not clear that this matters.) What may matter is capital gains treatment, including the stepped-up basis on the death of one spouse. The exemption of US$500K in capital gains (if it the house was a primary residence, etc.), means that for many people homeownership represents tax-exempt savings, and sweat equity a way to convert labor into tax-exempt capital gains. If I hire somebody to do home improvements I have to pay them out of my after-tax income. However, if I do it myself, then the increased value of the house is a capital gain that may escape tax. Even if I do end up paying capital gains, I pay tax at the capital gains rate, not the income rate.
That is relevant only if your house increases in value. If you sell your property at a loss, as I did after more than 30 years' living in it, there is no tax break at all. In my case, it was a shock and a disappointment, but ultimately it did not matter. I was lucky to find a buyer at all, and glad to be out of there and free to move on.
My point is that gains are not guaranteed, and thinking that they are was one of the driving forces behind the housing bubble of just a few years ago.
It is (should be) immoral for the government to tax "capital gains" on property like a home. A home doesn't "increase in value" the money that is being used as a scale decreases in value. If you bought a home 10 years ago for $100,000 and sold it today for $200,000 you did not make $100,000 profit or "capital gain". The home is most likely worth exactly the same as when you bought it or even possibly a little less. What has happened is inflation and government mismanagement of the monetary system has devalued the dollar by 50% so not it takes twice as many dollars to buy something of the same intrinsic value. To tax the difference at best adds insult to injury and at worst robs the citizen of money they do not owe the government.
One could make an arguement that some "investments" do make short term "profits" and arguably this could be taxed as real gain/income. But even then it would be fair and appropriate for the investor to deduct any "gain" that resulted from inflation or devaluation of the dollar.
and all the people said "Amen".
Same deal with Gold. It's a store of value from a "worth less" dollar, so you should give us your dollars because we are smart people who know gold is a store of value! (which is why we want your worth less dollars!)