The Republicans are finally giving voice to some actual problems with the economic stimulus, but, as usual, their proposals are not about helping the average American. The Republican leadership successfully lobbied Obama to bar mortgage bankruptcy reform from the bill, keeping those duped and ensnared by predatory lenders from being able to maintain their ownership and avoid foreclosure. The Republicans in the Senate are now talking about mortgage foreclosure protection, but only for the banks and not for individual homeowners victimized by predatory lending practices. Those mortgages inflated by the housing bubble and encouraged by greedy bankers and investors ought to be revaluated to appropriate real estate values.
The predatory part of the mortgage crisis was created by the lenders in offering variable rate mortgages at inflated prices to induce the less informed to make dangerous decisions in the purchase of their homes. When the Federal Lending Rate, to which variable-rate loans are tied, was below 1.5% in 2003 to 2004, these loans looked attractive to first time and low income buyers because of their apparent affordability. Through 2005, 2006, and 2007 the Federal Rate surged to 3.22 and then 5%, making these marginal loans unaffordable as the interest portion of the payments increased the overall bill beyond the budgeting threshold for these inexperienced buyers. Also, in many of these loans, the interest rate goes up with the Fed, but they frequently do not correspondingly retract with the Fed. Once their mortgage payments, almost inevitably, fell into arrears, these homeowners faced increasing liability as the interest rates automatically surged to the maximum allowed and penalty fees accrued.
The obvious profiteering came from offering these variable rate mortgages to less qualified buyers in hopes that they would, in fact, default and allow the lenders to resell foreclosed homes at an even higher inflated value. The belief was that the price of housing would continue to rise, and each subsequent resell would result in ever-increasing profits. The problem arose in that too many of these predatory loans were defaulted and the market suffered a glut of available housing just as first time and low income buyers became appropriately fearful of the whole process.
In order to fix the housing market side of the current economic crisis, economic stimulus should focus not on bailing out and rewarding the greed and carelessness of the lenders, but on the individual homeowners. Proposed tax incentives for home buyers are a good idea, but there should also be protections for those currently in danger of losing their homes. All mortgaged property values should be reset to current valuation levels, and the corresponding mortgage recalculated to reflect the adjusted valuation with interest rates permanently set in accordance with the current Federal Lending Rate. This will protect homeowners and punish, without bankrupting, predatory lenders, thus stabilizing the housing market by increasing affordability and trust.
Republicans in Congress frequently promote the business interest of America; that is, the big business interests. There have been no attempts made in the stimulus bill to address the interests and concerns of our nation’s greatest engine for economic growth: small business. Small business accounts for roughly 70% of American employment, yet it has not been addressed in the current versions of the economic stimulus. Although infrastructure plans contained within the stimulus will in all likelihood present opportunities for small businesses, that benefit will likely accrue primarily to those businesses associated with the construction and transportation industries and will not be of as much help to other industries in similar need of assistance. The further one gets from hammer and shovel labor, the less the impact for the better will be. Infrastucture includes telecommunications and information as well as financing at the local level, and the stimulus should address these issues in greater detail and with greater funding. A primary goal of economic stimulus should be to provide enhanced opportunity at all levels rather than simply bailing out proven failures.
In a concession to the Republicans, the Senate version of the stimulus bill now carries an expansion of the corporate Net Operating Loss (NOL) carryback. Currently, NOL carryback limits loss recovery from past tax bills to just two years. The Senate stimulus would increase that to five years. Companies who have lost money in the current fiscal year, 2008, can receive an immediate refund of taxes paid during previously profitable years. Meaning that any corporation that lost money this past year can currently receive a complete refund for all taxes paid in preceding two, soon to be five, years. The Republicans think that major corporations who have failed should be rewarded, not only with a tax cut, but with a tax rebate on the little amount of taxes they paid previously. As I have discussed before, most major US corporations effectively pay nothing in taxes, but conservative Republicans want to give these same companies taxpayer money. Perhaps this NOL carryback expansion could be applied to small businesses who carry the bulk of the US business tax burden, but there is no reason for it to be applied to major corporations. It is time for real competition to return to the American marketplace.
The money for all of this is available. But, Congress must realize that American tax-spending priorities must change. Trickle-down does not work; water and fertilizer both have to get to the roots in any economy with long-term sustainability. We must reward those who succeed by honest effort and not those who callously hoard money at the top while sending jobs and money overseas. The Iraqis have an oil fund and other means of generating revenue, it is up to them to exercise their responsibility to do so. There is no sane or rational reason for an American member of Congress to vote for the funding of building Iraqi schools and vote against the funding for repair and maintenance of American ones; yet, that is exactly the sort of thing going on among the Republican caucus. At the same time, all members of Congress need to just, for now, forget about pet projects and focus on core issues: infrastructure, American jobs on American soil whenever possible, small business, healthcare in general, and education.
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