-“The
Treasury tax-oversight office said at least 19,000 filers who hadn't
bought homes claimed $139 million in tax credits and were reimbursed.”
-“Treasury
oversight officials said they have found an additional 74,000
tax-credit claims, valued at $500 million, where evidence of previous
home ownership could make their claims invalid.”
-“More than 500
people under the age of 18, including a 4-year-old child, also had
their names on applications for the credit, which has no minimum-age
requirement.”
What does this mean? In all
likelihood this means that the proposal to extend and expand the tax
credit is D.O.A. A major sponsor of the bill that is up for a vote next
week is Senator “Johnny” Isakson (R.GA). His comments on the fraud in
the program:
Sen. Johnny Isakson (R., Ga.) said he is "cautiously optimistic"
that an extension -- with procedural safeguards added -- can move in
the Senate next week. "Just because someone used fraud [to claim the
credit] doesn't mean the credit is a bad idea, it means there are some bad folks running around," he said.
Mr.
Isakson does not get it. If the bill is passed it will double the size
of this subsidy. It will also double the number of tax cheats who abuse
the program. There is no way that this bill will pass given the cloud
that has now been revealed.
I wrote
about the Administrations plans to provide an alternative to the tax
subsidy this past week. In that piece I said, “I am confused”. I am no
longer confused. The Administration was no doubt aware of the tax fraud
and failure of the existing subsidy. They knew that the story would
break in the MSM this week. They desperately need a program to support
housing, but they understood that the tax subsidy was not going to
work. So they came up with Plan B, and implemented it in a short period
of time.
The Administration plan uses the resources of the
Treasury, Fannie, Freddie and FHA. If one is concerned about the fraud
and losses that the taxpayers will incur in the existing program, wait
until the results of the losses from the Administrations plans are
revealed a year from now. They will be spectacular.
The
following is a cut and paste of the program description. You tell me,
does this make sense? Do you have any idea reading this who is doing what
to whom? Keep in mind that this is all going to be managed by the same
folks who failed miserably in the first place. The mortgage mess will
cost us more than the wars in Iraq and Afghanistan before this is over.
We can’t afford it.
The full description can be found in the 10/23 Freddie 8K.
NOTE:
Assume: (A) the effort to extend/expand the housing tax credit dies as
a result of the fraud and (B) The Administration
plan to stimulate housing is all we will get. For me that means
‘Sayonara’ to the housing recovery. Without the tax credit sales will
fall flat. Look at what happened post clunkers.
Let's just look at the positive side to all this .
Think of fraud as direct economic stimulus to those desperate, greedy and clever enough to push the envelope of Uncle Sugar's benevolence. After all, fraudsters are citizens too.... for the most part. Many represent the most influential in our society.
These are 100,000 citizens who will spend these risk-based gains in local communities, thus moving the recovery onward. They do not save. A recent underground reporter discovered that even sales of crack, escort services and 22-inch spinner rims have never been so miserable. Evidence of basic need is everywhere.
In the New Normal of the ObamaNation, it is important to adopt a different perspective. Think outside the three-lock-box .We must fight our negative urges....for the sake of the People's Republik.
Yes Rusty. It's easy to get the sense that the USA, on a historical timeline, is in its death throes. (Well, I watched some "old" footage on Bush and the Iraq War lies tonight, so I'm primed to say that.) It's not even the corruption; it's the fact that you have a national government that will do anything to prevent market-clearing prices from forming on the "real" backbone of economic activity. Governments have gotten away with that trick for ages, but as so many on ZH have noted, there's a strange feeling that the problem is too deep to not be "steam valved" in a devastating way somewhere in the chain.
With the $600m that went up in smoke we could have invested $250,000 in start up capital in 2,400 companies across America in internet, biotech, medical devices, clean tech, industrial products and services. Hands up which state would have liked to have lots of new start ups? Hands up which state unemployment office, state tax office, federal tax office, and which owners of empty commercial office space and empty factory space would have liked to see lots of new start ups? Don't all put your hands up at once or you'll block out the sun.
The fraud, thievery, and corruption runs so deep there is simply no way this country can survive it.
We can end the blog now. It has all been said in this statement. Thanks to everyone for your participation, we have had a good time together.
CLASS DISMISSED.
Why thank you. I've felt the same after some of your posts.
it is all and only about the mid-term elections - hold this economic pig together with string and tape and worry about the fallout after the fact
almost 650 mil of fraud - almost 95k of filers? that would leave about 7 or 8 "legit" tax credit filings. this is precisely why MANY folks i know quit paying federal taxes.
"NOTE: Assume: (A) the effort to extend/expand the housing tax credit dies as a result of the fraud and (B) The Administration plan to stimulate housing is all we will get. For me that means ‘Sayonara’ to the housing recovery. Without the tax credit sales will fall flat. Look at what happened post clunkers"
Have any of you ever looked at the Earned Income Tax Credit?
Massive fraud over the past twenty years in EITC has been tolerated because it puts money into the hands of the "right people", i.e. those whose votes need to be bought and paid for.
Why will Cash4Houses be any different? This program may still be around twenty years from today.
Bruce,
Good article. They had their hearts in the right place but their minds elsewhere when they designed this tax incentive. Now it's become an administrative nightmare.
"Mr. Isakson does not get it."
Oh no, Johnnie Boy most certainly gets it. His family is in real estate.
We will spend TRILLIONS and waste TRILLIONS more trying to prop up house prices, but the simple truth will not be ignored--Housing prices need to TANK. With unemployment probably past 20% in most areas, and wages falling across the nation, we can no longer afford to keep housing inflated at artificially high prices--IT WONT WORK!!
It is obvious, all of these tactics are for saving the BANKS but There is no way around it, I guess this administration is merely trying to throw a few speed bumps in the way of an inevitable house price CRASH. We aint seen nothing yet!!
I agree but the I believe the plan is to slow down the home price crash enough so that banks can write off their loan losses against their earnings from the fat spread now available to them courtesy of the Fed. If they allow home prices to freefall, the banking system will collapse with them. With their plan, home prices will eventually arrive at roughly the same destination but the banking system will survive.
Ben, glad to see you got an identity and are posting now. Welcome to ZH!
http://www.youtube.com/watch?v=Th_zlxmddNY&feature=player_embedded
One of your best pieces, Bruce: thank you for connecting the dots between the tax credit fiascofraud and the "new and improved" program.
I'm still amazed that we are attempting to solve a sub prime, structurally unsound home mortgage lending crisis by issuing new subprime loans with all the risk being funnelled into one entity, the US government.
Uncle Sam is the new IndyMacNewCenturyAmericanHomeLoanHRBlockmortgageThornburg lender.
Please submit this piece to the NY Times, WSJ, and WaPo. Thanks Bruce.
I read last week that the House voted to extend the credit thru 2010 but only for veterans who served in a combat zone for at least 3 months in 2008-09.
600mm in fraud is mere "spillage". Fraud is now measured in the trillions.
I hope the "cash4homes" is dead, but when you've got the likes of Barney Frank, "bad loans are policy", in charge, the program will probably remain.
since wages have been flat for a decade. It's time housing prices finished crashing. Clunkers 2.0 just might get housing back down to 3x annual income. And the NAR can stop with the green shoots. They knew the fraud was going to take place, they wrote the bill to encourage it. There never was any plan to extend it. THere is no housing recovery 'SAYONARA' happened a long time ago!
How many with criminal records qualify under FHA and this 1st time homeowner credit?
The tragic story of Somer Thompson was only made worse by the fact that there were 161 registered sexual predators in her immediate area.
How many of these predators qualify as a 1st time homeowner with a FHA loan?
I don't know why people say we are such a partisan country now, our Congress can be counted on to do whatever a big business, big industry lobbies them to do, if they have to wrap in the guise of "reform" or give some tax credit to make it somewhat sellable to the little people, they'll do that in a pinch...but both Dems and Repubs as whole are about doing what big businesses/industries want. You home builders, banks and FIRE guys need a hand...okay, we will give the "people" a tax credit that inflate the price of the houses they buy exactly that much so they will gain nothing, but meanwhile, the businesses gain from corporate welfare.
I have an ides how to make houses affordable, everybody with no equity stop making payments tomorrow but stay in your house. Then magically, banks will have to write down their losses just like everyone else has had to, houses will drop in value drastically, banks will finally see its in their interest to just sell the now way cheaper house back to current resident at current valu,e and suddenly housing will be affordabel on a working man's salary and they'll start building houses again.
I don't think for a second their idea about propping up housing is about keep little guy from being kicked out of home, its about welfare to way way overcapacity big business (kinda like GM but worse) and about helping banks hide the doo-doo on their balances sheets as housing (and commerical real estate- ouch) is the main asset supposedly backing their leverage.
Face the music, cram-down banks or just crash it and get it over with, stop the tax credi madness, it is just printing housing "cash" that then inflates housing prices.
Look what happened post housing tax credit:
http://www.mortgagebankers.org/NewsandMedia/PressCenter/70676.htm
Titan Trader