Paulson Changes His Tune (Again)

When Forbes magazine President and CEO Steve Forbes called Treasury Secretary Henry Paulson “the worst treasury secretary we’ve had in modern times,” it made for some good chuckles on late night television, but not many people seemed to pay attention. I have a feeling that will be changing.

Paulson keeps changing his mind, it seems, about how he wants to spend our money. Remember the financial institution bailout? The one where taxpayers basically handed out a big fat blank check to Paulson and his cronies? The one that set the stage for Congress now trying to be “responsible” when it comes to the Big 3 automakers?

Yeah, that one. Well, now there’s a very real possibility that some of that money will go directly towards bailing out borrowers. And according to CNN, taxpayers are a bit furious. And why wouldn’t they be? It’s the classic “not fair” scenario.

To quell the 2.3 million anticipated foreclosures in 2009, Paulson is considering a plan to buy more troubled mortgages and force mortgage rates lower. The kicker? The plan, financed by tax dollars, would only apply to those struggling with their mortgages – those who are continuing to make their payments on time will pay higher rates.

Nice, huh?

Now, don’t get me wrong. I don’t think anyone should be homeless. I don’t think anyone “deserves” to be forced out of their homes. But my husband and I, like millions of other taxpayers, made an economic decision when we bought our house. We were offered a mortgage package that was in excess of three times what we paid for our house. I’ll admit: I wanted the bigger house. I wanted a pool. And a great big fancy kitchen with Viking appliances. And at the time, my husband and I were both working at sizable law firms in Center City pulling down a considerable amount of money. We could afford it. But my husband looked at me and said, “What if something happens?” He was right (note that I’ll only utter those words infrequently).

“Something” did happen. In fact, lots of things did. It’s called life. We left our big law firms, opened a new business and eventually had three children that, for some reason, insist on eating and wearing clothes that fit. And while our disposable income dipped considerably, our mortgage payment stayed the same.

Are we lucky? Of course we are. I am typing this post from my nice (yet modest and affordable) home in Philadelphia with a hot steaming cup of coffee in hand. My children are still asleep (thank goodness) in their warm beds. I realize that we are blessed.

But I also realize that we were smart. We have made good decisions. We’ve made some bad ones, too (starting a business is not the easiest thing in the world). As a rule, though, we try to be thoughtful about how we spend our dollars and make more good decisions than bad ones.

And it’s with that understanding that I join the choruses of frustrated taxpayers who are angry over this latest proposal.

I also understand the perspective. Despite all of the media hype, most Americans are not spending blindly; they are changing their spending habits to adjust for the current economy. And although many Americans worry about losing their homes, the reality is that Bernanke says 15% of mortgages are in danger. That sounds like a huge number. But in the US, at the top end, about 75% of American families (not Americans) are homeowners. About half of American families that own homes have mortgages. And if 15% of those have mortgages under water… let’s do the math. That means, if you believe the worst case scenario, about 5% of American families with mortgages that are in danger. Is it a lot? Yes. Is it enough to justify the expenditure of gobs of taxpayer dollars? I don’t think so. And I’m not alone: there are even web sites now devoted to stopping the housing bailout.

As the economy continues to bobble, there are a number of fiscal emergencies fighting for dollars: the Big 3 automakers, jobless benefits, food stamps, health insurance. So far, none of those are getting the attention – or money – that the housing industry has managed to win.

And yes, I’ve heard the warnings about the housing market, how a mortgage fall out will bring down the entire US economy. I’m not totally convinced. Believe it or not, some economies have done well traditionally without a strong homebuyer’s market; Japan and Germany both have lower rates of home ownership than the US.

On the tax side, I’d rather see real incentives for American taxpayers to keep more of their own money. Continuing to put taxpayer dollars at risk (and yes, buying debt and loaning money for failed assets is risky) means that our national debt remains high. More borrowing means more dollars in interest paid out. The money has to come from somewhere – check your wallet. My guess is that’s where it’s coming from.