33 responses so far ↓

• 1 tom // Dec 8, 2008 at 3:24 pm

  I’m a republican and I am a huge fan of this plan. It is something that this country has needed for a long time, regardless of the economical climate. I don’t know where the money will come from, but it makes sense that it will help boost the economy. Bottom line is that jobs will be created, and necessary improvements will be made to the country.

• 2 Tim // Dec 8, 2008 at 4:49 pm

  People are high to think that this type of infrastructure plan will help the middle class. First, we would have to re-educate a new labor class that knows how to pave streets, build houses, and construct bridges. Bottom line is that we have an educated populous that is not in a labor class anymore. Folks putting together cars aren’t going to be running out to pave roads, let alone an insurance adjuster or a mortgage accountant, or office management specialist. The notion is idiotic. Yeah, there will be some, but there won’t be mass flows transitioning from baker, butcher, and candlestick maker to construction.

  What will happen, is that inflows of illegal aliens will surge again now that labor jobs are being planned under this infrastructure stimulus program. illegal alien flows into the U.S. have declined this past year because of the weak construction outlook. this will only increase it because they are the ones who are willing to work these labor jobs and are the ones who know how to do so.

  yeah, there are some residual jobs by lawyers, architects, etc that will get more business from this, but we aren’t going to be increasing the service sector industry jobs which are the ones being heavily impacted during the current crisis.

  it is also a fallacy to think that the middle class is the base of the societal pyramid in terms of govt financing. yes, they are the backbone of spending in our service oriented society, but in terms of tax revenue for social projects, they only amount to 5% of the govt’s revenues.

  construction, construction, construction is not the solution when our society isn’t a construction society. we already had our industrial revolution. invest in next generation technologies and industries. yes, we need infrastructure, which should be a part of the stimulus package, but it shouldn’t be dependent solely on it.

  everyone is saying this is the biggest project since eisenhower, well the difference is that during eisenhower’s time we converted industries into other industries, the same with FDR. this stimulus plan isn’t doing the same thing. although i’m for some sort of infrastructure development, there is a huge disparity between the technical competence of our work force versus the kinds of infrastructure programs being advertised in this plan. so, we will create x amount of jobs, which will be filled undoubtedly by illegal aliens, but we will still have a bunch of other folks unemployed who aren’t laborers.

• 3 dana // Dec 8, 2008 at 5:05 pm

  if you haven’t read this already, “two incomes trap” is a good book to give you a general idea of how we’re in this situation. a lot of statistics in there. i didn’t read everything, because i found it bit dry.

  to sum up the book, as quoted from amazon.com’s reviews, “…the authors contend that, contrary to popular myth, families aren’t in trouble because they’re squandering their second income on luxuries. On the contrary, both incomes are almost entirely committed to necessities, such as home and car payments, health insurance and children’s education costs. When an unforeseen event such as serious illness, job loss or divorce occurs, families have no discretionary income to fall back on.”

  a lot of things discussed in there are very relevant to our current living situation. it also talked about how income has not increased much since 1971, whereas mortgage prices have shot up insanely. these two areas are several main topics discussed in the book. it was an interesting read.

• 4 Jim ~ mydebtblog.com // Dec 8, 2008 at 5:32 pm

  I believe the government needs to reduce spending, cut taxes, and stop telling everyone what to do. Bigger government is more expensive, requires more tax dollars, and the result is less freedom. You think the rich people are going to just happily fork over their money to the government in higher taxes? It’s the middle class that will help pay for the very programs that will be created.

  I also agree with the comment about illegals in the US. Far too much labor was being done by illegals and the healthcare they were receiving has bankrupt states like California. The other question is who’s going to pick weeds from the fields for a few bucks an hour? I did jobs like this as a teenager growing up, completely different situation today. Maybe teenagers should go get jobs once again instead of complaining to their parents for money.

  Highly skilled white collar people aren’t going to build roads and bridges. It’s those evil rich people who have the money to hire them, but unfortunately get taxed so much they can’t expand and grow the business. If I spent decades of my life to build a successful company just to have it taxed to hell because I make millions per year doing it, where is the incentive? People might realize this sooner or later though, probably after the fact though.

• 5 fengshui // Dec 8, 2008 at 8:54 pm

  “We’re the ones that spend a good chunk of our income. We’re the ones who lose our jobs because the rich fire us and the poor don’t work.”

  Ummmm… the poor don’t work? Haven’t you heard the term “working poor”? The working poor are not middle class. Try reading the book “Nickle and Dimed” by Barabara Ehrenreich….. it is an eye opener.

• 6 fengshui // Dec 8, 2008 at 9:22 pm

  I also do not want an “over involved” government, but I do want a government that doesn’t just sit back and let “things happen” (free market) while they turn their cheek and get their pockets lined. I want to see the corruption reduced significantly. I want to see “some” regulations imposed in regard to certain business practices. For example, there is a need for maximum “fees” that cc companies can charge, and prohibiting double charges such as slapping a $39 over the limit fee on an account because the interest charge made the account to go over the limit, and things of that nature. There are companies out there charging 40% interest! And I don’t even want to get started about the legal loan sharking of “pay day loan” stores…. And then there are things that were going on such as the subprime mortgage business, and other borderline unethical business practices. And now we ALL have to pay for this mess.

• 7 fengshui // Dec 8, 2008 at 9:30 pm

  “Bottom line is that we have an educated populous that is not in a labor class anymore”

  Not every person in this country has the desire, capacity, and the intelligence to have a 4 year or graduate degree. Many kids who graduate HS may be interested in a skilled trade such as welding or construction if they knew that they would get training and a decent wage. Most people figure they have 2 choices. Either take out $30k in student loans and get a 4 year or graduate degree and try to be “white collar” OR be the working poor. Or they may be one of the very rare and lucky ones who happens to inherit a family business and they don’t have to go to college. We should have more choices than this. People my parents age, graduate HS in 1976 and most of them didn’t go to a 4 year college. They found trade positions, factory work such as GM, Lear seating, etc. and some technical skills trade such as welding and pipe fitting, etc. Now, these jobs are practically non-existent. Sad…..

• 8 fengshui // Dec 8, 2008 at 9:46 pm

  “It’s those evil rich people who have the money to hire them, but unfortunately get taxed so much they can’t expand and grow the business. If I spent decades of my life to build a successful company just to have it taxed to hell because I make millions per year doing it, where is the incentive? People might realize this sooner or later though, probably after the fact though.”

  One more comment…. I do agree with this, to a certain extent. I do agree that there should be tax caps, and I do believe that EVERY PERSON (unless disabled) HAS TO PAY A MINIMUM TAX. No earned income tax credits, no getting a tax return of more tax than you paid because you have 8 kids. I don’t care what the circumstance is, you should have to pay taxes. We are one of the only countries where married couples with children pay significantly lower taxes than singles and DINKs. (average of 11% versus 29%), and I think that this needs to change as well, so we ALL pay our fair share.

  Ok. I’ll zip my trap for awhile…..

• 9 Pearl // Dec 9, 2008 at 1:23 am

  A word of warning:

  Every time some politician or “journalist” throws some dramatic comparison numbers at you, like “the biggest job loss since 1974″ BEWARE. Chances are, someone is trying to con you.

  A job loss of 533,000 out of a labor force of 155+ million + a sizable underground labor force (2008) is very different from a job loss of 533,000 out of a labor force of 92 million. It’s a comparison that makes no sense.

  And LAL, middle class people do not pay 29-38% of their incomes in federal taxes. You may be thinking of the marginal tax rate, but that isn’t relevant to the overall tax amount. More typical would be between 5% and a maximum of 20%, depending on how many children, itemized deductions, etc.

  Finally, a stimulus package can only be paid for three ways:

  1. Borrow. Would you recommend to the typical middle class family that it borrow against its credit cards to “stimulate the economy?” It’s no better when the country borrows from China, and we aren’t going to like it when they send their bill collectors to break our kneecaps.

  2. Tax. If you raise taxes, you are taking the money away from some people who would have spent it on economic activity to give to other people who will spend it on economic activity. The net effect on economic activity is zero. The only “stimulus” to the economy is that you have fooled some people into spending on things that show up quickly in economic statistics, instead of things that show up a few months later.

  Years ago, the Democrats, to much fanfare, decided to impose a “luxury tax” on expensive luxury goods like expensive boats and cars, jewelry, furs, etc. A few years later (not many) they quietly repealed it, after thousands of working class people working for American boatbuilders, luxury car makers, dealerships, etc., lost their jobs. The Teresa Kerrys of the world simply bought their luxuries abroad.

  3. Inflate. Print more money. People will feel richer even though they are not and so will spend more, and once the effect on prices becomes clearer, they will also feel compelled to buy now for fear the price of what they want will be higher later. This used to be a stealth strategy by the government, which is harder to do these days because a lot of us still remember it, but it is still viable because there are whole new generations like yours who can be tricked this way. This method effectively takes the money from savers, long-term fixed rate lenders, pensioners, annuitants, and the like.

  Obama was elected by a lot of people swayed by his fine rhetoric and historic persona, but also by certain very self-interested constituencies and funding sources. Those constituencies expect payback and so the bulk of his massive new spending is designed to do that. Schools? Think NEA. Roads, bridges? Think building trades unions and government employee unions. Auto company bailouts? Think UAW and a chance to start the process of nationalizing American manufacturing and energy. Complex credit and finance transactions that nobody will be able to figure out? Think George Soros. “Green energy?” Think the “green technology” companies that stand to make billions selling a lot of Chicken Littles protection against the falling sky.

  This massive new spending will help some people and hurt others. Since it distorts the true wishes of consumers and distorts signals to producers, it will damage the economy further in the long run, but it will increase goverment power, which is all that matters to the people who are pushing it.

  When will people get it through their heads that government mostly IS the problem. It is not the solution.

• 10 fengshui // Dec 9, 2008 at 2:00 am

  “When will people get it through their heads that government mostly IS the problem. It is not the solution”

  Do you truly believe that if there are no regulations and no government “interference” that things would turn more corrupt than they are currently? I’m asking your honest opinion. Because at this point, I feel that some regulations would prohibit questionable and unethical business practices, and prevent messes like the subprime mortgage scandal. ????? Or am I just dreaming?

• 11 Kristy // Dec 9, 2008 at 4:57 am

  I was going to say what Pearl did in regards to taxes, the effective tax rate for most middle class Americans would be around 10-20%. This is a far stretch from 33-35% that people “think” that they pay.

  That is a good point about the illegals getting some of these jobs that will be created for Americans. I didn’t even think of that. All I keep thinking is that Obama’s plan could take years to get started. He can say that he wants them implemented right away, but I doubt if that will happen.

  Pearl, “When will people get it through their heads that government mostly IS the problem. It is not the solution.”

  I agree 100%. The government involvement is going to prolong our recession. And now because the unemployment numbers were higher than expected, they are going to bailout the Big 3. When will it stop?

• 12 LivingAlmostLarge // Dec 9, 2008 at 10:21 am

  Tim, it’s not just infrastructure, but we’re also going to modernize our medical records system. But why not improve infrastructure? To prevent bridges from falling down. Also why not consider changing the immigration policy to allow illegals to become legal? You know our immigration policy is stupid and not worth crap? That we have larger companies building in China and India because we refuse to allow them to import talent.

  And why import talent Tim? Well because Americans refuse to major in math and science. We take the easy way out and major in social sciences, communications, etc. So math and science even at Universities is dominated by foreign students.

  Why can’t we have more people working blue collar jobs. Since when is it absolutely necessary to only work white collar jobs?

  I’ve read the two income trap. It’s not really applicable to the economic stimulus except that you shouldn’t be depending on 2 incomes to live.

  Jim, how is business still succeeding in other countries that tax companies? How is it working in other countries that people are living a better quality of life? The US is the worse rated for stress and hours worked for what?

  Fengshui I read nickel and dimed, and I believe poor more as people who receive gov’t assistance or would qualify for it. There are many people who are few bucks above qualifying and yes they are struggling. Also in the book, they showed that getting started without parental help, burdened by student loans, etc is more difficult now than say 30 years ago.

  But let’s be honest. The majority of people’s incomes in this country is likely between $35-75k. It’s not in the $100k+ income levels that is according to the census about 5% of the country and it’s mostly in the coastal areas where cost of living plays a huge role.

  FS is also correct in saying not everyone is cut out to go to college.

  But yes kids are expensive so I’ll cut parents some slack. But everyone I know with kids pretty much has to pay AMT. Everyone my DH works with is paying with 2 kids as much as we are. They are also making a lot but heck I know the difference between marginal tax bracket and actual tax rate. I’ve paid between 0% in 2004 and ~28% in 2005.

  I have my records, we had to pay taxes on all our moving benefits from the company, including buying and selling homes, commission, etc. Our income ballooned to a ridiculous number that year and we were married thankfully but we paid a VERY substantial taxes between CA, MA and Federal! We were not residents of any state, had to file non-residents and then federal.

  Also when my DH was on a visa we paid MORE than our fair share. He did not get a personal exemption AND had to file as a non-resident AND there was no tax treaty for his country. Plus as a NR they withhold MORE than you owe and you CANNOT change your withholdings. So we got back a $2k refund every year. Oh and let’s not talk about what you have to pay to get your paperwork filed for green cards.

  Kristy and Pearl what do you pay? I pay a hefty chunk of taxes and I’m sure Kristy does as well. She has kid but is above the child tax credit. Same here except no kid and a slightly higher COLA.

  I realize that most people with 2 kids and make under $100k pay 0%. Why? Between the child tax credit and personal exemption, etc they might even be making money.

  Taxes are wealth redistribution period. Any taxes. That’s the way it works.

  Look you don’t like the way the US is running leave! I stayed under Bush when he cut taxes and went to war. I realized that the country had spoken. I hadn’t voted for him in 2000 or 2004. Nor had I ever supported a war for oil.

  We had a lot of unregulated investing these past 8 years. The worse of which was CDS, which I talk about today. This product gained popularity with the rise of packaging mortgages as bonds. NOT just subprime but mortgages in general.

• 13 fengshui // Dec 9, 2008 at 2:26 pm

  “I realize that most people with 2 kids and make under $100k pay 0%. Why?”

  I couldn’t agree more. I already ranted about how we all need to pay taxes. We all drive on the same roads, most of us send our kids to public schools and universities, use the library, and all sorts of other “governement provided” services.

  As far as immigration, let people in, but make them citizens and TAX THEM. Move on. Building a chain link fence isn’t solving a damn thing.

  “Also in the book, they showed that getting started without parental help, burdened by student loans, etc is more difficult now than say 30 years ago”

  Yes, it is MUCH harder, and I speculate that is why many young people are struggling more. I have $30k in student loans and my hubby is taking them out as we speak. His family is wealthy, but they are not paying for his education (now). They figure that he is a married adult and can pay his own way. My parents never paid for my college either. Some parents do, some don’t. It isn’t easy for everyone to pay for their children’s education. I still don’t know how a family making $35k can survive in this country, let alone be able to put away for their children’s education…. it boggles my mind.

• 14 Kristy // Dec 9, 2008 at 3:05 pm

  “Why can’t we have more people working blue collar jobs. Since when is it absolutely necessary to only work white collar jobs?”

  First we will need to train these people to do the work. Second, they will probably not want to do the work because they will think that it is “beneath” them. Just my opinion of course.

  The following link displays the effective tax rates for different classes of people. It’s like Pearl said, the effective rate for middle class is 5-20%. I can’t quite recall what we paid last year, as an effective rate, but I think it was close to 13%. Yes, I pay a hefty amount in taxes, more so than the average American, however, I just plugged some numbers into a calculator and it appears that our effective tax rate this year will be close to 13.88%.

  http://www.cbo.gov/ftpdocs/88xx/doc8885/12-11-HistoricalTaxRates.pdf

  As far as our kids focusing on math and sciences, I think it is prudent to focus on the education of our children. However, that being said, I used to be a chemist. I left the industry because I was bored with what I was doing and the pay wasn’t all that great. I now make more than 3 times what I made as a chemist 6 years ago. I think the pay needs to increase if you want more kids to focus on math/sciences. The pay just isn’t fair with the amount of work you put into your education.

• 15 fengshui // Dec 9, 2008 at 5:16 pm

  Are you referring to just federal tax rate? We must take into account state taxes as well. I live in a very high tax area in regard to sales, property and state income tax. I’m only working 24-26 hours a week right now because I’m in school FT, and I just looked at my pay stub, and I have close to $1k taken out each month in taxes. Hubby and I barely get a tax return because we both claim “married 2″, and the only reason we get any type of a return at all is because we deduct mortgage interest. So, I’m paying close to 22% between state and federal income tax. I presume that my hubby’s would be worse since he makes much more than me with all of his over time. When I worked 60 hours a week between 2 jobs this summer, it was much worse. We don’t have kids, so we do not get any tax credits, etc.

• 16 Tim // Dec 9, 2008 at 5:20 pm

  @LAL: I think you missed my point. I’m all for improving infrastructure, but the stimulus package should not be wholly based on construction. The proposed plan is just that. Yeah, there is things like automating medical records system, and public wifi, but those are not huge employment projects. the govt could simply adopt the military’s automated medical record system. the govt will more than likely piggy back off of existing telecomm providers to provide public wifi. now there is going to be a big difference between what is stated now and what is actually proposed or signed, but as it stands it is primarily labor intensive infrastructure, which simply does not match up with the composition of our work force. forget old infrastructure, we need to work on next-gen infrastructure.

  no issues with revamping immigration policy; however, as we have seen rewarding bad behavior by granting amnesty to illegals the first time, more will circumvent the system as they have. bottom line it is unfair to reward illegal aliens and punish those who are trying to immigrate legally. that is what is crap. our immigration policy is fine, the enforcement is very wanting, though. I alway believed it is a consumption problem and the solution isn’t punishing the illegals, it is punishing those who employ them. If it wasn’t a consumption problem, then we wouldn’t have seen such a decrease in illegal immigration and an increase in illegal aliens returning to home country with the housing bubble bursting.

  why should we have blue collar jobs when our domestic economic base isn’t blue collar job dependent and our labor force is no longer trained in blue collar jobs? we do heavily import talent, and I never made that argument. our immigration system rewards the importation of talent. so what if our colleges have foreigners? I surely don’t care. It is good, because then we don’t have to invest overseas. it works to our advantage to have competition. the problem is, we have had over a decade of people feeling entitled to jobs. there were jobs readily available, people had no longevity, no worries about being fired. heck, people quit companies just because they didn’t have romaine lettuce in their gourmet cafes. we as a society simply got lazy and simply felt entitled to everything. we did not have to fight or even work. so i’m glad that unemployment is increasing. it will make us better and maybe we’ll check our spoiled entitlement mentality at the door.

  i also think all these world comparisons and polls about stress, hours worked, and standard of living are rather stupid and meaningless. americans have for quite some time felt more entitled than any other employee in the world (well, maybe not compared to the french). Of course americans are going to poll that they are over worked and stressed. it’s hard to believe that when you go into a store and there are 20 employees doing nothing, there is stress in the workplace. people in other countries are not living a better quality of life. if that were true, people wouldn’t be risking life and limb to get to the u.s. over other countries that are continually cited as having better quality of life.

  sorry, it wasn’t only the past 8 years. you have to include everyone’s favorite clinton admin into the mix since the whole policy of affordable housing starting from 1991. i’m not giving bush a pass for his 8 years by no means, but all the idol worshipers have to face up to the fact that the problem started in 1991 when there was this huge policy push for affordable housing for everyone. You know the democratic controlled house and senate these past 2 years did not do a damn thing to address this impeding economic crisis that everyone seems to say they predicted, and they had the power of the purse and ability to impose regulations. the president isn’t the sole bastion of fiscal and monetary policy, let alone regulatory policies…at least the last time i checked we weren’t in a dictatorship. seems to me that congress still has to pass bills before they cross the president’s desk.

  war for oil…god, what a naive soundbite. people who cite we went to war for oil know absolutely nothing about the US oil policy considering our sources for oil, and the fact that it completely ignores the fact who the heck would iraq sell oil to to begin with. haphazard war, yes. war for oil to the US, no. absurd.

  i find it amazing how the pendulum swings and now people like LAL are saying if you don’t like it leave. I believe the opposite side were saying the same thing, while saying that it is our right to disagree and our right to challenge govt policies. just as you didn’t leave during the bush administration, i find it rather childish for you LAL to tell others to leave the US if they disagree with proposed future policies.

  btw, there are significant amount of people who will pay and have paid no federal income taxes under the bush admin/congress’s tax cuts. numbers can all be massaged to argue whatever argument you want to make. the bottom line is that people want to be treated fairly across the board, whether you are making $20k or $1million.

  taxes are not for wealth redistribution. taxes are to provide communal services. the social contract is that everyone pays equally into the system to get equal benefit from the system.

• 17 Kristy // Dec 9, 2008 at 6:52 pm

  Yes, the effective tax rate is based on federal taxes only. State will vary. Property taxes are not included either. Here is a quick read that discusses how the effective tax rate is calculated. You have more deductions than you think. You have the standard decution of married filing jointly of $10,700 and a personal exemption of $3,400 each. You need to subtract that from your gross to get your taxable income.

  http://allfinancialmatters.com/2007/10/31/a-question-from-a-reader-how-to-calculate-taxes/

  Just because you have kids doesn’t mean that you get a credit. I have said it before on here, we make too much money for that. We can not deduct our children either. I think the cut off is $110,000.

• 18 fengshui // Dec 9, 2008 at 8:47 pm

  “You have more deductions than you think. You have the standard decution of married filing jointly of $10,700 and a personal exemption of $3,400 each. You need to subtract that from your gross to get your taxable income”

  Even when doing our taxes, and applying the standard deductions, etc. we do NOT get any, or very little tax returns. So all of those taxes that get taken out of my check every 2 weeks for state and federal is what I/we pay…… So between state and federal, we’re paying between $26-$29k in income taxes. That isn’t including property or sales tax…..

  “our immigration policy is fine, the enforcement is very wanting, though. I alway believed it is a consumption problem and the solution isn’t punishing the illegals, it is punishing those who employ them”

  If you think that waiting for ten years to become a legal citizen is “fine” policy…. well then….. I guess that I’m misunderstanding something. That is why people are here illegally. They don’t want to wait for the paper shuffling cluster fu*k of a nightmare process…. why go through all of that when you can live here, use a fake ss#, or get paid cash and avoid paying income taxes and then get free health care. THAT needs to change in a real hurry…..

• 19 Kristy // Dec 9, 2008 at 9:02 pm

  Feng- I completely understand…I pay roughly $30-35K in taxes every year, however, that does not mean anything. The effective tax rate does not include property taxes. I think you may need to read up on it more. Pearl may be able to explain it better than I do. Did you even read the link I gave you?

• 20 Kristy // Dec 9, 2008 at 9:03 pm

  Besides, I don’t get any returns either, all that means is that you have filed your taxes correctly. Do you really want to give the government an interest free loan?

• 21 Tim // Dec 9, 2008 at 9:09 pm

  @fengshui: what do you mean 10 years? i guess we must know a ton of different legal immigrants, then; however, i will say that there are certain countries who have larger quotas than others. there is something said for having controlled immigration policy. i’m for a guest worker program, but one where you can deport people’s asses back to their homeland. people don’t come here illegally because of the paper shuffling. people come here illegally, because there is a consumption problem on our part and because their countries suck for jobs and wages. This year is evident of that, where you have illegal immigrants moving back to their home country and decrease in illegal immigrant flows to the US.

  immigration needs to be controlled so their is fairness across the board for people from all countries to immigrate.

• 22 Pearl // Dec 10, 2008 at 2:37 am

  Feng Shui, the subprime mortgage mess was CAUSED by government regulations. Bad ones. Government regulators DEMANED that lenders expand their loan products to categories of people who didn’t formerly qualify. Government regulators helped create the secondary market for such risky loans. And you expect the government to solve the problem it created? It can’t even honestly admit it had a hand in it.

  Just look at that situation in Chicago with the Republic window and door company. It’s basically broke, and lacks the ability to repay any future loans, so a bank would be nuts to lend it more money, right? But a bunch of politicians extort Bank of America to “lend” (really, give) the company a loan so it can pay its workers their severance benefits. The extortion is the threat of pulling government business away from Bank of America if it doesn’t engage in that risky conduct.

  Who is the victim here? Bank of America and its stockholders, to start. Also the tax payers of the State of Illinois whose money is being used, not for its intended purposes, but to serve as an extortion tool. Also the tax payers of the U.S.A., who will be asked to bail out Bank of America if it is forced to continue making loans to people or businesses that can’t repay them., and/or the people who work for Bank of America, if it goes down.

  And who will have caused it? The government.

  But Rep. Jesse Jackson (D.), Senator Dick Durbin (D.) and President-elect Obama (D.) get to pose as rescuers of the workers of that company, using extortion and bad lending practices to get their way.

  Multiply that incident times the millions of bad loan decisions that government coerced, threatened and bribed lenders to make, and you have one big subprime mess, courtesy of government regulations.

  Anyone who thinks Republican de-regulators caused our financial mess should ask themselves why most other countries of the world are in even bigger messes, including countries whose governments are obsessively regulatory like France, Germany and Italy.

• 23 LAL // Dec 10, 2008 at 10:09 am

  I’ll write more later when I have time, but three quick facts.

  Kristy what does the average real estate appraisor make? And why is it been shown in multiple studies that people with bachelor’s in engineering and sciences make the most? According the the American Chemical Society, the average income of a bachelor’s chemist is $45k in the US starting out. The average communications major, etc makes less than half of that. I know many chemist who get at least $45k offered.

  Second, Tim legal immigration takes YEARS. Unfortunately. My neighbors applied for a green card in 2001 and still don’t have it. Doesn’t look like it’s happening anytime soon either. Average time is about 8 years. You can check the immigration website for what year they are processing. It does depend on the category you are applying as EB1, 2, 3.

  Third, Pearl, yes it was caused by deregulation. Read the Savings and Loan Crisis of the 1980s. The same thing happened with mortgages because of deregulation. It wasn’t really ’subprime’ and subprimes are not what really sunk people NOW.

  Subprime mortgages were a small % of mortgages underwritten. I think Kristy might agree, what really happened is A LOT of people with GOOD credit over extended themselves and bought houses they couldn’t afford. This was not people with bad credit buying homes, but good credit buying TOO much. Then something happens, like a downturn, less commission and they couldn’t afford it.

  Subprimes if you’ve read previous articles i posted made up less than 5% of mortgages. Nope, the majority of foreclosures were from normal people with decent credit qualifying for normal loans. Difference? Instead of 25% they were giving people like 50% PITI, or stated income loans, or no documentation loans for people with great credit.

  My BIL had excellent credit was making $20k/year and offered a $300 mortgage! Stated income and no doc loan because of his great credit. That’s why people got into crap. They bought homes they should never have bought.

• 24 Kristy // Dec 10, 2008 at 10:18 am

  According to the following site the median commercial real estate appraiser’s salary is $74,413. You don’t start out there and in no way am I implying that I started out making that much money. I have 6 years of education and experience under my belt. Most appraisers are not on salary either, they work on commmission, so this number could vary. I will make around $115,000 this year. Next year I wont’ make as much just because of maternity leave, which is unpaid. The year after should be higher than that due to obtaining my designation.

  http://swz.salary.com/salarywizard/layouthtmls/swzl_narrowbrief_FA05.html

  I started out as a Chemist making $36,000 a year, 8 years ago. Plus I had overtime. But the company I was with had no room for advancement and I ended up disliking the job anyway, met my husband and we moved. Then I got into appraising, which I see as more lucrative in the long term. I can make as much as I want to work, if there’s work. I can also start my own company one day as well. Plus my current position offers lots of flexibility which is essential when you have children, IMO.

• 25 Pearl // Dec 10, 2008 at 11:59 am

  LAL, if, by regulation, you compel banks to make bad loans to “subprime” borrowers, the gates are open and it’s pretty hard to avoid making bad loans to “normal” borrowers. Lenders were coerced, encouraged and enabled to do so by federal regulations. Ergo, the feds created this problem.

  I consider it a “regulation” for the federal government to guarantee the downside risk of bad lending practices as the federal government did with Fannie Mae and Freddie Mac (and Sallie Mae, too, although that is smaller numbers). Maybe you don’t.

  I also consider it a “regulation” that the tax code now makes unsecured interest non-deductible and home-secured interest deductible. That didn’t used to be the case; I remember years ago when all interest used to be deductible, and there was therefore a much smaller market for home equity lines of credit (HELOCs).

  Anyway, the issue isn’t regulation or de-regulation. That’s just a political talking point. The issue is good versus bad regulation.

  A good regulation is: clear, of limited and carefully designed purpose, does not try to choose or create lottery-type winners and losers. It basically tries to prevent fraud and compulsion, and avoids distorting the rewards and punishments of the market place. Federal guarantees by definition distort the punishments of the market.

  Since most regulations are designed by politicians trying to reward their key constituencies and are INTENDED to distort or conceal market realities, it’s darned hard to get a “good” regulation out of them.

  People warned of the dangers of these bad regulatory moves and of Fannie Mae and Freddie Mac, but their warnings were ignored and ridiculed by the very people who are now proposing to design the next ill-advised scheme for trying to distort or ignore reality. It’s ridiculous watching people like Barney Frank and Chris Dodd, probably the two single individuals most responsible for our current crisis, preen for the cameras and position themselves as solvers of the problem they created.

  We now seem to be embarking on a national program of massive distortions of the marketplace. Like Fannie Mae and Freddie Mac did, we are going to guarantee people against the bad consequences of their bad decisions. The outcome is inevitable. You get what you pay for. Pay for bad decisions and you will get more of them.

• 26 Pearl // Dec 10, 2008 at 12:49 pm

  LAL, re: the savings and loan crisis of the 1980s. I don’t have to read about it, I was there for it.

  In a nutshell, the causes of the S&L crisis were:

  1. Inflation. Only the federal government can cause inflation – a general rise in the level of prices – because only the federal government has control over the money supply. Inflation meant that S&Ls, whose primary business was fixed rate mortgages, had huge loan portfolios that were declining in value as the low rates on the loans were outstripped by inflation. I remember signing a 90-day loan lock on a small commercial building I was buying in 1979. When I locked the rate, it was 11.5%. By the time the loan closed, the going rate for that type loan was about 15%. The bank that lent me the money, of course, took a beating on that loan, but not as bad as the S&Ls did on home loans. Many home loans from the 1960s and early 1970s were 30-year fixed at far lower rates and people didn’t move as often. Regulations also prevented banks from enforcing “due on sale” clauses, so new buyers of a home could easily assume an old lower rate mortgage and the lender could do nothing about it. I bought my first house in 1973 by assuming a 3.5% loan and giving the seller a contract for the rest at about 6% (if I remember correctly). Within a year or two, rates were 8 or 9%, and those lenders took a beating. Adjustable rate home mortgages first grew out of that inflationary period.

  2. Increase of the FDIC limit from $40,000 to $100,000 and from 70% coverage to 100% coverage. Depositors had far less reason to be careful that they were depositing funds in soundly managed institutions, since they were well protected against loss, and therefore could chase higher rates. These were usually offered by the S&Ls that had the riskiest (and temporarily most profitable) loan portfolios. The ancient wisdom of “If it sounds too good to be true, it probably isn’t,” got thrown out the window.

  I remember seeing an ad for one S&L in my neighborhood that was offering CD rates nearly 1.5% higher than anyone else and thinking, how can they afford to do that? I was tempted, but decided it was “too good to be true,” and gave it a pass, not out of fear of loss, since it was fully FDIC insured, but just because I was concerned about how long a collapse might tie up my money. Sure enough, a year or two later it collapsed.

  3. A huge expansion of the number of FDIC insured institutions by changing the minimum required number of shareholders from 400 to 1, dramatically increasing the risk of fraud and subservient boards of directors.

  4. Incompetence and probably corruption in the governmental investigatory and regulatory staffs, who did not adequately enforce the numerous regulations that did exist.

  5. A cyclical collapse in oil prices that devastated the housing markets in oil states like Texas, Alaska, Oklahoma & Louisiana, causing massive foreclosures. (Oh, yes, there is nothing really new under the sun!)

  6. Tax code changes that dramatically reduced the value of multi-family and commercial real estate projects, causing loan losses for S&Ls that had, due to regulatory changes, just recently expanded into that lending area and were already hampered by lack of experience.

  While it is true that S&L regulations had been loosened to allow them to expand their businesses, which left them far more vulnerable to the effects of all the above, to claim that “de-regulation” caused the crisis is simply substituting a political sound-bite for real analysis.

• 27 fengshui // Dec 10, 2008 at 2:39 pm

  “I pay roughly $30-35K in taxes every year, however, that does not mean anything. The effective tax rate does not include property taxes. I think you may need to read up on it more”

  I wasn’t including property taxes in my figure. If I did, that would raise it up another $4.2K…… So, if you look at the taxes that I’ve paid and the fact that I don’t get a return, is what I based that number from. The “deductions” are supposed to give you a “break”, correct? I suppose that if I didn’t get a break from deducting mortgage interest, then I’d being paying even more. Yuk. But I will take a look at that link that Kristi provided.

  As far as the immigration, well there is a nasty backlog, and it is only getting worse. Then people’s applications get kicked back for the dumbest reason, like they can prove that they are immune to measles, but were still supposed to get an MMR vaccine, even though they didn’t need it, so the application gets kicked back, and shuffled around on someone’s desk for 6 months. People have been waiting for years to become citizens. And then we deport people with graduate degrees or refuse to give someone with a student visa, a work visa and keep educated people here, but then let in unskilled illegal immigrants who then have several children and use MA. I just don’t get it. And yet, we ALL have to pay for it. Look at Cali and how MediCal is practically bankrupting the state. REFORM NEEDED.

• 28 fengshui // Dec 10, 2008 at 2:44 pm

  “LAL, if, by regulation, you compel banks to make bad loans to “subprime” borrowers, the gates are open and it’s pretty hard to avoid making bad loans to “normal” borrowers. Lenders were coerced, encouraged and enabled to do so by federal regulations. Ergo, the feds created this problem”

  But were these banks FORCED to do this? I mean, were there consequnces if they didn’t? Could they think for themselves and say, no, we better not do this, too risky. No, they didn’t. They processed the loans, collected their closing costs and sold the loans. Sounds like a good deal for them…… we all want someone to blame, and want a bailout, and refuse to accept blame and responsibility for making poor, risky, and greedy decisions.

• 29 Kristy // Dec 10, 2008 at 3:19 pm

  Feng – You would definitely be paying more without the mortgage deduction. I think even with our deductions this year, we may owe money. We made more money this year by about $20K. We were close to owing last year, so I think we will owe this year as well.

• 30 Tim // Dec 10, 2008 at 5:50 pm

  @LAL: legal immigration depends on type and status.

  @Feng: same as @LAL, although I will restate that the process isn’t the cause for illegal immigration, it is financial consumption. california made a decision not to enforce and deport illegals and instead to give them access to everything. you can also blame illegal immigration for why there is a backlog. reform is needed in enforcement, not necessarily on the illegals but on the consumers.

  I agree with LAL, only 5% were subprime. The rest were over extended credit. that was the market. then you had MBS’s and insurance magnifying the bubble exponentially.

• 31 Pearl // Dec 11, 2008 at 3:03 am

  Feng Shui,
  Yes, there were bad consequences. Under the Community Reinvestment Act, failure to show you were lending enough to low- and moderate-income borrowers could result in regulators disallowing mergers, new branches or acquisitions.

  Not all the problem stemmed from that, though. I think the bigger problem was the role of Fannie Mae and Freddie Mac in creating a market for unsafe loans.

  I imagine you appreciate that your bank accounts and CDs are FDIC insured. It saves you a lot of effort in having to figure out the financial stability of the bank, and moving funds around as the bank’s circumstances change. In the same way, lenders who knew that there was a guaranteed market for their new loans could afford to be less careful with the qualifications of their lenders.

  And, by the way, lenders probably would have gone out of business if they HAD done as you suggest and held their borrowers to higher standards. The bad borrowers would have been weeded out, but so would the good ones.

  I’ve done about a half-dozen refinancings in the last decade, and not one of them has required ANY documentation by me of my income. (Also no loan fees and excellent interest rates.) Since I hate paperwork, I would have always chosen the no-documentation loan over the fully documented one, costs and rates being equal. Other borrowers preferred no-documentation loans because they intended to lie to their lenders. Either way, a careful bank would have simply had no business.

  No bank has lost any money on me, but that’s because I don’t borrow more than I can afford to pay and I pay my bills, not because the bank did a thorough job of qualifying me. In other words, they got lucky on me. Not so lucky on others.

• 32 fengshui // Dec 12, 2008 at 2:18 am

  “I’ve done about a half-dozen refinancings in the last decade, and not one of them has required ANY documentation by me of my income”

  We purchased our home 2 years ago and we had to show proof of everything. Income, bank statements, savings reserves, 2 years of tax returns, all sorts of things….. and this is through countrywide who supposedly gave loans to anyone with a pulse….. ?????

• 33 Kristy // Dec 12, 2008 at 4:55 am

  I have bought two homes since 2003 and both times I didn’t report my income. We did no doc loans each time.

  Trust me Countrywide was one of the big ones who did give out loans to practically anyone, our firm did tons of appraisals for that company!

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