An Open Letter to Minister Eli Cohen Regarding 90% Mortgage Financing

I usually try to write about principles rather than politicians personally. Minister Eli Cohen's announcement regarding a ninety percent mortgage financing will be an exception, and I hope a unique one. At first, I dismissed the minister's announcement with a mere shrug. What can you do? In Israel, the Minister of Health is not a doctor, the Minister of Defense is a corporal, and the Minister of Culture is a retired brigadier general. In my opinion, the performance of governments over the generations has been very good relative to objective data, so I am not too excited about it. I thought Eli Cohen's announcement: 

It also falls into the category of a minister who doesn't know what he's talking about and there's nothing to get excited about. But then I checked the resume of Eli Cohen. Minister Cohen holds a degree in economics and served as a lecturer in economics at Tel Aviv University. This means he probably knows that the message below is incorrect, and despite that, he published it. This is already misleading. I will address each sentence of the minister separately. Unfortunately, there is only one accurate sentence in the entire message. Let's begin.

90% Mortgage – Making the Dream of Homeownership a Reality

I have already addressed the fact in a separate article The mortgage on 90% Nobody will approach buying an apartment because the prices will rise. But here I will address the matter. The dream of buying an apartment. The Minister refers to a major financial decision in a family's life as the last of his sales pitches. While excess demand is causing prices to skyrocket, wouldn't it have been more responsible to tell the public that an apartment is a product one can buy or rent, and in many cases, renting is even preferable? Take a couple who want to buy an apartment in Holon for 1,600,000 shekels. They can rent the same apartment for 4,000 shekels per month. The Minister suggests this couple take out a mortgage of 1,440,000 shekels, on which they will pay at least 6,700 shekels (for thirty years). One of two things will happen. Either the couple cannot afford this amount and will collapse in the future, ending up with no apartment and no money, or they can afford it, in which case even in the first scenario, they would have saved, let's say, 2,500 shekels per month. If the couple saves 2,500 shekels per month, they will accumulate 1,600,000 shekels, which will allow them to purchase without a mortgage. In just 24 years (compared to the 30 years it will take him to pay off the mortgage). The 6-year gap is the difference between paying interest to the bank and earning a return (a modest 4%) on our capital. You don’t need to be an economist to understand the function FV In Excel.

When I got married, I personally took out a mortgage of nearly 90% for the apartment, and it was only thanks to that that we were able to buy our first home

Okay, the minister who is supposed to set economic policy for the entire country is referring to a representative sample of... one person. Your Honor, I am convinced that as part of a bachelor's degree in economics, there was a course Statistics without statisticians (I just love writing this) it taught you what a representative sample should be so that you can infer from it about a population. There is no conclusion in the world that can be drawn about a population from a sample of one case.  It is embarrassing to see a minister speaking like an out-of-touch father, pushing his son to make a decision based on something he did, and it is not at all clear whether it was financially sound or not. But beyond the technical aspect, it is worth addressing the example itself. When the minister bought his first apartment, housing prices were likely a quarter of what they are today, and the minister, who was a vice president at an insurance company, likely had a salary of tens of thousands of shekels a month. This means not only is it a sample from one person, but also from a person who is very atypical compared to the population he is addressing. But what about the issue Was it only thanks to that that we managed to buy our first apartment?  Mr. Minister, a good apartment in Holon cost 600,000 shekels in those years. For this, a down payment of 150,000 shekels was needed. Assuming that about 100,000 accumulated in your severance fund over six years. Are you saying that you would not have managed to save an additional 50,000 shekels on your own from a joint salary of tens of thousands of shekels, had you postponed the purchase slightly? Excuse me for intruding on your privacy, but you started it.

All studies indicate that most of those who reach old age without owning a home are condemned to a life of poverty.

All studies indicate that pensioners who own Mercedes cars live well. Is the honorable minister suggesting that Mercedes cars be distributed to ensure pensioners live well? 

This argument misrepresents cause and effect. It is clear that if people like you, Mr. Minister, educate the public that they *must* buy an apartment, then many will want to succeed in doing so, and those who don't succeed will likely remain poor their whole lives and be poor in old age. The "studies" do not explain or describe two things that you, Mr. Cohen, have ignored: 

1. How many people who own their homes live in poverty in old age? 
2. How many people have bought an apartment during their lives and yet reached old age without owning an apartment, for example, due to a risky and excessive mortgage they could not pay?

Economically, Mr. Minister, we have already seen that 30-year-olds who rent and save the difference between rent and mortgage payments will reach full homeownership (as opposed to shared ownership with a bank) much faster. There are many reasons to purchase an apartment besides the economic aspect, but if the economic argument is to be used, it should not be used so absurdly. 

According to the projected mortgage growth in relation to the current situation, it will be state-guaranteed, so the banks' risk level will not increase

Esteemed Minister, we know that the citizens of the country are weaker and therefore less important than the banks. But to rub it in our faces like this? Let's get something straight, sir, there's no such thing. The State Oh State guarantee.  Is taxpayer Or guarantees The taxpayer.  In the US, when banks chose to give out reckless loans, the government chose to rescue part of them by transferring taxpayer money for the bailout. For other banks, like Lehman Brothers, the government chose not to help, and they collapsed. I'm glad you think banks are more important than the public, so you're cutting out the middleman and not waiting for the banks to get into trouble before the government can decide whether to let them fail or rescue them. Instead, you're suggesting preemptively making taxpayers pay the debts of others who acted irresponsibly (on your advice). Why should the taxpayer pay the debts of irresponsible people? 

Wishing everyone a happy new year, a year of new beginnings

I am happy that there is at least one sentence in the entire message that I can completely agree with. I join in the congratulations and wish everyone a happy holiday and a happy new year. 

In response to people who told the minister he was causing the subprime crisis, the minister gave the following astounding answer in various ways: 

I am convinced that Minister Cohen knows that the subprime crisis is not a crisis of collapsing banks, but a crisis of general economic collapse. The fact that the minister preemptively declares that the government (the taxpayer, mind you?) will pay in advance the debts of those who will not repay these loans further reduces the banks' motivation to conduct thorough borrower checks, and this is precisely the definition of subprime. Cohen's successor in office will not care if the Israeli economy is in crisis due to a bank collapse or because the current government has committed to repaying defaulted loans in large volumes.