The Meltdown Lowdown

[Joanne98]

This week in economic woes: Congress acts to worsen the foreclosure crisis, why we should hope investment banks move to England, and how ordinary Americans are subsidizing fancy yachts and private clubs.

Dean Baker | April 10, 2008

1. Congress Takes Bold Action to Worsen the Foreclosure Crisis.

During its spring recess, Congress heard from constituents who were concerned about losing their homes and about plunging home equity. Spurred into action, the Senate quickly approved a bill whose main provisions would give tax breaks to banks and homebuilders and provide an incentive to carry through foreclosures.

The tax break allows firms to write off losses this year and next against the prior four years' profits. Under current law, they can only seek to reclaim taxes paid in the last two years. Who has big losses now but large profits three and four years ago? That's right, homebuilders who got caught up in the irrational exuberance of the housing bubble and mortgage bankers who pushed predatory loans. I'm sure that we're all sympathetic to the plight of homebuilders and bankers who have fallen on hard times, but whatever happened to personal responsibility?

But wait, as the infomercials say, there's more! The package also includes a $7,000 tax credit for anyone who buys a foreclosed home. This is not entirely a bad idea. Many foreclosed homes have been allowed to deteriorate and would require several thousand dollars in repairs and renovations to be habitable.

However, the tax credit as structured by Congress is not quite the answer. First, it is not refundable. As a result, many moderate-income families seeking to buy foreclosed properties would not get the full benefit of the tax credit, since they will not owe $7,000 in taxes. More importantly, the credit would apply to homes that are still in the foreclosure process. This gives banks more incentive to carry through a foreclosure, rather than attempt to work out new terms with the current homeowner.

Tax breaks for homebuilders and banks and new incentives for foreclosures -- whom exactly did Congress spend its recess talking to?

2. Investment Banks Move to England. Good!

The prospect of investment banks moving overseas in response to more stringent regulation has been raised repeatedly by opponents of such regulation. This raises an obvious question: Why should we care?

We buy shoes, toys, cars, and steel from abroad; why should anyone be bothered by the prospect that we would be getting our investment banking services from other countries?
http://www.prospect.org/cs/articles?article=the_meltdown_lowdown_041008

[Mountainman]

1. Makes me want to go out and buy a house in foreclosure but not look the prior owners in the eye.

[blunorsk]

2. Being sure to make the largest IRA contribution I can this year.

none.