I Have No Solution

New ZealandFirst a funny; at about 4:50 am Arizona time on Wednesday (I woke up early with the first cold I’ve had in about five years) there was a guest on Squawk Box who was trying to give a pep talk to the US economy and he concluded by saying “and Plan B is Vancouver, British Columbia because New Zealand (pictured) is too far away.”

As I listened to Obama try to explain what we are doing with the bailout it sounded like much more of broad based helping hand for people with everyday hardships as opposed to an economic solution based on numbers. I don’t mean to minimize losing a job, getting sick or anything like that but should the government be bailing out that sort of bad luck? Hasn’t sickness and job loss always been a risk that people took with no expectation of a bailout? Maybe my take is wrong but it sounded like this sort of thing is part of the equation.

There is also a tricky element of what we are teaching all sorts of people about what behaviors might get rewarded. While it is not completely correct that the bigger a screw up someone is the more they get bailed out the plan does head down this path at least a little.

Mark Haines asked a good question about whether the government will get paid back when prices start back up (when ever that is). If you bought a house in 2006 for $400,000, it goes to $500,000 in 2021 by way of $300,000 and you some how get $25,000 of help because you are under water in 2009; do you have to pay that $25,000 back? Looking back from 2021 should you have ever gotten any help? As the title of this post says, I don’t know.

I heard all sorts of statistics thrown around about how many people face foreclosure, how many people can be helped by the bill. I’m sure of the various numbers I heard at least one was correct, spin notwithstanding, but none of the numbers sound very large as a percentage of the population. If that is correct then we are spending a trillion or two, thus borrowing very heavily from our future, to play big brother to less than 10% of the population? It would be reasonable for more people to ask if that is the best course of action.

One problem facing people is that their LTV prevents them from refinancing (pre Obama plan). This is preventing us from refinancing our house in Hilo (yes I know second homes are not covered). However when we first applied to the bank in the buying process we could have borrowed more than the purchase price of the house which I think creates an LTV problem right out of the gate, had we done it. Now I’m thinkin’ that if I can pay $1930 per month (plus a few hundred extra principal every month) then it is a safe bet that I could still handle the payment if it dropped by $400, can I get a hollah?

Despite the news flow more people are actually in my shoes than are in trouble. Wouldn’t there be a positive impact on the economy putting $300-$600 more into healthy consumers’ pockets than bringing unhealthy consumers back to the Mendoza line? And wouldn’t that be cheaper? Do I have this wrong, is there an unintended consequence of telling banks to work with healthy borrowers?

Lastly did I miss the extent to which there will be a consequence to people who get bailed out?

Most people get nothing directly. Maybe you get the benefit of fewer foreclosures on your block, but maybe not. Most people get nothing, that I do have right.

Now for something completely different. Are you watching the Tour of California bike race on Versus? I am a huge cycling fan. If you watch any cycling ever then you are familiar with Phil and Paul, the announcers. Well for the Tour of California they have inserted third wheel Craig Hummer and Craig is doing most of the talking which takes a lot away from the enjoyment of watching the tour. If you are a cycling fan and agree with me you can click here and let Versus know how you feel. If you don’t care about cycling maybe you can do a good turn by the people who do like it and tell Versus less Craig, more Phil and Paul.

About Roger Nusbaum 169 Articles

Roger Nusbaum is an Arizona-based financial advisor who builds and manages client portfolios using a mix of individual stocks and ETFs. Roger writes a popular blog, which focuses on risk management, foreign stocks, exchange traded funds, options etc.

Roger has been recognized by many in the investment management industry for his expertise in portfolio management. Roger has been regularly interviewed by the financial press, trade journals, and television news shows. He has also had numerous technical articles published and has been quoted in a number of professional trade journals, newspapers, and consumer finance magazines. He appears frequently on CNBC Asia as a market commentator.

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