This is no bailout for Main Street America

[marmar]

This is no bailout for Main Street America
In reality, a $25bn mortgage deal with banks is a drop in the ocean – given US homeowners' $700bn of negative equity

Richard Wolff
guardian.co.uk, Thursday 9 February 2012


Big announcements of breakthrough legislative deals during election campaigns should be taken with huge grains of salt. Generally more rhetoric than reality, they sometimes contain real concessions made by politicians seeking votes. So it is with Thursday's Washington announcement of $25bn to help homeowners. Something significant is happening, but it lies below the surface of the headlines.

Typically, modern governments intervene in two ways when – as has been true since 2007 – free-enterprise capitalist economies produce particularly bad versions of their recurring economic "downturns". One economic policy is aptly called "trickle down" economics. It involves throwing heaps of money at the top of the economic pyramid – to mammoth banks, insurance companies, and other corporations at or near economic collapse. Policy-makers hope that such help for these institutions will revive their activity and thereby trickle down – as credit and orders for medium-sized and small businesses, and then, finally, to jobs and maybe wage increases for the majority of workers.

The alternative is "trickle up" economic policy. It involves government financial aid aimed chiefly at helping the mass of workers. That policy's goal is for the assisted workers to resume purchasing, which will, in turn, boost business revenues and so rebuild prosperity.

The historical record is quite clear: trickle down is no better or more effective a policy to end deep recessions and depressions than trickle up. In the last great capitalist downturn of the 1930s, the Roosevelt administration first tried trickle down. Its poor results, coupled with profound political pressures from below – the Congress of Industrial Organizations (CIO) membership drives that brought new millions into labor unions and the surging socialist and communist parties – forced Roosevelt to add major trickle up policies. They worked better, but not well enough to overcome the Great Depression. ................(more)

The complete piece is at: http://www.guardian.co.uk/commentisfree/cifamerica/2012/feb/09/bailout-main-street-america

[hfojvt]

1. $700 billion? Is that only for the homeowners who are underwater?

In some sense, I do not understand all of the fuss about being underwater. I bought my house in November 2001, with 20% down. Suppose there had been a housing bubble burst in 2002 that caused me to be underwater. Would I care? Should I care?

Well, first of all I paid the house in October 2005. So that would put me above water again. Secondly, the value of equity is only a concern if I am going to sell the home. Instead, I am still living here. Third, my required house payments were much, much less than it would cost me to rent such a house, less than half I would say based on the rent of the smaller house next door. Fourth, if you are sensible about buying a house, then eventually it will be paid off, at which point housing costs are dramatically reduced.

So being underwater today does not mean the end of the world, as long as you think long term and have some hope.

However, before I bought this house, I moved about 300 miles to take a new job, took a $20,000 loss on my last house/building, and then, after six months got fired from my new job. Stuff happens, but you pick yourself up, pull yourself together, keep everybody warm, and always remember - to keep riding the storm out.