Democrat Barack Obama is calling for a 90-day moratorium on foreclosures and a two-year tax break for businesses that create jobs as part of a plan to heal the nation’s ailing economy.
The presidential candidate says banks that participate in the federal bailout should temporarily postpone foreclosures for families making good-faith efforts to pay their mortgage.
He also called for a $3,000 tax credit for each additional full-time job a business creates. The tax break would end after 2010.
Obama also is proposing letting people withdraw up to $10,000 from their retirement accounts without any penalty this year and next.
The Obama campaign emphasizes that these ideas can be done quickly, either through executive order or legislation.
Here’s a question that no presidential candidate, apparently, can answer: Where does investment capital come from?
A ninety-day moratorium to “temporarily postpone foreclosures for families making good-faith efforts to pay their mortgage” is stupid. A loan is either performing or it isn’t. The lender is never going to foreclose on a performing loan, although the threat or foreclosure may not be withdrawn for quite a while.
The corollary? If you want out of your mortgage, you have to stop making payments.
The tax credit is also pretty dumb. If $3,000 is the margin of profitability for a new hire, a few people might get hired.
But “letting people withdraw up to $10,000 from their retirement accounts without any penalty this year and next” will bleed the economy of lendable capital just when the economy is already bled white of lendable capital.
I can’t even think of all the ways this is perilously damaging. It encourages a run on retirement accounts, which will probably drive securities values lower over time. Individuals probably shouldn’t reduce their retirement investment stake just when it has suffered a terrible hit. Freeing up that money encourages still more spending on consumer goods — depreciating assets — where it is now invested in future growth.
But here is the worst feature of this insane proposal: Not only won’t that money be committed to future economic growth, but the people whose job it is to invest that money productively will have to think twice, going forward, about how much money they have available to invest, for how long and on what terms. If “these ideas can be done quickly, either through executive order or legislation,” then markets have no ability to plan for the future. The rules of the game could change at any moment.
Capitalism, ideally, is not regulated by the state but only by the courts. Only torts — actual crimes and injuries — are the government’s concern, and the hurly-burly of the marketplace is a matter to be worked out among buyers and sellers by mutual consent. But even in our insane Rotarian Socialist economy — well over half government by now, dollar-for-dollar — what is left of the free market performs poorly when investors cannot plan. What should be a three year recession is going to be a twelve year recession because economic witch doctors will refuse, again and again, to let the patient heal.
Technorati Tags: investment, real estate
Dave says:
A ninety-day moratorium to “temporarily postpone foreclosures for families making good-faith efforts to pay their mortgage” is stupid. A loan is either performing or it isn’t. The lender is never going to foreclose on a performing loan, although the threat or foreclosure may not be withdrawn for quite a while.
But what if your dog ate your mortgage payment?
I love it, “good faith effort to pay their mortgage”. With millions of loans going bad, that should be easy to discern.
Doesn’t Obama know that all he has to do is just not talk for the next twenty something days?
October 13, 2008 — 12:18 pm
Greg Swann says:
> Doesn’t Obama know that all he has to do is just not talk for the next twenty something days?
The farther left he can drive McCain this October, the more pernicious nonsense he can get away with next January.
October 13, 2008 — 12:24 pm
Dave says:
I had to google pernicious, but that makes sense to me now.
October 13, 2008 — 12:39 pm
Galen says:
This proposal is D-U-M. How did this make it past the advisors and people who labeled the gas tax moratorium “political” (which it was). It’s like both he and McCain are trying to outdo the Bush administrations incredible capacity to deficit spend.
October 13, 2008 — 2:17 pm
J Boyer Summit NJ says:
Their all just grabing at straws these days. None of them really knows what to do, other then let the market work, but they will not do that, they have to look like they are doing something.
I also had to look up pernicious: implies irreparable harm done through evil or insidious corrupting or undermining .
October 13, 2008 — 6:04 pm
Smithers says:
I’d like to think that even a Democrat-controlled Congress would stop Obama down from wreaking too much socialist carnage, but that’s just wishful thinking on my part. It will be high tax brackets, unlimited payroll taxes, and countless loopholes to get around the high brackets and unlimited payroll taxes. Of course, you’ll have to pay to play with Congress to secure your loophole (or bailout).
October 13, 2008 — 6:14 pm
Chris says:
Here is an idea. Zero capital gains tax for the next 5 years. Wallstreet will be flooded!
It’s hard to believe that out of a nation of 300 million, we are stuck with these two nimrods. One is going to lead us, and most likely screw us over pretty good.
IMHO the best type of government we can hope for is one that does nothing. IE McCain gets in and just gets into a big pissing contest with the Democrats in the house and senate, and nothing gets done. Heck we should offer to double his pay if he just sits on his butt and does nothing for the next 4 years!
October 13, 2008 — 6:26 pm