"Our national task today is to restore the conditions for economic recovery, without which our prosperity and our national security cannot be assured. We must restrain the headlong growth of the Federal budget; enact multi-year across-the-board tax reductions to spur new job-creating investment and productivity; roll back the tangle of regulations which needlessly hamper enterprises; and cleave to a sound monetary policy which preserves the strength of the American dollar. But even as we act boldly to achieve these goals, we most work to create the conditions for expanding the ownership of the nation's wealth, so that all Americans may have their fair chance to become true proprietors of their country." 

--Ronald Reagan, Letter to Pierre S. du Pont IV, Delaware, 1981
 
 
"It is a singular advantage of taxes on articles of consumption that they contain in their own nature a security against excess. They prescribe their own limit, which cannot be exceeded without defeating the end purposed -- that is, an extension of the revenue." 

--Alexander Hamilton, Federalist No. 21

 
 
"Our new Constitution is now established, and has an appearance that promises permanency; but in this world nothing can be said to be certain, except death and taxes."

-- Benjamin Franklin, letter to Jean-Baptiste Leroy, 1789

 
 
_America's Party Principles In Public Policy -> Committee for Tax, Monetary & Spending Reform

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Mike Shedlock

Fannie Mae and Freddie Mac have already cost US taxpayers over $200 billion. If Obama gets his way on mortgage writedowns, the GSEs estimate it would take another $100 billion.

Since such estimates are always overly-optimistic by a factor of 3 to 10, I estimate the cost to taxpayers would be $300 billion minimum.

Please consider Fannie, Freddie writedowns too costly: regulator

The regulator for Fannie Mae and Freddie Mac told lawmakers that forcing the two mortgage firms to write down loan principal would require more than $100 billion in fresh taxpayer funds.

In a letter sent on Friday to the Republican and Democratic leaders of a House of Representatives government oversight panel, the Federal Housing Finance Agency explained why it has long opposed principal reductions for borrowers who owe more than their homes are worth.

It said it had determined that such reductions would be more costly for the two firms than allowing those troubled borrowers to default.

"Principal reduction never serves the long-term interest of the taxpayer when compared to foreclosure," FHFA's acting director, Edward DeMarco, wrote in the letter to lawmakers dated January 20.

About 22 percent of U.S. homes have negative equity totaling about $750 billion, according to CoreLogic.

"Given that any money spent on this endeavor would ultimately come from taxpayers and given that our analysis does not indicate a preservation of assets for Fannie Mae and Freddie Mac substantial enough to offset costs, an expenditure of this nature at this time would, in my judgment, require congressional action," DeMarco said in the letter.

Another barrier to principal writedowns, aside from pushing losses at the two firms even further, DeMarco said, was the costs associated with new technology and training to servicers that would be needed to launch a program that offers principal forgiveness.

The Federal Reserve, in a white paper to Congress earlier this month, said write-downs "had the potential to decrease the probability of default" and "improve migration between labor markets."

However, the Fed stopped short of endorsing such an initiative and noted concern that writing down loan balances would create a moral hazard -- the concept that rescue efforts breed further behavior that exacerbates the existing problem -- and could prompt other borrowers to stop making timely loan payments.
Calculating the Maximum Cost

At least we know an approximate maximum cap. Negative equity totals $750 billion. Add in cost on implementing the program, graft, fraud, etc. and the cap (right now) is a conservative $760 billion or so. Factor in declining property values and a conservative cap is $800 billion or so.

Obama Seeks Vote-Buying Opportunity

Notice the ridiculous comment by the Fed: write-downs "had the potential to decrease the probability of default". Of course they do.

Write off the entire loan and there would be no chance of default. That does not mean it's a smart thing to do. Unless of course you are [Alleged] President Obama seeking to buy votes in November.

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