Author: sgstofka

Foreclosures

2 Comments

This was something I wrote back in Sept 2008 and sent to my Senator. I’m sure it was one of many, many suggestions. Almost six months later, I still think this is the best solution. It involves a principal write-down in which the taxpayer absorbs 15% – 25%, on average, of the principal reduction. The lender effectively absorbs 60% of the cost. The U.S. taxpayer absorbs the rest. Everyone who played a part in this fiasco, the buyers of the mortgages, the lenders and the lawmakers, pays some price.

For those facing foreclosure who can show that the house is their main residence:
1) If their household income is more than twice the average income in that area, they do not qualify for this program.
2) If the purchase price of the house is more than 50% above the median house price in that area for the past 4 quarters, they do not qualify for this program.
3) They can show that their mortgage payment as a percentage of income is more than the lending criteria. See CRITERIA below. In addition,
4) Their home will be evaluated using current comparative sales in their particular community (EVALUATION).
5) Based on that EVALUATION, a monthly mortage payment (PITI) will be determined for a conventional 30 year fixed loan using a competitive interest rate and including a) any real estate taxes based on that evaluation, and b) an amortized insurance premium equal to 1% of the evaluation and payable to the mortgage holder, and c) an amortized administrative fee equal to 1% of the evaluation paid to a special housing fund to be set up and administered by the US treasury to cover costs associated with the program.
6) The homeowners must be able to meet a more traditional mortgage lending criteria (CRITERIA), either a or b:
a) They can document monthly net income that is 3 times the PITI; or
b) They can document monthly gross income that is 4 times the PITI.
7) (This will be controversial). Anyone taking advantage of this program must pay Federal income tax on the difference (WRITE-DOWN) between the EVALUATION price negotiated and the purchase price less homeowner equity. This tax will be spread out over a consecutive 5 year period. The first 20% of declared income will be declared in the tax year after the closing of the 30 year fixed mortgage contract.
8) The lender can deduct the entire WRITE-DOWN amount in the year in which the contract is altered under this program. The Federal tax savings for the lender would be about 35%. State tax savings would vary.

Income Taxes

Leave a comment

Matt Miller, author of “The Tyranny of Dead Ideas”, in an op-ed in WSJ on 1/12/09 spoke with several former Congressional Budget Office (CBO) directors.

“If you do nothing on the spending side, you’re going to raise taxes whether you’re a Republican, a Democrat, or a Martian,” said Douglas Holtz-Eakin, the Republican-appointed director of the CBO from 2003-05.

Miller noted that Federal revenue today is 18.8% of Gross Domestic Product (GDP) and federal spending (excluding Fannie, Freddie and TARP bailouts) is 20% of GDP.

Holtz-Eakin notes that “pressures” (probably economic and social) could push spending and taxes to 23-24% of GDP, as much as 27% if health costs remain out of control. GDP is around $14T.

Dan Crippen is another CBO chief and adviser to McCain who predicts taxes of 22% of GDP by 2020, 24-25% by 2030. David Walker is another Republican (turned independent) who was comptroller general of the US from 1998 – 2008. Walker estimates taxes growing to 20-25% in the next 20 years, depending on how “radical” we get about cutting spending.

Matt Miller asked Holtz-Eakin why Republicans continue to tout tax cutting despite knowing that taxes have to go up. “It’s the brand,” Holtz-Eakin said, “and you don’t dilute the brand.”

Budget 2009

Leave a comment

President Obama just released his budget proposal for 2010. Here’s some notes I made last year on the 2009 budget of the Bush administration.

The fiscal year of the U.S. is not the calendar year but October to September. So the 2009 fiscal year starts in Oct 2008 and ends in Sept 2009. The 2009 budget estimates that, in Sept 2009, the U.S. will owe the Social Security (SS) trust fund $2.6T (pg 350). That’s ‘T’ for trillion, a thousand billion. For many years, taxpayers have been paying more in SS taxes than the Social Security Administration (SSA) has been paying out to retirees. In 2007, the SSA paid out almost $600B but collected more than that in SS taxes. Each year our Congress and President have “borrowed” that extra money. In 2007, they borrowed $175B from the SS fund. In 2008 and 2009, they will borrow about $200B in each year. As the “boomer” generation (born 1946 to 1964) starts retiring in 2009, there will be more retirees and retirees are living longer. In 2010 or 2011, there won’t be any extra SS tax money for the Congress and President to borrow. As the number of living retirees continues to grow, the SS fund will need to be paid back with current year tax revenues. To do that, tax revenues will have to increase somehow.

Federal Employees

Leave a comment

President Ronald Reagan famously said “Government is not a solution to our problem, government is the problem.” Given that sentiment, I had thought that Reagan had shrunk the size of the federal government during his tenure. The 1997 Fact Book, published by the U.S. Office of Personnel Management, has a table of federal employment totals from 1982 to 1996. In 1982, there were 2.8 million federal employees. By the end of Reagan’s presidency in 1988, there were 3.1 million employees.

Alzheimer’s Disease

Leave a comment

Ron Winslow in Wall St. Journal (WSJ), pg D3, on 2/19/09, reports that Genentech researchers propose a new theory about Alzheimer’s disease based on some early lab and mouse experiments. Further testing will need to be done to explore their theory that Alzheimer’s may be a natural process similar to one that occurs in the prenatal brain to prune excess nerve cells and fibers. Genentech hopes that further experiments will reveal what happens in the older adult brain to trigger this natural prenatal process. The current prevailing model of Alzheimer’s is that it is the buildup in the brain of beta amyloid plaques, a fragment of a larger protein called APP. Genentech’s research, as well as research done at the Salk Institute, shows that APP playes a naturally destructive process in prenatal development. Beta amyloid is not involved in the naturally occurring prenatal process but is involved in the onset of Alzheimer’s.
For some context: we have the most brain cells before birth and many are destroyed during development in the womb. Although the process is not clear, neighboring brain cells learn to “get along” with each other, to communicate with their neighbors, and the ones that don’t are destroyed.

Welcome

Leave a comment

This blog highlights brief economic and political details that pique my interest. My attention is drawn to the patterns and contradictions of ideas and human behavior. Some references may include articles from the Wall St. Journal (WSJ), some of whose content is available online without a subscription.

“Wealth is no proof of moral character; nor poverty of the want of it.” Thomas Paine, Chap 13, Dissertation on the First Principles of Government.

Many of us probably would agree with this idea for we regard America as the founding of democracy. When Paine wrote this in 1795, it was not a widely held belief among Americans. It wasn’t till the 1820s that New York, one of the original 13 colonies, extended the right to vote to all white males, regardless of whether they owned or rented property.