Let's review the "sharp" analysis of Rick Santelli with respect to Obama's mortgage foreclosure rescue plan:
Rick Santelli (Feb. 2009):
"The government is promoting bad behavior."
"Do we really want to subsidize the losers' mortgages?"
"How many of you people want to pay for your neighbor's mortgage? President Obama are you listening? How about we all stop paying our mortgage! It's a moral hazard."
The problem with these comments is that they completely ignore the fact that the entire economy is teetering on the edge. They constitute little more than soundbites.
Someone else we've heard a lot about lately has also spoken on this issue.
Nouriel Roubini, from Sept. 2008:
The lack of debt relief to the distressed households is the reason why this financial crisis is becoming more severe and the economic recession - with a sharp fall now in real consumption spending - now worsening. The fiscal actions taken so far (income relief to households via tax rebates) and bailouts of distressed financial institutions (Bear Stearns creditors' bailout, Fannie and Freddie and AIG) do not resolve the fundamental debt problem for two reasons. First, you cannot grow yourself out of a debt problem: when debt to disposable income is too high increasing the denominator with tax rebates is ineffective and only temporary; i.e. you need to reduce the nominator (the debt). Second, rescuing distressed institutions without reducing the debt problem of the borrowers does not resolve the fundamental insolvency of the debtor that limits its ability to consume and spend and thus drags the economy into a more severe economic contraction.
Interesting. Mr. Roubini identified "borrower debt" (.e.g., homeowner mortgages) as the core problem that literally was bringing every other aspect of the economy to its knees. Moreover, as best as I can tell Roubini is telling us that addressing other issues while ignoring borrower debt is like putting a bunch of pretty colored band-aids on a five-inch gaping wound.
Luckily, we have the benefit of Mr; Rounini's thoughts on Obama distressed mortgage plan(from Charlie Rose Feb. 18, 2009):
Well, the plan that was announced today is one of the pieces of the economic policies. There was the stimulus plan just passed. This plan deals with the question of mortgage problems, of foreclosure, of the tsunami of people losing their homes.
I think it`s a step in the right direction. It`s much more than the previous administration has done. Its limit is that it is still relying too much on giving incentive to the banks and the servicers to reduce the payments that houses that are under stress have to do, and then there are financial incentives, and then the government is going to chip in. So it`s still based on a voluntary approach of incentives.
Hear that Mr. Santelli? Roubini thinks it's a step in the right direction. If anything, he's saying it doesn't go far enough. Why does Mr. Roubini not get bent out of shape about "rewarding bad behavior"? Because he's thinking about the health of the entire economy, you dumb schmuck.