He makes a good point that funds cut from state governments is a problem. State governments are badly in need of cash and they are generally more effective than the fed at getting money into peoples hands. Those are all valid criticisms.
This is not:
On the other hand, the centrists were apparently just fine with one of the worst provisions in the Senate bill, a tax credit for home buyers. Dean Baker of the Center for Economic Policy Research calls this the “flip your house to your brother” provision: it will cost a lot of money while doing nothing to help the economy.
A little background on my perspective. I am not a homeowner; I have rented a 1 bedroom apartment for the last 5 years since I graduated from college. I live in Metro DC and have not been in a position to buy a house until now, mostly because of the bubble prices that were quite atrocious here. So yes, I have something to gain from this bill, but that doesn't affect my opinion of it.
Those who bought houses from 2003-2006 are likely very deeply underwater now. We are currently at the 2002 level of prices. Now, a lot of this blame rests with the "ownership" society created by Bush & Co, who believed that giving people loans they wouldn't be able to pay in 5 years would at least allow them to temporarily become members of that society.
But we need to focus on the present situation: There are tens of millions of families who are upside down on their houses. The only way for them to have the chance at downgrading to another house or maybe even relocating to another, more affordable market, is for them to sell their current properties. Some people just vacate their houses, destroying their credit rating and any chance of future ownership. Some were not as foolish and actually bought houses they could afford; but they still cannot sell at today's prices.
An example would be someone who bought a house in 2003 for $275,000. At the peak, it may well have hit $500,000. Now it is closer to $200,000. They have it listed for $250,000, which is what they owe. But the buyers (especially those who don't own a house yet) aren't willing to pay $250,000, because all they see are the prices going down down down. Why immediately have negative equity in a house? The $15,000 at least provides a bridge, it gives these first time buyers a little bit more so that they can get the house they want at a price the other side can swallow.
It also gives people who buy foreclosed properties the capital to improve them. I've toured many of these properties and some are a complete wreck. $15,000 would at least make them livable. This would take some of these "toxic assets" off the books of the bank, both improving our nation's financial picture and also giving people the opportunity to own.
Krugman fails to understand that. He is obsessed with a "house flipping" theory, in which you would only buy the house so that you could sell it for a quick profit, using the $15,000 as your start-up capital. This is unlikely for two reasons.
1. The tax credit would only be for a primary residence, so no second "flip" home.
2. Buyers would have to own the property for at least 2 years, or risk repaying the credit.
These two provisions alone should prevent most flip activity.
Lastly, this is an amendment that helps to address the core issue of the meltdown: the housing bust. It is also bipartisan, and passed a voice vote. Other than Krugman, I can find almost no opposition.
And not to belabor the Nobel Laureate anymore but this is the second time I've seen him confused and woefully wrong on his facts. The first was when he discussed Germany's failure to pass a bailout about a week after they already had.
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