Mark Twain and Will Rogers shared a sentiment. As Twain said, “Buy land, they’re not making it anymore”.
It would have been interesting to ask each man what he thought about the value of the toxic assets on bank balance sheets.Unlike land, toxic assets can multiply. And, unlike land, the value of toxic asset may never rebound although analysts differ on that subject.
Because the American Recovery and Reinvestment Bill of 2009.has not been passed and signed into law, there is still some time to talk about how it could be improved and criticize what is not yet set in stone.
The most common complaints about the infrastructure programs that eat up most of the funding is that they make their way into the economy too slowly and may do little to help GDP before early next year. It will be hard to argue the affirmative case for the legislation being “fast acting” if it is not voted on and signed by the president before March is over.
There are almost as many opinions about whether the plan will work in combination with the TARP as there are licensed economists and actuaries. The minority report is that the investment will not work at all. It will allow that government to employ and support more people but will not arrest rising unemployment because the number of people working in the private sector will keep shrinking. Nothing short of the world’s best Ouija board is likely to produce any meaningful answers about how the combined force of a number of government assistance packages will perform.
There are more direct ways to supply money to the economy and they have choruses of critics like many others. One thought is that providing a percentage of the salaries of net new employees hired by private business this year would drive employment up. A new worker would have half of his salary paid by his employer and half by the federal government. The incentives for adding jobs would be increased because the return on labor would be better with Uncle Sam carrying the load. The most reasonable concern about this kind of program that companies would search local files of deceased citizens, get their social securities numbers, and put them on the payroll. It would not be entirely unlike what Chicago’s Mayor Daley allegedly did to get John Kennedy elected in 1960.
Buying land may be a different matter because a fraud is more difficult to design. Land in the ocean could be sold as dry land, but confirming the status of real estate is not outside the scope of the federal government’s ability to invest its own money wisely. There might even be thousands of new jobs created for “land inspectors” who have, as their sole duty, ascertaining whether a piece of property exists or not.
The most significant trouble with the real estate markets both residential and commercial is that the buyers have disappeared. They are not even making “low ball” offers. With real estate sales in gridlock, foreclosures and defaults become more likely. The incentives for owning a home worth much less than the mortgage are hard to identify. Some people simply walk out of their homes and mail their keys to the bank.
The arguments against the federal government for directly buying real estate are persuasive. No one knows when prices for homes and commercial building will recover. To make matters worse. the properties have to be kept up to maintain their value.
But, there are strong arguments to thwart the doubters. While toxic assets may never be worth close to what the government may buy them for or do to guarantee their value, tax payers may never see any return at all on that capital. That case cannot be made about land. Keeping up property owned by the government is employment worth creating because it hastens the time that the property can be viewed as valuable and salable. The federal government plans to rebuild monuments in Washington to the tune fro $400 million. The cash might be better spent on maintain real estate bought up as part of stimulus package. A home may eventually be sold at a profit. The Jefferson Memorial will never go on the market.
The difficult logistics of buying real estate are more intellectual than they are practical. Buying housing in Florida or California might do more to help values recover because they are dropping faster in those regions. A Congressman from Kentucky might want to see most of the money go to buy farmland in his state. But the same haggling will apply to the infrastructure programs the government is planning now.
Another task which is more difficult than buying real estate is bidding on it. There are enough clever convicts in the federal prison system to help with that. Or, the thousands of members of the National Real Estate Association who are unemployed could be given work and incentives for cutting good deal.
No matter how strong the objection is to the government buying property, one case in its favor is irrefutable. Eventually, the taxpayer can get his money back and may actually earn a profit.
Douglas A. McIntyre
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