Bail Out Burn Out

There’s a great line in Young Frankenstein, when the crew is exhuming a body from a creepy cemetery, in the middle of the night, to harvest sundry useful parts, where Dr. Frankenstein asks, “How? How could this possibly be any worse?” to which Igor offers the cheery rejoinder, “Oh, I don’t know . . . it could be raining.” Naturally, thunder cracks, lightning flashes, and a downpour ensues. Be careful what you wish for.

Ah, such is the case with Washington’s tireless printing press. As senator Everett Dirksen once supposedly remarked, “a billion here, a billion there; pretty soon you’re talking real money.” Mind you, this supposed quote was from the early 1960s; the actual numbers may differ a bit today, but the mood in Washington to hand out money is at best the same, and at worst, on steroids.

By the time you read this, Barack Obama will be president of the United States, and may have already committed the release of the second chunk of the Troubled Assets Relief Program (TARP), something in the area of $350 billion dollars. Remember the first half of this money? Oh yeah, that went to big (I mean really big) banks, some of which used the funds to buy up failing competitors. Hmmm. My understanding was they were supposed to loan the money, to get things moving again across the economy. Within the last 48 hours of this post, both B of A and Citigroup have received additional billions of dollars to more or less stay in business. Good for them. Does anyone remember the 60s film The Magic Christian? Send me a comment if you see the connection.

My complaint stems from a story I heard today on NPR. It chronicled the interests of a family who were suffering under the load of carrying multiple mortgages. Of course, one could always imagine a circumstance in which this scenario could spring into reality. However, in this case, the family pulled money out of their first house to buy a second house, reasoning that the initial purchase could eventually serve as a golden goose to fund the secondary education of their children, among other things. As noble as this cause may sound on the surface, in the final analysis it really amounts to gambling. The first asset enjoyed an extraordinary bump in value—congratulations to the owners. Yet, when the proceeds are pulled out and put into a second residence as an investment, and then the market drops on both . . . well, you do the math. Suddenly the family can’t make ends meet—and the US Treasury is going to rush to the rescue?

To lay my cards on the table, I don’t want this family to be bailed out for that strategic move that failed by having the balance of their mortgage(s) bought down with my money. A house that is not a primary residence is either a notable luxury or a shrewd investment. Neither of these, in my opinion, is worthy of an infusion of my tax dollars to keep them from taking a loss. Has the world turned upside down? At some point, we all have to admit that, the money that we lost is gone. We must get up and keep going, although it may be at a considerably trimmed lifestyle.

And now, to sum up bluntly, I want my clients to get some relief—namely, in the area of credit they can afford. There are organizations, right now, who would build rental housing—in many cases workforce housing—if they could get reasonable rates on construction loans. But they can’t, so they hold. Meanwhile, we face the specter of bailout money going to help speculators, investors, and multiple property owners? Please.

As REM said, “Everybody hurts.” I hope we can apply the salve where it will be stretched the furthest.

(Daniel Gehman is principal at Thomas Cox Architects)