Capitalism is vicious but efficient. Like nature. Survival of the fittest. Left to its own devices, the free market prices assets efficiently. That may be tough on you if you borrowed money to buy an overpriced house in a bubble market, but it's good news to those saving to buy their first house or those who were too prudent to take on excessive debt and pay excessive prices.
Bailouts throw sand into the free market's gears. Political power becomes more important than sound judgment. Unfairness abounds. Why should my tax dollars bail you out of a failed real estate speculation?
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Jay Somaney
Another Bogus Bailout Plan
11/11/2008 3:32 PM EST
This homeowner bailout plan is totally bogus and will end up helping people that should not be helped in the first place.
Who out there has a mortgage that is over 38% of their net income?
Not many people, except those in California or Arizona, where home prices were at a bubble level in the first place.
Let's look at some examples:
Say a husband and wife both work at Wal-Mart (WMT) and make $1,500 a month each, which is $36,000 a year combined income. At 2.5x annual earnings, they can afford a house worth $90,000 maximum. Let's assume a down payment of 20%, which leaves them with a mortgage of $72,000.Now let's assume their monthly mortgage payment is no higher than roughly $750 to $800 per month, which works out to around 27% of their combined monthly income. No help for them, even if they cannot make ends meet.
Next, say a couple together makes $120,000 a year, which will qualify them for a house worth $300,000. With a 20% down payment, they would need a $240,000 mortgage, with a monthly payment of roughly $2,500 a month (or $30,000 a year), which is 25% of their earnings. No help for them.
Final example, say a couple earns $200,000 but live in California, where a 50-year-old home will cost $1,000,000. A down payment of $200,000 leaves them with a mortgage of $800,000 and payments of around $8,000 a month (or $96,000 a year), for 46% of their earnings. Come on down, you big over-spender.
So, the government will help those that had no business buying a home in the first place. Great job, guys.
Our tax dollars could not be better spent.
Bailouts throw sand into the free market's gears. Political power becomes more important than sound judgment. Unfairness abounds. Why should my tax dollars bail you out of a failed real estate speculation?
********************************
Jay Somaney
Another Bogus Bailout Plan
11/11/2008 3:32 PM EST
This homeowner bailout plan is totally bogus and will end up helping people that should not be helped in the first place.
Who out there has a mortgage that is over 38% of their net income?
Not many people, except those in California or Arizona, where home prices were at a bubble level in the first place.
Let's look at some examples:
Say a husband and wife both work at Wal-Mart (WMT) and make $1,500 a month each, which is $36,000 a year combined income. At 2.5x annual earnings, they can afford a house worth $90,000 maximum. Let's assume a down payment of 20%, which leaves them with a mortgage of $72,000.Now let's assume their monthly mortgage payment is no higher than roughly $750 to $800 per month, which works out to around 27% of their combined monthly income. No help for them, even if they cannot make ends meet.
Next, say a couple together makes $120,000 a year, which will qualify them for a house worth $300,000. With a 20% down payment, they would need a $240,000 mortgage, with a monthly payment of roughly $2,500 a month (or $30,000 a year), which is 25% of their earnings. No help for them.
Final example, say a couple earns $200,000 but live in California, where a 50-year-old home will cost $1,000,000. A down payment of $200,000 leaves them with a mortgage of $800,000 and payments of around $8,000 a month (or $96,000 a year), for 46% of their earnings. Come on down, you big over-spender.
So, the government will help those that had no business buying a home in the first place. Great job, guys.
Our tax dollars could not be better spent.
