Predatory Taxation
Imagine this:
A smooth, oily mortgage salesman is selling his product to a newly married couple. Try our adjustable rate mortgage, he says. Its got an initial rate of only 3.5% per annum, he says. Well, technically, the rate will reset after two years, but the prime rate is going down and your payments will never increase. Balloon payment? What balloon payment? You don't think I would do that to you, do you? No, this mortgage is exactly how I say it is. No need to read the contract, just sign here and initial here, and you are on your way to owning your dream house. How can we afford to finance such an expensive house at such low monthly payments, you ask? Why, we'll just securitize your mortgage, of course! We'll bundle it up with hundreds of others, and sell them to investors all over the world. The geniuses at Wall Street have figured it all out. No need to worry, this makes sound financial sense.
The couple, thrilled, sign and move into their new home. They make their low monthly payments for two years, and all seems to be well. But at the end of two years, suddenly, their rate shoots up. They can't afford their new, high, montly payment. Worse, prices of homes in their neighbourhood have begun to fall, so their mortgage will soon be underwater. Even worse, they realise that contrary to what the salesman promised them, the mortgage does not amortise completely, and they will have to make a large balloon payment at the end. Clearly, the costs of staying in their home are higher than they can afford. But the mortgage salesman made it sound so much better! He specifically said that they would not ever find themselves in such a situation.
Now, what phrase would you use to describe the mortgage salesman's conduct? Why, you'd call him a predatory lender, of course. And you'd be right. While I am a little wary of using the P-word indiscriminately, surely such outright lies and innacurate statements qualify.
My question is, if this is predatory, what about a guy who gets elected by promising tax cuts to 90% of the population while simultaneously embarking on the largest peacetime spending increase in his nation's history? He's got financial and economic geniuses on his side who claim that the quantitative easing and the securitisation of his country's liabilities allow him to get something for nothing, but does that really make him so different from the mortgage salesman of the earlier example? The current regime of low taxes may survive in the short term, but the debt that finances current spending has got to be paid back eventually, either through higher government revenues or the devaluation of the currency. People who have been convinced to vote for and support such spending increases based on the promise that their taxes will not be increased have been deceived. "Preyed on", if you will
I therefore propose that Barack Obama's tax policy, insofar as it leads to high approval ratings for him, be referred to as Predatory Taxation.
A smooth, oily mortgage salesman is selling his product to a newly married couple. Try our adjustable rate mortgage, he says. Its got an initial rate of only 3.5% per annum, he says. Well, technically, the rate will reset after two years, but the prime rate is going down and your payments will never increase. Balloon payment? What balloon payment? You don't think I would do that to you, do you? No, this mortgage is exactly how I say it is. No need to read the contract, just sign here and initial here, and you are on your way to owning your dream house. How can we afford to finance such an expensive house at such low monthly payments, you ask? Why, we'll just securitize your mortgage, of course! We'll bundle it up with hundreds of others, and sell them to investors all over the world. The geniuses at Wall Street have figured it all out. No need to worry, this makes sound financial sense.
The couple, thrilled, sign and move into their new home. They make their low monthly payments for two years, and all seems to be well. But at the end of two years, suddenly, their rate shoots up. They can't afford their new, high, montly payment. Worse, prices of homes in their neighbourhood have begun to fall, so their mortgage will soon be underwater. Even worse, they realise that contrary to what the salesman promised them, the mortgage does not amortise completely, and they will have to make a large balloon payment at the end. Clearly, the costs of staying in their home are higher than they can afford. But the mortgage salesman made it sound so much better! He specifically said that they would not ever find themselves in such a situation.
Now, what phrase would you use to describe the mortgage salesman's conduct? Why, you'd call him a predatory lender, of course. And you'd be right. While I am a little wary of using the P-word indiscriminately, surely such outright lies and innacurate statements qualify.
My question is, if this is predatory, what about a guy who gets elected by promising tax cuts to 90% of the population while simultaneously embarking on the largest peacetime spending increase in his nation's history? He's got financial and economic geniuses on his side who claim that the quantitative easing and the securitisation of his country's liabilities allow him to get something for nothing, but does that really make him so different from the mortgage salesman of the earlier example? The current regime of low taxes may survive in the short term, but the debt that finances current spending has got to be paid back eventually, either through higher government revenues or the devaluation of the currency. People who have been convinced to vote for and support such spending increases based on the promise that their taxes will not be increased have been deceived. "Preyed on", if you will
I therefore propose that Barack Obama's tax policy, insofar as it leads to high approval ratings for him, be referred to as Predatory Taxation.
Labels: Barack Obama, Fundaes, US Politics
posted by Kunal at 1:41 AM
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