What exactly has the Government done?

The headline of a recent article written by Greensboro’s own Orson Scott Card caught my attention this week. “Would the Last Honest Reporter Please Turn on the Lights?” Mr. Card goes on to talk about the poor journalism of late regarding our financial crisis and I tend to agree with him. It seems that in this overly political environment even something as critical as this crisis gets a political “spin” placed on it.

The media has tended to stretch truths, ignore information, and focus on unimportant issues lately and the political candidates have been only slightly better. It is no wonder that so many have been very confused as to what plan the government is implementing and whether or not it will help our economy. While many debate who is at fault for this crisis and whether or not the government should be intervening, this article is meant to point out what plans are currently in place.

First and foremost, while there are many manifestations of our current problems there are really two main problems: The credit market is struggling and home values have plummeted (only by 5% in Charlotte since its peak, but by an average of 17% for 10 Major Market Cities and 20% for the 20 Major Market Cities 1). In order to target these two major problems, and hopefully stop their destructive spreading into other areas, the government has taken many different steps.

Money market funds have been guaranteed. Rates were lowered from 4.25% to 1.0%. Facilities were introduced that allow the Fed to ensure the liquidity and operation of money market mutual funds. The Housing and Economic Relief Act (HERA) was passed which is a $300 billion program designed to help over 400,000 homeowners avoid foreclosure and began October 1st (it seems this program is the most ignored lately by the media) 2. All debt and loans issued by Fannie and Freddie have been guaranteed 3. Finally, they passed the recent Emergency Economic Stabilization Act (EESA). This final Act is what I would like to spend the rest of this article discussing. EESA has many provisions, the largest of which, and most talked about in the media, is the Troubled Asset Relief Program (TARP). While the TARP, which is the $700 billion allocated to purchase troubled assets, has gotten the most media attention, there are other parts that are just as important.

EESA allows the Treasury to be more involved in Hope for Homeowners (part of HERA) by helping coordinate all federal groups that hold troubled mortgage. This gives them a better opportunity to modify loans and help avoid foreclosures. It also increases the number of those eligible for help and gives the Hope for Homeowners program more tools to help work with lenders.

Another part of EESA that has been talked about, but deserves mentioning again is the increased FDIC insurance from $100,000 to $250,000. This increase will end unless further action is taken on December 31st 2009. Meaning that your FDIC insured deposits are insured with some limitations, until December 31st 2009, up to $250,000. (see http://www.fdic.gov/ for details)

EESA also extends the Alternative Minimum Tax breaks and increases the AMT exemption amounts. It also extends other tax breaks which would have ended soon and here is a highlight of some of the breaks given: The optional itemized deduction of state and local taxes, the deduction for qualified tuition and related expenses, the business research and development credit, and tax-free contributions from IRAs to charities. This provision in EESA was extremely important and necessary, but got little to no press.

At a time when reporters and politicians are not giving adequate information it becomes increasingly difficult and yet more important to get the whole truth. I believe it is this lack of information which spreads fear. If you would like to read more than what I’ve written go to http://financialservices.house.gov/essa and click on the Section by Section option.
Keep in mind also that many of these programs began this month. We don’t know for sure if these plans will fix all our problems, but we are seeing evidence that they might be starting to.

1 http://www.standardandpoors.com/ Home Price Index History
2 http://www.hopeforhomeowners.co/
3 http://www.ustreas.gov/