Thursday, February 19, 2009

Punishing Prudence

Obama’s homeowner’s rescue plan is great for homeowners who “through no fault of their own” owe more on their home than it is currently worth. It’s also great for those who, because of greed and to finance a lifestyle they could not afford, used cash-out refinancing to increase the mortgage on their home to a level beyond reasonable market price levels. It’s also great for people who, because they had poor financial judgement, purchased homes at prices that were larger than made any kind of rational sense in the market place.

For people like my wife and me, who prudently kept our thirty-year-fixed and didn't increase our mortgage balance, it does nothing. We get to stand by and watch the government help those people refinance their mortgages with interest rates a half point or so lower than the rate we have been paying for eleven years and, in some cases, reduce what they owe.

Other than that, it’s a fine plan.

Like much of the government’s rescue planning lately, it assures that people who have used prudent financial thinking over the past ten years will be punished for having done so, while people who have been greedy, reckless and stupid will be rewarded.

Does government ever consider the ramifications of what it does?

The COBRA provision in the Stimulus bill is a real treasure; the employer has to pick up 65% of that tab. So the small business that is struggling to keep its head above water is faced with another roadblock to survival. It cannot afford to keep workers on, but it cannot lay them off either because of that COBRA tab. It no longer has any choice but to padlock the doors, close the bank accounts and file for bankruptcy. So now not only do those who would have been laid off hit unemployment, the entire company does.

The COBRA provision is supposedly retroactive to September of 2008, but let’s get real. Anyone who lost coverage since then and has any health issues is not going to be taken back without lawsuits. Not to mention that those retroactive fees for small business are unpayable, and for large corporations that have had to make major layoffs they could be ruinous.

What about the people who have made COBRA payments for the last five months? Do they get that money back? If they do, who pays it?

Finally, every dollar that goes to those COBRA payments is a dollar not available for employer provided termination services such as retraining, job placement and the like. Give with one hand and take away with the other.
I can tell you from my own personal knowledge that many companies have been providing excellent post-termination services and I can tell you that, not only are they cutting back, these provisions will certainly cause them to cut back even further.

These are not Republican provisions, they are Obama/Pelosi/Reid Democratic provisions, and they do the same things that the Republicans did, just doing it in a different manner. They reward a different set of bad behaviors and they punish prudence.


  1. Anonymous10:49 AM

    The problem with the mortgage legislation is the "rewards" are lumped together between the people trying to be responsible who are caught in bad circumstances and the ones who milked the system.

    The former - okay, help them if you can; the latter should be hung out to dry, perhaps with the lenders that helped them. With none of their money invested,the brokers had nothing to lose, and with commissions and whatnot from banks, everything to gain.

    I had COBRA that I paid for after being laid off once, it was expensive and I actually never used it (ie, going to the doctor). If I had a chronic medical condition or needed hospitalization, it would have been worth it. Otherwise, not. I didn't sign up for it the 2nd time I was laid off, but found another job fairly quickly so didn't need it. The job search etc assistance was better the first time, the 2nd I don't remember what it even was.

    And no, I don;'t think the government thinks of long-term issues or alternative ramifications or even plays devil's advocate in what it does. Many times it just plays politics to show that they are "doing something". Band-aids on bullet wounds. Oops, forgot the antiseptic... Poor patient and the doctor's the hero.

  2. Anonymous10:11 PM

    How, exactly are you being "punished" for prudent financial planning? You aren't being rewarded, but, then again, you didn't do it because you expected a pat on the back.

    You might argue that it is your tax dollars that are being used to bail out your greedy neighbor. Let's be honest here. Your tax dollars, my tax dollars and all of our collective childrens' tax dollars have already disappeared into Haliburton's pocket years ago. Maybe my grand kids will be punished, but I have a hard time working up much resentment about that - especially as, by that time. the greedy folks' grand kids will probably be in the same boat.

    Suppose, hypothetically, your greedy neighbor gets his just due and his house goes empty ("As well it should," you say - "imprudent bastard!") The bank then puts it on sale for half of what you paid for yours. Now you've got new neighbors - far less greedy than your old neighbors, and far, far more interesting.

    If, on the other hand, the government helps those undeserving folks. They come out winners and their their house retains, or even increases its value. Maybe they begin to envy you - you've taken good care of your own house while they've allowed theirs to fall to pieces. The value of your house goes up. This can't be a bad thing?

    I don't need help... yet. You don't need help... yet. We should both be more than happy to have the government help those who have been less prudent and/or fortunate to get back on their feet. Once they do, they will once again be able to buy stuff - lots of stuff. This will, in turn, provide jobs making stuff. This will, in turn provide jobs to the likes of me who are paid just because, for lack of a better term, stuff happens.