At least Timothy Geithner is showing a little spunk with his new shared equity plan. The government puts in effectively 93%, and the lucky bankers chosen put in just 7%. How does it work? Both the government and the bankers put in 7% equity, then the government lends the other 86%.
When the price of housing starts to rise, the properties can be sold off with the government reaping a 5 to 1 profit over the banks.
This might prick up a few reader’s ears. The government sharing in land based profits?
One of the biggest challenges to this plan is that the US has 800,000 homeless (Jan 08) but 19 million vacant houses. Admittedly, there are many many families taking up medium-term accommodation in motels throughout America, the so-called hidden homeless. But there is still an insufficient demand to buy these properties off the government, despite the tour buses of Chinese buying up $900 properties in good locations.
Now that the speculative splurge is over and Mr Ponzi has well and truly left the building, the time for the land market to correct itself could be years. This is especially so as Obama’s other priority is to pump prime the economy with infrastructure projects. This will act to increase the value of land, countering the need for mortgage payments to drop back to average trends.
Alarmingly, this will put the government into direct conflict with the people, as stated here in Bailout Brings Hegemony to its Knees (Sept 08).
Trailing behind the residential property correction are the mounting vacancies in the US commercial sector, where prices are down almost 20% in the past year. This correction needs to continue so that business pays less in rent, enabling more money for investment in capital and wages. Once this re-balance occurs we will see more employment and the economy re-booting.
However, will the bailout economics mentality of Washington permit this? Will commercial property owners demand a red carpet handout as well? This is a real danger and we should all be on the lookout for it, ready to shout it down.
What the Geithner Plan symbolises are the last desperate efforts to bailout those who made risky investments in land and housing, as if the real in real estate meant fantasy as in Great Australian/ American dream. Land is not for hocking – it’s for housing!
If the plan succeeds, it will trap renters and first homeowners into regular payments of 40% – 50% of their income for the human right to a roof over our head. This is a travesty. This is not freedom.
We believe that such a policy will only prolong the downturn and heighten the likelihood of a depression.
Anyone heard how General Motors is faring? The next Wall St crash is only a few financial figures away….
Lets use this opportunity to turn off the speculative capitalism inherent in the lure of privatised economic rent.