While the final details are still being negotiated, key Democratic senators have reached general consensus on extending and expanding the $8,000 Homebuyers tax credit which has been doggedly pursued by Georgia’s Senator Johnny Isakson.
“We’re close, we’re close but I can’t get into any details until it’s a done deal,” said Republican Senator Johnny Isakson.
The popular tax credit, which has helped lift the housing market out of its worst slump since the Great Depression, is set to expire on Nov. 30.
Dodd and Isakson want to extend the credit through June of next year and broaden it to anyone buying a primary residence, not just first-time buyers.
Senate Majority Leader Harry Reid had backed a narrower version which would extend the full credit through March and gradually phase it out through the end of 2010.
Dodd said that the deal would merge the two proposals.
Isakson has been pushing an expanded tax credit since the mortgage market collapsed as a way to stabilize home prices while the financial system regained its footing. Isakson, a realtor by profession, is often quoted as remembering how a similar program in 1973 helped the market absorb an even greater supply at that time.
By adding temporary stimulus to absorb excess supply created by both over building and record foreclosures, the goal is to stop the spiral of unsold homes going into foreclosure, which depresses prices, which causes more borrowers to have negative equity in their homes, which leads to even more forclosures.
The Obama administration originally looked at Isakson’s plan as competing with their ideas of what should be stimulus, and had the tax credit cut from multiple bills. Democrats seeing unemployment over 10% – significantly over their worst case scenario given when passing their stimulus bill – are nervously approaching mid-term elections and have been quietly searching for new ways to add a second stimulus.
Isakson’s credit expands the 8,000 credit to the critical “move up” market, with no first time buyer requirement and income caps at $150,000 (single) or $300,000 (married), a large portion of those who have been on the sidelines for fear of market conditions may be persuaded to re-enter the market.
The bill has been revised over time to correct potential flaws noted by critics, including the IRS and Congressman John Lewis, who discovered significant instances of fraud in the existing application of the tax credit. The bill also maintains language that prohibits transfers to related parties, and requires a holding period of 2 years to discourage “flipping” to become more common.
If passed, this will result in another significant win for Isakson on a bill where he was told he had no chance to pass. Isakson previously took on his own leadership and the Bush White House to work out a solution allowing Delta Air Lines to restructure its pension program to avoid default and taxpayer bailout. In the end, he generated 70 co-sponsors and the blessing of President Bush. Delta retirees and employees kept their pensions, and the taxpayers weren’t out a dime.
With the homebuyer tax credit, Isakson hopes for a similar effect. With the Federal Government now estimated to be backing almost 70% of the nations mortgage loans, and trillions more liabilities insuring shaky banks with struggling real estate portfolios, he is using a Reagan style tax cut to boost consumer activity that will ultimately net the treasury more money (via reduced loan losses and increased economic activity) than if nothing were done at all.
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Another victory for Isakson and another failure for American borrowing & lending. These politicians need to wake up and stop subsidizing the housing market, which is what got us into the recession in the first place.
You’re not only already subsidizing the housing market, you’re already underwriting the debt backing almost all of it, as well as guaranteeing the deposits in all the banks that made the loans.
Small price to pay to stabilize the market to protect the investment we’re already on the hook for.
Small price to pay to stabilize the market to protect the investment we’re already on the hook for.
That argument is being used to justify everything these days.
AIG shares for everyone!
Maybe that would be well and good, if no NEW underwriting the debt backing took place. But they’ll continue and we’ll continue to
losebe stolen from and remain on “the hook.” We need to start unpeeling the onion, not adding more layers.If it’s that small of a price, you shouldn’t have a problem paying it.
A definite victory for Isakson, as well as taxpayers, if this measure passes. I just hope the Democrats don’t butcher the original bill into oblivion.
They will.
So you’re saying it’s possible for a Republican to help make and shape policy in a Democratic Congress by working with the majority. Who’da thunk it?
Or does this just automatically qualify Isaakson for RINO status?
They already all think he’s a RINO. You’re about six years too late on that one, my friend.
“They” generally being the people that think gold has a fixed value of $32/ounce and think everything they need to know about economics is “plan for the long term”.
Genius I tell you. Pure genius.
Gold is money, and money never has a “fixed value” unless the gummint tries to “fix” it (which has the same result as everthing else they “fix”). Right now, an ounce of gold will buy about $1031 in Federal Reserve Notes. If the gummint allowed market forces to actually work, an ounce of gold would probably buy over $7000 FRNs, based on the near-hyper-inflationary practices the Fed has been engaging in.
Uhh… after pumping several trillion dollars into the economy, the Fed and Treasury are still fighting deflation and inflation is nowhere on the horizon, so I think your premise is wrong.
The Fed and Treasury have created trillions of new dollars, and you say that there’s no inflation? What monetary definition are you using?
GDP has been sinking and is hovering near 0%. There’s no inflation out there and the odds of GDP falling below 0 again in the next 12 months is quite high.
What definition are you using? Please show me where wages and prices are spiraling higher.
Ah, now I get it. Your defining inflation by its result, not its cause. A pretty common layman’s mistake, nowadays.
Well, actually, it’s not just nowadays. The wool has been pulled over our eyes for a long time now. Ludwig von Mises, writing in the New York World Telegram & Sun, May 7, 1951, said:
An excellent article on this very issue is “Inflation: What You See and What You Don’t See,” by Thorsten Polleit, a Professor at the Frankfurt School of Finance & Management. I highly recommend you take a look, especially as he deals with the visible and invisible effects of a rise in monetary stock.
Except what if you pump several trillion dollars into the economy and inflation doesn’t happen? Perhaps cause-and-effect isn’t as strong as people want to believe. Economists are definitely rethinking this situation, because clearly we do not have inflation and there’s little chance of inflation over the next 4-5 years and yet several trillion dollars were printed and pumped into the economy.
So maybe your method of defining inflation was right… until it wasn’t. And you’re not allowing the reality in front of your face to get in the way of your theory.
That’s the mistake of loving one economic theory at the expense of others. They all provide a way to model the world economy and yet none of them do it perfectly, so you have to recognize that reality is more important than the big model and take your actions accordingly.
O.K., before this goes any further, we’ve been through this before. This is Peach Pundit. Not Mises.Org
If you can make your case, make it in your own words. Generally when you go down this pig path, your cut and pastes get longer and longer, and by the end, you can’t even remember what you just pasted when people catch your contradictions.
Make your own points. Additional cut & pastes will be cut.
Icarus, if I change my name to John Konop, can I cut and paste all day without your false bravado interfering?
BM, changing the definition of “hamburger” doesn’t make it moo and eat grass. Cause ==> Effect. Can’t change facts.
How about this Icarus? In my own words.
CPI plus personal tax liability equals everyone in the poor house soon.
It’s amazing that deflation of goods and services scares the hell out of Keynesians, but deflation of the dollar, while growing the size and scope of the government, which has to be paid for with those dollars, doesn’t. Amazing blinders you have on there, ByteMe.
You’re not fooling anyone, Daniel. I read that quote on QuotesThatMakeSenseSoCharlieIcarusBansThem.com.
Bill, it’s best to debate points without acting like a complete jackass. Emotions and snide remarks are things of politicians. Correct me if I’m wrong, but the Tea Party movement and a vast majority of Americans hate politicians right now.
Daniel, you can’t think for yourself either. It’s against the rules, because there’s no wayIcarus can know that you know anything unless he thinks you know what someone else knows.
This is a very tough balancing act! I think at the end of the day this is a good idea by Isakson. You should all read this to understand the macro problem. Real-estate values dropping only makes the problem worse and puts tax payers on the hook even deeper.
Bernanke’s trillion-dollar decision
The biggest decision of the economic recovery will be made in the next six months, and Barack Obama will have almost nothing to do with it.
Forget the debate over TARP, and never mind the questions about a second stimulus. This decision is about when to pull out $1 trillion that’s propping up the U.S. banking system. And it will be Federal Reserve Chairman Ben Bernanke and his Fed colleagues who make the call.
That’s hard enough for a White House that knows its political fortunes rise and fall with the economy.
What’s worse is that Bernanke and Obama – like many presidents and Fed chairmen past – won’t necessarily have the same goals for this trillion-dollar decision.
Fed chiefs worry about inflation. Bernanke wants to take the money out quickly enough to prevent the economy from overheating and causing a jump in prices that strangles growth. But move too fast, and the economic recovery runs out of fuel.
more
http://www.politico.com/news/stories/1009/28677.html
It’s hard for some to get past the “tax redistribution to anyone but me is bad” thought process.
The thing about pulling out the $1T is that it won’t have to happen overnight. They can slowly take the punch out of the bowl while no one is watching closely. All they have to do is get it done before asset inflation becomes an issue. Considering the overhang of housing supply– the biggest asset most people have — and factory capacity, my guess is they still have 4-5 years.
ByteMe
What they are trying to achieve is a large enough increase in real-estate so banks balance sheets are not disrupted when they take the 1 trillion out. Yet if it over heat ie inflation that is not good either and it seems like you get the dilemma.
I am less concerned about inflation now being we over supplied with everything, yet this hurts the job market. And that is why I think until we use up our over capacity the job market will be tough. Also China is filling any capacity issues with cheap products. A real catch 22!
Also even though interest rate are low down payments are high (equity to debt ratio) especially for business. And if the real-estate market goes down further the problem will get worse.
As I said a very tough balancing act.
Real estate values dropping is a reflection of inflated prices. Inflated prices were reflections of easy loans to bad borrowers. I think we’ve been over this before.
Seenbetrdayz
The problem is like or not you are on the hook for most of the loans ie FHA, loan deposits………..I was called ‘chicken little” years ago when I warned about the problem. So we can cry over spilled milk or deal with the issue. And your ‘Armageddon’ approach may make you feel right but many would be hurt by this.
John, I don’t like it at all. But the arrogance of dragging everyone further into the abyss when we’re standing here shouting at the top of our lungs to STOP PUTTING US ON ANY MORE HOOKS is the exact reason why a growing number of people are getting fed up with D.C.
I’m not crying over spilled milk, I’m asking (more like demanding) the central economic planners to stop spilling more.
I don’t see how providing incentives for people who already own a home to sell their home and buy a different one is going to reduce inventory.
Jkga
First this targets mainly first time home buyers. But by extending to everyone it does incent the seller to upgrade and not down size and or rent. Secondly it also incents second home buying for vacation homes, student housing in college…….Finally this money at least stays mostly in our economy unlike other products that help China more than us.
So let me get this straight: Isakson is convincing Congress to artificially maintain high prices of a needed product which are collapsing because they were artificially maintained at a high level for so long?
And this is a major victory for — who?
I’m waiting to see his bill to artificially maintain high prices of food by subsidizing farmers. Oh wait, that was already done by his buddy Saxby. Two peas in a pod.
Eminent economist Henry Hazlitt had it right: “the whole of economics can be reduced to a single lesson, and that lesson can be reduced to a single sentence. The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.” One Lesson that our Senators have not learned.
Bill Green
In all due respect an ideology does not pay the bills (gold standard). You guys make it sound so cut and dry and life is just not that way.
What you guys are calling for is devaluation of around 8 to 1 via gold standard. That means unless someone owns their house they would be upside down unless they owed 85% or more. That also means every bank would go under and tax payers would be on the hook via guarantees for about 60 to 70 % of outstanding home loans.
And we would have no market for the homes with loans we are on the hook for because wages would drop at the same rate as assets, money…..
This is why people who even support your plan know this would be financial Armageddon! Somehow you guys think after we cleansed the economy in your opinion that we would have no problems. Do you not fear what would happen when everything collapses under your plan?
I give Indy credit for admitting that this would be an issue.
Indy?? Did I miss an inside joke?
Indy use to comment here and advocated the same gold standard policy.
What happened to Indy? What happened to Nindy (North GA Indy) too?
What policy might that be, John?
Well, Bill, gotta ask, just to see where you’re getting your info from: you said “because they were artificially maintained at a high level for so long”. What exactly do you think made housing “artificially” high?
Mark A. Calabria, Ph.D. is Director of Financial Regulation Studies at the Cato Institute, explained it well recently. Commenting on Isakson’s comments on why we need to extend the $8,000 homebuyer tax credit: “If you take that kind of business out of what’s already a very weak housing market, you do nothing but protract and extend the recession,” Calabria wrote about how this analysis could not be more wrong. The tax credit largely acts to keep housing prices from falling further. However, that is how markets are supposed to clear in an environment of excess supply. If there’s too much housing, the way to address that is to allow housing prices to fall, which attracts buyers back into the market.
We should also recognize that the tax credit does not help the buyer, it helps the seller, by allowing the seller to charge that much more for the price of the home.
Perhaps the worst impact of the policy is that it encourages the continued building of homes, only adding to the over-supply, which itself will “protract and extend the recession.” Witness the recent news that housing starts in the US just hit a nine month high. While these levels are still low in historic terms, and housing inventories are declining, we still have an excess of housing. The damage done by creating a false floor to housing prices is that builders don’t respond to inventory, they respond to prices, and as long as there is a positive gap between prices and construction costs, builders will build. The tax credit only serves to widen that gap between prices and construction costs.
Isakson is following standard Keynesian theory here, but the central flaw in the thinking behind the tax credit proposal is its assumption that we need to re-inflate the housing bubble. The previous level of housing demand, from say 2003 to 2006, was not driven by fundamentals; we had a bubble. There will be a correction in the housing market. Our choices are to either take that correction quickly and move on, or to prolong that correction, maybe even make it worse, by trying to create a false floor to the market.
You confuse “re-inflate” with “let the air out slower so that more banks don’t default and cause the Federal Government to have to cover the deposits of those banks to the tune of several trillion dollars.”
So now I see where you’re coming from. You think a sudden market correct would be better and make the recession shorter. That is completely wrong and (fortunately for us) won’t be allowed to happen, just because of the bank issue I mentioned above that would make the world economy look like the one from 1932.
Those are nice thoughts, BM, but it was the government trying to “make the recession shorter” that led to the Great Depression. Markets will correct themselves, and governments trying to “let the air out slower” results in a more severe drop in the long run. Especially given the fact that no politician will put up with his perceived political losses if “re-inflation” doesn’t happen quickly.
Again, wrong lesson learned from history.
It was the government doing absolutely nothing under a Republican who thought like you do that caused the Depression to get worse from 1929-1932. It was the Fed taking the money out of the system too fast as the government stopped their stimulus that caused deflationary forces to win in 1937.
Actually, if you look at the research Christine Romer has done on credit/monentary crises. She found after examining over 30 of them that the right answer to shortening the length and strength of it is to throw money at the problem. Even if the money is improperly applied, just showing the confidence in the system by pumping money into it helps reduce the length and depth of the problem. Withholding money when the credit markets aren’t functioning always made the problem worse.
But, hey, you’re free to believe otherwise.
Romer cheated. She had more than one economics lesson.
BM, actually, you learned the wrong history lesson, period.
From Murray Rothbard’s America’s Great Depression:
Rothbard goes on to describe Hoover’s background and the development of his economic interventionism in unemployment and labor relations. The actual historical facts are unassailable; it’s human beings that have a habit of forgetting (or rewriting) history.
Christine “Keynesian” Romer is a big fat poopy head!
You’ve really got to hand it to these Socialist control freaks that came up with and continue tweaking Keynes’ economic theory… Their premise is if people are left to their own devices, they’ll save and become self reliant and self sufficient (Keynesians refer to this as hoarding)… therefore, we must devise an economic system that “deflates” people’s savings and make the people more dependent to the controllers (They call this , investing). Brilliant, I tell you, just Brilliant! No wonder why Christine Romer is so loved by both sides of the BIG GOV -D and -R isle.
“We should also recognize that the tax credit does not help the buyer, it helps the seller, by allowing the seller to charge that much more for the price of the home.”
If they could sell the house at the higher price, we wouldn’t need to be offering the tax credit in the first place.
Your point?
Bill
It actually helped existing homes sales. Please do not let real data get in the way!
Existing Home Sales Pop on Rush to Beat Tax Credit Deadline
Purchases of existing homes in the U.S. rose to the highest level in more than two years in September, as first-time homebuyers hurried to cash in on a government tax credit before it expires in November.
Sales of previously owned homes exceeded forecasts, surging 9.4% to an annual rate of 5.57 million units. It was the highest rate since July 2007, and followed a 5.09 annual rate in August, the National Association of Realtors said Friday in Washington.
Analysts polled by Reuters had expected September sales to rise to a 5.35 million unit pace from the previously reported 5.10 million units in August.
http://www.moneymorning.com/2009/10/25/home-sales/
John, same applies that I just instructed Bill. These discussions on “economics” become cut and paste wars. It’s understandable since some people believe all they need to say about econ is in one sentence, so they must fill up their posts with other people’s words.
Either way, original content, or original thought about original content.
Links are fine, but summarize yourself.
Icarus
Just trying to bring FACTS not what I feel!
Yeah, me too! Me too!
Bill
Do you get you are using an opinion about what happen with tax credits via homes and I actually posted data showing the opinion was wrong?
No John, I don’t get that. I read your cut and paste, AND your link, and it did nothing to refute what I had posted — which you obviously did NOT read. So I guess Charlie is right, at least about you.
Bill
I am lost what is your point? What you posted is flat out wrong! You claim the tax credit would create an over supply of new homes. And the tax credit help pre-existing home sellers and old inventory of new homes. Please help me understand how your opinion article was even close to being right?
You posted
….. Perhaps the worst impact of the policy is that it encourages the continued building of homes, only adding to the over-supply….
The result of the tax credit! Not an opinion but real DATA!
….Existing Home Sales Pop on Rush to Beat Tax Credit Deadline…..
Backlog of Unsold New Homes Dwindling: 5 Things to Know
http://www.usnews.com/money/blogs/the-home-front/2009/9/25/backlog-of-unsold-new-homes-dwindling-5-things-to-know.html
Those houses haven’t been “sold” until the fat lady pays
singspays her last mortgage bill.Let’s think: Why are we seeing foreclosures?
Could it be because the bank still owns them until the loans are paid off? Could it be because borrowers woefully not capable of repaying loans were swiftly approved for sweeter-than-reality deals by the banks? Are we going to keep ignoring that?
Yes to all, I suppose. A few years from now you’ll see these same people, lured into buying a home by Isakson’s “victorious” tax credit scheme, looking for another place to live.
I botched that strike-through.
“. . . until the fat lady
singspays her last mortgage payment . . .”I think I’ve just had an epiphany.
Tax credits for the consumer don’t have any effect on the consumer, they only serve to increase profits for the producer.
That explains a lot.
“ByteMe” asks: “Well, Bill, gotta ask, just to see where you’re getting your info from…”
Charlie adds: “This is Peach Pundit. Not Mises.Org”
Bill retorts: “Don’t ask me where I get info from, because I might quote from and point you to http://www.Mises.org/ or http://www.Cato.org/ or RedState.com or NYTimes.com or WSJ.com or ControlCongress.org or…”
John, with all due respect, that was really random, so I can’t even fathom a reply.
Bill
In all due respect you do not want people to know you are calling for an Armageddon economic solution! As I said I give Indy the credit for having the integrity to admit that is what would happen. And having the integrity to admit he was calling for a total re-build built on very little leverage after a massive collapse ie gold standard!
John, seriously, how is saying “Isakson is convincing Congress to artificially maintain high prices of a needed product which are collapsing because they were artificially maintained at a high level for so long” calling for an Armageddon economic solution?
I love you, John, but sometimes I’m not sure our trains are traveling on the same tracks.
Bill Greene
You have posted your solution numerous times ie gold standard. Unless you have changed your mind than your political agenda is clear. You have the God given right for your opinion but we should not play games about it.
OK, John. Whatever.
isakson (and konop for that matter) let issues dicatate their principles instead of principle being the basis for important decisions about issues.
Amen.
Oh wait, I think I quoted biblegateway.com on that one. Oops.
Excellent statement, 3J. I couldn’t have said it better myself.
And 3-Jacks get a trifecta,
I couldn’t agree more.
And 3-Jack (the “s”) get (goes here) a trifecta,
I couldn’t agree more.
(I blame lexdysia )
What I find bizarre is that you would vote this comment What part of this comment do you guys find offensive?
ByteMe
What they are trying to achieve is a large enough increase in real-estate so banks balance sheets are not disrupted when they take the 1 trillion out. Yet if it over heat ie inflation that is not good either and it seems like you get the dilemma.
I am less concerned about inflation now being we over supplied with everything, yet this hurts the job market. And that is why I think until we use up our over capacity the job market will be tough. Also China is filling any capacity issues with cheap products. A real catch 22!
Also even though interest rate are low down payments are high (equity to debt ratio) especially for business. And if the real-estate market goes down further the problem will get worse.
As I said a very tough balancing act.
Sorry
…vote this comment off…
There are a lot of folks who really don’t want facts to intrude on their reality. You need to look more toward simple answers that blame the government for everything. Economics in one lesson, indeed.
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