The Housing Rescue Plan Fiasco

It isn’t easy to oppose a bill that is designed to help prop up America’s cratering housing market. Just yesterday, the S&P/Case Shiller composite index noted that home prices are down more than 15% since April 2007. In some markets, like Las Vegas and Miami, home prices are down more than 25%. This is having an enormous impact (along with inflation) on the health of our economy. But the nine senators who voted against moving this bill (invoking cloture) forward deserve praise.

Although passage is by no means certain – there are a number of amendments to the bill that are in dispute – the move yesterday signals that Congress is working hard on a bipartisan compromise.

Unfortunately, this bill, once again, puts the taxpayer on the hook; this time for the irresponsible borrowing of consumers and financial malfeasance of lenders.

Mike Enzi (R-Wyo) is quoted in this story by Julie Hirschfeld Davis of the AP:

“They expect the federal government to turn their backs on responsible lenders and borrowers and renters waiting ā€” waiting ā€” to become first-time homeowners, and support those groups that have pushed our housing market into decline with bad loans and bad investments. This bill is a federal government bailout.”

Like the Bear Stearns bailout, only bigger, this bill…

…would let the Federal Housing Administration back $300 billion in new, cheaper home loans for an estimated 400,000 distressed borrowers who otherwise would be considered too financially risky to qualify for government-insured, fixed-rate loans.

$300 billion!!! Not only is this the moral hazard writ large, but how exactly are we going to pay for it? What percentage of these new FHA loans will default? Just how rigorous will be the oversight to ensure that speculators don’t receive help? And so on.

I have written that the Bear Stearns bailout was necessary to prevent an epic and immediate collapse of the financial markets. In the end, it was one of those deals that you had to hold your nose and roll with. But this is going too far. Millions (32% of Americans rent) of responsible American renters didn’t buy into a market they couldn’t afford, they waited. Now you’re going to tell them that the U.S. government is going to help defer their dream even further by artificially propping up home prices?

I say, let them fall!

And let those who have borrowed to buy a house they couldn’t afford learn their lesson the hard way. This is a great start to breaking the American culture of debt.

As Benjamin Franklin put it: He that goes a borrowing goes a sorrowing.

Though if the Congress (and likely Bush, too, despite the veto threat) has their way, those who have borrowed (and lent – after a loss, the bill will clear some of the worst mortgages off of the books of lenders like Countrywide) won’t go a sorrowing, they’ll go a prospering.

Look for a final resolution, one way or the other, on the bill this week.

Go to Dick Armey’s (and Steve Forbes’s) to sign a petition against it.


One Response to The Housing Rescue Plan Fiasco

  1. […] Housing: Hold Your Nose and Bail I have previously written of my opposition to this legislation in its earlier form. It is, once again, the moral hazard writ large. But I am feeling somewhat […]

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