Thursday, April 3, 2008



Yesterday, the Senate passed, over Republican crocodile tears for many of its provisions, a housing bill that is perhaps the most feeble- minded and scrofulous piece of legislation to come out of Washington in years, and that is saying something.

There are so many things wrong with this bill that it is hard to begin. First, there is a $6 billion dollar tax break (essentially letting them carry back losses further than they otherwise would be allowed) for homebuilders, a provision with which the “free market” Republican had no problem. While morally reprehensible and economically debilitating, this legislative equivalent of desiccated bowel fruit is no different from much of what comes out of Washington: a favored constituency makes billions when the times are good. When bad times come, usually, as in this case, due to the excesses, poor judgment, sloppiness, and gormless business decisions of that very constituency, we, the taxpayers, are forced to pick up at least a portion of the bill. Privatizing the returns, socializing the risks. It happens all the time, but seems to be far more the rule, and less the exception, when responsible, “free market” Republicans occupy the White House and have at least a measure of influence in the Congress.

The really malodorous provisions of this bill, however, are an increase in the size of the loans, to $550,000, that the FHA (read you the taxpayer) can back and $10 billion of bonding authority for the states to issue mortgage revenue bonds to refinance soured home loans and to provide loans for first time homebuyers. What both provisions amount to is an effort to make it easier for people who can’t afford homes to buy homes, which is the genesis of the financial problem we face. Just as by allowing Fannie and Freddie to expand their balance sheets (See my 3/20/08 and 1/17/08 posts.), the federal government is trying to solve the problem of excess leverage with more leverage, with this piece of legislation the government is trying to solve the problem of overextended “homeowners” by creating more overextended “homeowners.” Only, in this instance, when these “homeowners” default, it will not be the banks, investment banks, money managers, speculators, and other Republican constituencies who are left holding the bag: it will be you, as a federal and state taxpayer, who will be left to foot the bill. Your government at work.

There is a provision in the expansion of the FHA lending authority that proponents of the bill will tout as a step toward “responsibility.” That provision requires (Are you sitting down?) an increase in the required down payment for an FHA loan from 3% to a whopping 3.5%. Oh, boy! That will surely root out the fiscally precarious! And Barney Frank (lest people think I am a partisan pol basher) is objecting to this onerous increase in the down payment requirement. Apparently, Mr. Frank wants to make sure more deadbeats own homes with your money.

Ain’t Washington grand?


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Jeff Bulger - EC MBA said...

"...legislative equivalent of desiccated bowel fruit..."

love it.