Before it was unemployment>, health care or carbon emissions that preoccupied politicians, foreclosure prevention was among President Obama s top priorities when his term began just over one year ago.
In an effort to stem the tide of foreclosures, both the previous and current administrations passed a battery of programs: the Hope for Homeowners Act, the Housing Assistance Tax Act, the Helping Families Save Their Homes Act, FHA Secure, the Hope Now Alliance, the Homeowner Affordability and Stability plan, the Recovery and Reinvestment Act, not to mention the takeover of Freddie Mac and Fannie Mae, all costing hundreds of billions of dollars with the expressed goal of keeping people in homes on which they weren t actually making the payments.
There will be a cost associated with this plan, the president admitted last year when selling the stimulus. But by making these investments in foreclosure prevention today, we will save ourselves the costs of foreclosure tomorrow -- costs that are borne not just by families with troubled loans, but by their neighbors and communities and by our economy as a whole.
Bloomberg Foreclosure Index
By even the most cursory measure, efforts to prevent foreclosure have failed miserably. This month Bloomberg s Foreclosure Index tapped a new high of 11.74% -- up from 7.94% one year ago, despite the unprecedented effort and cash, from Uncle Sam. The S&P Case-Shiller Home Price Index, a composite of 20 cities around the country, is still down 5.3% from year ago-levels.
Now Washington has morphed its message to job creation, not by stimulating the private sector, mind you, but largely via make-work infrastructure programs. There s plenty of historical precedent to suggest that efforts to create jobs won t be any more successful than preventing foreclosures.
Depression-era public works projects, to which the modern-day stimulus is routinely compared, increased federal spending from 3.4% of GDP in 1930 to 9.8% in 1940, according to data from Heritage Foundation. During that period, unemployment rose from 5% to over 20%.
Between 1992 and 2000, Japan launched no fewer than 11 separate stimulus programs, most with a massive focus on infrastructure spending, which rose to 6% of GDP. The net result? The country now boasts the highest debt-to-GDP ratio in the developed world. Per capita income, which had been the forth highest in the world, dropped sharply. Unemployment more than doubled.
Ibaraki Airport outside Tokyo provides a telling example of how the build it and they will come fantasy of infrastructure spending doesn t wash. When the $270 million project was approved in 1996, government officials promised the facility would create jobs, boost the economy and handle up to 800,000 passengers annually.
The airport will finally open next month with only one carrier, Asiana Airlines, offering a single fight each day.