Stimulus Everywhere; Jumbo Limit Raised

A: It's always nice to take a step back every once in a while and try to see the bigger picture of what has happened in the past, and where we are right now. In my mind, when I do this I see so much stimulus injected into US economy and institutions and we aren't even in a recession yet, at least not in the minds of the organization that will ultimately declare it; the NBER. On a positive note, with the latest stimulus package there will be a temporary rise in the Jumbo loan limit for homebuyers; a positive incentive for those who both intend to purchase and can afford to purchase a home, especially here in Manhattan where majority of loans are Jumbos. Lets just list what stimulus we have seen since late 2007: a) 175 basis points of cuts to fed funds rate; 1.75% b) Cash injections into Merrill & Citigroup c) Buyout of Countrywide Financial; whose stock price today is trading below the buyout price d) Mortgage Rate Freeze Plan e) Talks of Bond Insurer Bailout Plan; $15 Billion to cover Hundreds of Billions in potential losses, think of the failed Super SIV rescue plan that also boosted banks when announced f) In Europe, bond bailout of Northern Rock by gov't to incentivize private takeover g) Economic Stimulus Plan For Housing; make mortgages easier to get & cheaper h) Economic Stimulus Plan For Biz; tax breaks i) Economic Stimulus Plan For Tax Payers; checks to 117 million Americans I'm sure I am missing a bunch of other cash injections to individual banks/brokerages, but am I missing any other major stimulus thus far? I think I got most of it. Now, again, there is still a debate about whether we are in a recession or not right now as chances are we won't find out until later on anyway. But forget that for a moment. Look at that list above! Are we really to believe that the economy is in fine shape with all this stimulus going on? How could we simply ignore the reasons for all this stimulus in the first place! It's encouraging to see things happening, but will it all work? Will it stop defaults from rising? Will it cause more bubbles? Will it encourage a moral hazard and future reckless behavior? Will it stop housing from falling? Will it fix the credit markets? Will it fix the toxic waste holdings held on the books of financials? Will it really save the bond insurers? Will it stimulate consumer spending and consumption? Will it bail out those who made awful decisions? So many questions. So little answers! With all this stimulus, it's not surprising that equity markets are bouncing here; but what I'm interested in is will this fix the problems we face without causing any future bubbles/inflation problems? Is this delaying the inevitable washout? All open for discussion as I wont give any predictions with so much uncertainty out there. On a side note, the jumbo loan limit was raised from $417,00 to $625,000 until December 31st! I think this is overall a good thing for us here in Manhattan but it does come with some question marks. Here are my thoughts: POSITIVES: cheaper mortgages & cheaper fees for those serious buyers who have every intention of buying a new home. May increase purchase price budgets a bit with savings from taking on non-jumbo loan; hopefully with caution by the buyer not to exceed affordability. Our co-op filled market may prevent reckless buyers who decide to purchase based on this incentive alone but cant really afford it. NEGATIVES: incentivizing homebuying by cheaper loans, how is this any different than what got us into this mess to begin with (think I/O, ARM's,)? What happens if someone who is on the cusp of affording to buy, gets convinced to purchase due to this temporary offer? Will this setup future problems of distressed sellers should we indeed enter a recession? Will it really bring MORE buyers into our marketplace OR convince prospective buyers to increase their budgets dramatically thus rendering the investment unaffordable? Overall, I would have think this is a positive for our marketplace. Since most people put max 20% down, and most condo buyers like to put only 10% down, we are looking at a target group of sub $785,000 or so for co-op, and $695,000 or so for condos. It will help those that have every intention of buying to 'pull the trigger'; hopefully without upping their budget too much! That's the only downfall I can see; over leveraging via a higher loan amount due to the 1% savings of taking the non jumbo loan. Your thoughts? ADD-ON @ 11:02 EDT: Wall Street Journal (via Calc Risk):

The package agreed upon by Congress would temporarily allow Fannie and Freddie to buy or guarantee mortgages as high as $729,750 in cities with high housing prices, according to House Speaker Nancy Pelosi. House Republican Leader John Boehner put the ceiling at $625,000, according to a news release. The higher allowance would expire Dec. 31, though it would be permanent for loans guaranteed by the Federal Housing Administration, the New Deal-era agency that typically helps low- and middle-income home buyers qualify for low-interest mortgages.