I'm up for the refinance-all mortgage proposals (mostly for political reasons)

[Kurt_and_Hunter]

The problem with the mortgage/housing plan is that 50 million households have a mortgage and they are all hurting to some degree.

This is a political problem, and a profound one. This is why Santelli is getting so much play.

If you own a house its value is either plummeting or stagnating. Current mortgage rates are lower than your mortgage but you cannot refinance unless you have superb credit. People who want to move cannot. People are house-trapped trapped in job-less regions. (And bad marriages.)

If you had a nice dinner tonight you are liklier to favor giving food to the hungry because you feel full and thus less covetous of food, and probably feel a twinge of guilt.

But even the upper middle-class is contemplating suicide these days over real estate valuation and debt burden. Though they are relatively better off, psychologically they do not feel much inclination to subsidize other mortgages because they have never had it so bad themselves. (Whether the plan indirectly benefits their home value is beside the point if they don't feel it.)

So when someone says, "here's a plan to help the most distressed home-owners" a lot of home-owners see red because they feel they are not "most distressed" only because of specific sacrifices made in the past. All these plans seem abstract until they get to you. "I'm not a money center bank." "I'm not an auto manufacturer." "I'm not a budget-strapped state, a medicare provider, a highway system..."

But when you get to "distressed home owner" most home-owners consider themselves plenty distressed. And addressing the problems at the bottom revisits the thing that really gets the middle-class pissed off, which is being in the middle. It's the old college financing complaint: Not rich enough to go, not poor enough for assistance.

The middle class is a politically volatile block because they swing between feeling victimized by the rich and victimized by the poor. Whether these impressions are correct is beside the point... right ot wrong, it's what most of the middle-class thinks.

At some point our web of economic responses has to provide a psychological turning point where today is perceived as different from yesterday. A critical mass of Americans must feel that they have been directly benefited... that they can point to something the government did to improve their situation in a specific dollars and cents way.

Once someone gets something she can point to she will be more supportive of the whole deal. (And lest one counter these plans are very popular, they are less popular than the Iraq War was a few weeks in. Public support is fickle.)

There are a lot of plans floating around that involve the government refinancing ALL outstanding mortgages at a very low rate. (Mostly Republican.) It is a strangely inexpensive thing to do, in the big scheme of things. (The government could even do well with it if things turned around.)

There are economic arguments against it but they are not necessarily dispositive compared to the benign effect of making every home-owner a direct player in the broad recovery efforts. Trading off economic efficacy and political support is a normal part of the game.

(If it's demonstrated that this would be catastrophic--like McCain's government spending freeze or a capital gains tax holiday--then I would drop the idea in a minute, so please lay out the big economic problems.)

Recipients of one form of government assistance tend to be more supportive of all classes of government assistance.

[msongs]

1. call me when rates go below 4% and the mortgage parasites quit gouging with "closing costs" that are

nothing but made up scamming. all that's involved in a refi is typing some stuff into a computer and hitting enter really, yet banks etc charge $5K for nothing more than a reappraisal ($500 max) and that ridiculous overnight docs shipping for of $100 (talk about a gouge).

Msongs

[appal_jack]

2. I'm with you

Banks & speculators created the problem. We all WILL be paying for it. We ALL might as well derive some small benefit from it as well.

I have a (basically sensible) ARM (adjusts up to 1% every 2 years) that I sure would like to see knocked back a few points. I pay my bills on time,, and have given up a lot of 'fun' in order to be able to do so.

The American public is NOT going to go for a plan that helps the one who fell behind (for good reasons or ill) yet takes the diligent (and perhaps lucky...) to the cleaners.

-app

[mia]

3. I agree.

Thanks for stating it so well.