This morning I got an email concerning Obamanomics, as it relates to the real estate crisis.

It started out with this article from the NY Times:

The long-awaited housing bailout will finally be announced on Wednesday.

In a speech in Phoenix, a signature real estate boomtown gone bust, President Obama will explain his plan to reduce foreclosures. And the key to understanding that plan will be remembering that there are two different groups of homeowners who are at risk of foreclosure.

The first group is made up of people who cannot afford their mortgages and have fallen behind on their monthly payments. Many took out loans they were never going to be able to afford, while others have since lost their jobs. About three million households — and rising — fall into this category. Without help, they will lose their homes.

The second group is far larger. It is made up of the more than 10 million households that can afford their monthly payments but whose houses are worth less than what is owed on their mortgages. In real estate parlance, they are underwater. If they want to stay in their homes, they will have no trouble doing so. But some may choose to walk away voluntarily, rather than continue to make payments on an investment that may never pay off.

Scratch beneath the details of any housing bailout proposal, and the fundamental issue is whether it tries to help the second group or just the first.

So far so good, except that the “two groups” are really three if we were being honest.

In group 1 there are two radically different sub groups:  the unqualified sub prime loan home owners who have seen the attractive temp rates vanish, and now cannot afford the homes they were never qualified to buy in  the first place,  and those who are unable to pay their mortgages due to layoffs.

Two very different categories.  One group I feel empathy for, one I do not.

Mr. Obama has evidently decided to focus on the first group, based on the previews of his speech that aides have offered. In coming weeks, his administration will begin spending $50 billion to entice banks to reduce the monthly payments of people who otherwise couldn’t afford to stay in their houses. In effect, the government will split the losses on these mortgages with banks.

The $50 billion will come from the money Congress has already allocated for the bailout of the financial system. It is likely to be aimed at people who need a significant, but not an enormous, amount of help to meet their mortgage payments.

There are some big advantages to this approach. Bailing out all underwater homeowners would be tremendously expensive. All told, about $500 billion in mortgage debt is already underwater, and it’s impossible to know in advance who is likely to walk away. So the government would have to spend hundreds of billions of dollars to help millions of people who don’t need help staying in their homes.

But the Obama approach also brings risks. The administration is betting that few of those 10 million underwater homeowners will walk away. (A year from now, the number will about 15 million, Moody’s Economy.com projects.) If they begin to abandon their homes in large numbers, however, they will aggravate the housing bust and the financial crisis — and probably force the administration to come up with a new, much larger housing bailout down the road.

So thats the real question.  Will the second group walk away from their loans simply because thy are upside down on equity?

Now, Steve Sailer steps in and muddies the water:

So, let me see if I have this straight? Obama is going to throw money at the most hopeless cases, the people who never should have bought the house in the first place, many of whom are speculators and/or crooks who lied on their mortgage applications, but he won’t help out the larger number of people who are doing the right thing?

And it’s really not that hard to turn yourself into a hopeless case, especially if the government will pay you for doing so.

Further, a lot of deadbeats and potential deadbeats who look like hopeless cases based on their own individual incomes and assets have this thing called “relatives.” Over the last couple of decades, I’ve twice written moderately sizable checks to get relatives through credit crunches. It’s just what you do.

And on the radio today, Rush echoed this almost exactly.  Why bail out group one?  Why punish group 2?

Why indeed.  Except that some in group one may actually deserve some help.  Remember that group 1 is really two types of homeowner.

Who would argue that a family ;laid off needs help?  not me.

But what burns me about the other part of group 1 is that the government created this entitlement nightmare years ago when they forced these sub prime loans by government mandate.  This is the result of those programs all the democrats defended years ago, even as analysts were warning of the coming events.

So after encouraging banks to accept risky loans with a near certainty of failure, and after convincing millions who could not afford a loan that it was OK that they could not afford it, now we will complete the cycle by bailing them out of their folly.

The vicious circle of entitlement.  The government is a pusher who simple switches the drugs.

You are entitled to a house even if you cannot afford it, then you are entitled to keep when you prove you cannot afford it.

It would have been cheaper in the long run to give them away.

Now, as far as Sailer and Limbaugh defending group 2, I disagree.

First, I agree that the people who played by the rules and who are getting shafted is an attractive group to defend, but at the same time, why not simply expect them to continue to pay for the loans and obligations they fairly and openly took on, and that they can easily afford?

In other words, other than the equity in their home, why do they need help?

Does the government have a vested interest in making sure investments in real estate are always profitable?  What happened to the risk factor in any investment?

I am sympathetic to the frustration they feel, I have a relative sharing their pain. 

But my relative is not even considering walking away from their home.  And that may be the real disconnect.

If you only bought the property to make money and not to invest in a home, then perhaps that is the problem.

After all, if you can afford the payments, you can continue to keep your home and hope that in due time the investment pays a return.

I wonder how many really will walk away and face a very messy foreclosure when they really don’t need to?  Does not the fact they own it carry any weight?

So to Steve and Rush, I wonder why they would want to suggest that we should not bail out people who were irresponsible and instead bail out people who used to be responsible, but are now threatening to become irresponsible?

How is this any better?

And at the same time, the people who really need the help get lost in the shuffle.  As far as I am concerned, those who tried honestly and failed due to layoffs and such are the only ones who really need help.

The rest, frankly, need a swift kick…as does the Government.

Sad becomes sadder.

Near as I can tell, none of this will make the market rebound.  All we are doing is prolonging the pain.

Which is good news really.  Maybe next year I can afford to buy a house.

Trackposted to Hot Air, MM, The Virtuous Republic, Rosemary’s Thoughts, DragonLady’s World, Shadowscope, Cao’s Blog, Democrat=Socialist, Conservative Cat, Nuke’s, Allie is Wired, third world county, Political Byline, Woman Honor Thyself, Walls of the City, The World According to Carl, The Pink Flamingo, , Gulf Coast Hurricane Tracker, CORSARI D’ITALIA, Right Voices, Wingless - Octuplet Case Raises Ethics Issue, and Gone Hollywood, thanks to Linkfest Haven Deluxe.