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Bush Bails Out Mortgage Industry

Oh, that great populist, George W. Bush.

Bush outlines aid for mortgage holders
By Deb Riechmann, Associated Press Writer

WASHINGTON - President Bush outlined ways the federal government can help troubled borrowers keep their homes Friday in an effort to address rising foreclosures fueled by the mortgage crisis.

The administration's first attempt at dealing with a wave of defaults is not aimed at bailing out lenders, however.

"It's not the government's job to bail out speculators or those who made the decision to buy a home they knew they could never afford," Bush said in the Rose Garden. "Yet there are many American homeowners who could get through this difficult time with a little flexibility from their lenders or a little help from their government."

...

Bush said the Federal Housing Administration, a government agency that provides mortgage insurance to borrowers through lenders in the private sector, would launch in coming days a program called FHA Secure. The program would let homeowners who have good credit histories but can't afford their current mortgage payments to refinance into mortgages insured by the FHA.

You can spin this however you like, but this is indeed a bailout for the mortgage industry - for those "speculators" who foolishly kept selling bad mortgages and betting that defaults and foreclosures could be avoided by interest rates staying low and house values staying high. And now, after so many loans have gone bad, instead of having to write off the loans, record losses and incur the costs of foreclosure and resale of houses, those lenders will see those bad loans refinanced - that is, paid in full by some other lender. The original lender is bailed out, and incurs no penalty for making a bad loan. And the new lender, who apparently was previously unwilling to incur the risk of refinancing a bad mortgage, will now be glad to - but only because of the FHA guaranty. And if that mortgage goes bad, the FHA - the federal government and, ultimately, taxpayers - will have to pay up.

If you want to bail out the mortgage industry, George, that's fine. Just don't pretend that's not precisely what you're doing. Be forthright, as difficult as that may be for you. The mortgage industry employs a lot of people, and our economy relies heavily on the health of the housing market - so intervention isn't necessarily a bad thing. But call a bailout a bailout, and be honest about your motivations.

I rarely, if ever, agree with the neoconservatives at the American Enterprise Institute, but this guy is dead on:

"If you're going to help someone to refinance, you're going to bail out the person who financed him in the first place," Peter Wallison of the American Enterprise Institute said Thursday night. "This will only cause the problem to arise again."

Precisely. And the problem will arise again, as long as profit-hungry lenders know they can keep making questionable loans, because if things get bad enough they can always lobby the government for a bailout. Businesses that don't pay the price for bad business decisions will inevitably make those decisions again in the future. Lenders who recorded fat profits during the good times but don't have to face the consequences during the bad times will never learn their lesson, and will do it all over again once the dust settles from this most recent debacle.

Funny how a free market zealot like Bush suddenly caves in when the free market fails, at which point it's time for the government intervention which he supposedly abhores.

August 31, 2007 in Current Affairs | Permalink

Comments

Pete,

Couldn't agree more with your analysis. But I've got to disagree with one small point -- Bush is no free market zealot. Any president that starts an expensive war-without-end and presides over the biggest budget deficits in history (the presidential veto was been almost non-existent these past few years) is no free-marketeer.

We true free-market types deserve more credit than that.

Posted by: cljo at Sep 3, 2007 4:57:17 PM