Friday, March 14, 2008



As the “housing crisis” heats up, the Democrats predictably are continuing to push their cockamamie scheme to have the FHA (i.e., you, the taxpayer) guarantee the mortgages of those who spent more than they made in order to lead a lifestyle they couldn’t afford and now want the government (i.e., you the taxpayer) to pay their bills. The proposals by House Financial Services Committee Chairman Barney Frank (D., Mass.) and Senator Chris Dodd (D., Conn.) involve the lenders’ (assuming they can be identified) writing down “a portion” of their mortgages and having the remainder guaranteed by the FHA (i.e., you, the taxpayer). The Democrats, of course, protest that this is a bailout for neither irresponsible homeowners nor for the Wall Street types who hold these mortgages and who, purely by coincidence, I am sure, are quite bipartisan in their campaign contributions. However, even the Democrats admit that the losses the lenders will have to take are far smaller than the losses they would suffer if they were forced to foreclose. But this isn’t a bailout, no sir.

In reality, then, the Democratic plan amounts to having the FHA (i.e., you, the taxpayer), bail out irresponsible, overspending homeowners, Wall Street bigwigs, and politicians quaking at the prospects for their campaign funds should some of their most generous contributors actually have to suffer the consequences of their excerebrose actions. This is what they call a trifecta in Washington.

Those of us who have long (in this case, almost since the inception of the Pontificator well over a year ago) worried about the moral hazard (i.e., the sense in the markets that risks can be disregarded because the government will usually (always, really) be there to bail out those whose fatuous and/or esurient bets didn’t quite work out as they had hoped when they committed to buying the $ multi mm house) involved in such bailout schemes can doubtless draw great comfort from the assurances of Rep. Frank, my former Congressperson. He says his plan wouldn’t create a moral hazard. He offered no proof, no argument, nothing in support of this statement. But surely we can take the word of a gormless politician on such matters.

The “free market” Bush administration immediately chimed in on the matter. The White House issued a statement that said “…it is important not to overreact, because government intervention in the market can have unexpected and far-reaching consequences.” (See my 2/27/08 post “IF ONLY THESE GUYS WOULD DO AS THEY SAY…”). At the same time it was reported that one idea that intrigues the White House is that advanced by Martin Feldstein on the editorial page of the Wall Street Journal (See my 3/7/08 post “THE FREE MARKET LOOKS GOOD ON YOU, THOUGH”). Under this brilliant piece of Republican, rugged American individualist, free market thinking, the government will lend troubled homeowners 20% of their mortgage loan balance on an unsecured basis on very generous terms. The homeowner will then transfer that money to the lender, lightening the burden on the financially frivolous “homeowner” and bailing out the fatuous, if not facinorous, lender and investor.

Oh, yeah…there’s a lot of difference between the Democrats and the Republicans.

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