Obama’s speech to Congress Tuesday night might be the most economically illiterate speech ever delivered by a president. I was astonished by the smug certainty with which it was delivered. Did he really believe all that he was saying?
Or, perhaps he knows he is just playing a part? At the age of 76, on his deathbed, Caesar Augustus, the first emperor of the Roman Empire, asked those gathered around his bedside, “Did you like the performance?” Augustus was referring to his career.
After Obama’s speech I told my wife that I would have to write many blog posts to cover all that I found objectionable. But let’s just focus on one thing today, namely the blatant lie he spun about his housing plan:
It’s a plan that won’t help speculators or that neighbor down the street who bought a house he could never hope to afford, but it will help millions of Americans who are struggling with declining home values.
Of course, he cannot deliver on his plan because his goal is impossible. Ben Bernanke told the truth Wednesday before the House Financial Services Committee:
Some borrowers presumably knew what they were getting into, but from a public policy point of view, the large amount of foreclosures are detrimental not just to the borrower and lender but to the broader system. In many of these situations, we have to trade off the moral hazard issue against the greater good.
Similarly, the head of the Federal Deposit Insurance Corporation (FDIC), Sheila Bair said earlier this month, “I think it’s just simply impractical to try to do a forensic analysis of each and every one of these delinquent loans.”
In other words, the taxpayer will be forced—for the “greater good”—to subsidize a neighbor who bought a $700,000 house when the neighbor could only afford a $200,000 house.
Am I exaggerating? Consider the case, reported by the New York Post, of Mohammed Khoda who bought a home in Queens, New York City, for $700,000. Khoda is apparently a hard working immigrant who runs a small business; from the business he takes home a yearly income of $45,000. He rents out an apartment in his house bringing his income to $78,000 a year.
Even in good times, Khoda couldn’t afford his mortgage; but now with sales down sharply at his store, his tenant not paying his rent, and his house needing repairs, Khoda is underwater. He hasn’t paid his mortgage in a year, and he is hoping to be bailed out by Obama’s plan.
We are told we need to bailout the Khodas of the world, as well as the banks that lent them the money, for our own good. What rubbish! The National Association of Home Builders/Wells Fargo Housing Opportunity Index says that New York City has the least affordable housing in the United States. In contrast, a well- kept home—a 3-bedroom, 2-bath, brick, ranch home on a 1/3 acre—in a good neighborhood in Indianapolis sells for about $100,000. Without a bailout, the Khodas of the world will move and inject new and vital energy into cities like Indianapolis. The bankers that lent them the money, rather than getting taxpayer supported bonuses, will be forced to make real contributions to society. With that, suffering taxpayers can keep their money.
If you read the history of Caesar Augustus, you realize that he was indeed playing the part of emperor in the only way Romans could understand. He was brutal, as was much of the world; and Romans gladly sacrificed their freedom for the huge public works projects that Augustus championed.
We are at the close of an era—an era which will be known for our collective ignorance of the basic laws of economics. Obama and the court sycophants who surround him—Barney Frank, Timothy Geithner, Ben Bernanke—are empowered by our own ignorance. How could they play their parts any other way?