Wednesday, May 13, 2009

Obama The Debt Meister

Obama's personal finances suggest he was a typical subprime borrower, counting on some unknown good fortune to bail him out. In an excellent bit of sleuthing, Richard Henry Lee does the math.

In April 1999, they purchased a Chicago condo and obtained a mortgage for $159,250. Michelle had a 4-times a week visit from a personal trainer, shoes, piano lessons and private school for the kids, other expenses consistent with the lifestyle to which they had become accustomed (they were both Harvard Law grads, after all). The Obamas' adjusted gross income averaged $257,000 from 2000 to 2004. Yet tax returns for 2004 reveal $14,395 in mortgage deductions. This implies they owed about $240,000 on a home they purchased for $159,250 in 1999, which means they spent about $80,000 beyond their income from 1999 to 2004. Then Obama's book sales soared and Michelle explained, "It was like Jack and his magic beans."

Luckily for Michelle, speaker fees for ex-Presidents means they will never have to curb their excesses. But when he speaks of prudence or living within a budget, he is not speaking from experience.

6 comments:

Pat said...

Sounds like consumption smoothing to me. Perfectly reasonable at the time for Obama to assume he was going to become much wealthier later. (I can't stand the guy either, btw.)

Anonymous said...

Yeah it is hard not to see this as consumption smoothing. It seems perfectly reasonable for them to expect higher income in the future.

Jim Glass said...

Consumption smoothing is for when you are young, in med school or are an intern, and figure you'll be making doctor money later, so you go into debt. Or for when you are in law school or just out and clerking for a judge, same thing.

But the Obamas were running up this debt and refinancing their home in years when their income was >$250k, and they were in their 40s, how much higher were they assuming it would go to smooth?

And the US gov't, facing the huge Medicare/ Social Security hit coming in about 20 years, sure as heck shouldn't be consumption smoothing today.

But well, as Michelle says, "magic beans" worked for them, maybe they'll come through for the nation too.

Sameer said...

Obama knew he would be president. Or at least senator. The fix was already in.

Anonymous said...

Sorry, 250k worth of house debt when you are making 250k a year just doesn't seem that egregious.

Staying fit is a business expense when you are in politics or the executive suite and Michelle was both.

Typical subprime? Subprime was 60k a year income and 600k house debt with an exploding payment when the negatively amortizing debt hit 125%of loan to value.

I was expecting honest criticism and I see a smear. One heloc does not equal sub-prime.

Anonymous said...

"Sameer said...

Obama knew he would be president. Or at least senator. The fix was already in."

How can you "know" this 8, or even 5, years ahead of time.

LOL!!