A Nation of Moochers
Page 26
* On Christmas Eve 2009, the Treasury Department quietly removed the $400 billion cap on the amount of money taxpayers might have to spend bailing out the profligate Fannie and Freddie. (Wall Street Journal, “Fannie and Freddie Amnesia,” April 20, 2010.)
* With apologies to Winston Churchill.
* Ritholtz also noted that while other portfolios had been forced to take “haircuts” of 40, 50, even 65 percent, Citi was asked to “suffer only an 11 percent haircut.”
* An example of a strategic default would be someone who has taken out a $300,000 mortgage to buy a $380,000 house. If the value of the house drops to, say, $250,000, the mortgagee is considered “underwater,” even if they have the income to continue to make monthly payments. Most mortgagees will continue to make those payments, hoping that the value of their home recovers or because they think they have a moral obligation not to walk away. But in strategic default, the homeowner decides to walk away from the mortgage, despite being able to pay for it. A 2009 study found that 26 percent of defaults were strategic.
* Pemberton and Reboyras later took issue with the Times’s portrayal, insisting that they only rarely went out on their yellow airboat or visited Outback or casinos. But they continued to defend their decision. In an interview with the St. Petersburg Times, they insisted that they were “actually helping the economy by using money saved on mortgage payments to buy TV ads” for their business. (Susan Taylor Martin, “How Dare They Quit Paying Their Mortgage? Hey, That’s Us!” St. Petersburg Times, June 9, 2010.)
† They were not alone: The Wall Street Journal, for example, profiled 30-year-old Derek Figg, who also decided to stop paying his mortgage: “Mr. Figg felt trapped in a home he bought two years ago in the Phoenix suburb of Tempe for $340,000. He still owes about $318,000 but figures the home’s value has dropped to $230,000 or less. After agonizing over the pros and cons, he decided recently to stop making loan payments, even though he can afford them. Mr. Figg plans to rent an apartment nearby, saving about $700 a month.” The Journal reported that such defaults were especially popular in Arizona, California, Florida, and Nevada. (James R. Hagerty and Nick Timiraos, “Debtor’s Dilemma: Pay the Mortgage or Walk Away,” Wall Street Journal, December 17, 2009.)
* The study found some variations in moral attitudes toward default: “Younger people (less than 35 years old) are less moral, but so are older ones (older than 65). More educated people exhibit less moral conviction as do African Americans. Wealthier people have higher moral standards, while people from the Northeast and the West less so.”
* The median age for a first marriage has risen from 23 in 1980 to 27 for men and 26 for women; almost all racial and income groups report a delay in childbearing.
* The Kaiser Family Foundation explains its health reform subsidy calculator: “Based on the Patient Protection and Affordable Care Act (including subsequent amendments in the Health Care and Education Reconciliation Act of 2010), as signed by the President.…
“The premiums are illustrative examples in 2014 dollars derived from estimates of average premiums for 2016 from the Congressional Budget Office. For a 40 year old single adult, the premium for a silver plan is assumed to be $4,500 for a plan with a 70% actuarial value. To the extent that actual expected enrollment in 2014 differs from what CBO assumed for 2016—e.g., it has a different composition of people by health status or age—then premiums could vary from this amount.
“Premium subsidies are based on a silver plan (with an actuarial value of 70%), so all premiums shown are for silver coverage. People may be able to pay a lower premium for less comprehensive coverage (i.e., a bronze plan, with an actuarial value of 60%). The tables showing results by age and income also reflect premiums for silver coverage, though the minimum insurance that people would be required to obtain would be bronze coverage.”
* Summers was using pre–Bush tax cut numbers, but some state income taxes can actually be higher than the one he assumed.
* Wrote Summers: “But as Harvard economist Martin Feldstein pointed out in the 1970s, the costs of unemployment to taxpayers are very great indeed. Take the example above of the individual who could work for $15.00 an hour or collect unemployment insurance of $8.25 per hour. The cost of unemployment to this unemployed person was only $4.39 per hour, the difference between the net income from working and the net income from not working. And as compensation for this cost, the unemployed person gained leisure, whose value could well be above $4.39 per hour. But other taxpayers as a group paid $8.25 in unemployment benefits for every hour the person was unemployed, and got back in taxes only $1.49 on this benefit. Moreover, they gave up $3.85 in lost tax and Social Security revenue that this person would have paid per hour employed at a $15.00 wage. Net loss to other taxpayers: $10.61 ($8.25 − $1.49 + $3.85) per hour. Multiply this by millions of people collecting unemployment, each missing hundreds of hours of work, and you get a cost to taxpayers in the billions.”
† Meyer and Lawrence Katz of Harvard estimated that “a one-week increase in potential benefit duration increases the average duration of the unemployment spells … by 0.16 to 0.20 weeks.” (Lawrence H. Summers, “Unemployment,” The Concise Encyclopedia of Economics, www.econlib.org/library/Enc/Unemployment.html.)