Mortgage Relief: Senate Republicans Blink
An FHA Expansion coming?
By blackhedd Posted in bailout | Dodd | Economy | FHA | mortgage | New Deal | senate | Shelby — Comments (20) / Email this page » / Leave a comment »
Following up my story here on the movement in the Senate Banking Committee to come up with mortgage-relief (read, bailout) legislation: the Republicans blinked.
Under what appears to have been pressure from Republican leadership, Senator Richard Shelby of Alabama, the ranking minority member on the banking panel, made a deal with Senator Dodd of Connecticut to accept preliminary steps in the direction of a legislated mortgage bailout.
Much more…
I happened to catch a glimpse of Dodd and Shelby appearing together on a news show last evening. Dodd is in the driver’s seat, of course, and Shelby (a strong anti-regulation and small-government voice) looked like he’d been sucking lemons.
I don’t have full details on what they agreed to, and there is relatively little reporting on this so far today. And in any case the situation remains fluid.
My interpretation is that Congressional Democrats, beginning with Senator Reid, perceived a golden opportunity to press for Federal intervention in the housing market, as a result of the Federal Reserve’s successful resolution of the Bear Stearns collapse, which they and many others are portraying as a bailout.
Senator Dodd more or less explicitly made this connection in a speech he made two days ago. His remarks made clear his position that if a Federal bailout of Wall Street is a good idea, then by gum, so is a Federal bailout of Main Street.
Supporting my view that the Democrats’ response is an opportunistic one is the fact that they haven’t really thought through the full implications of a large Federal intervention in housing. But what started as a bit of political theater may end up going much farther.
In fact, the Democrats may have been surprised to find the Republicans unwilling to fight, so they're suddenly scrambling to actually make real law.
The Republicans, for their part, appear to have concluded that they don’t have the political capital to resist what may become the largest expansion of Federal power over the economy since the New Deal.
And Hill Republicans are getting no support from the Administration, as rumors are rampant that the Treasury Department is willing to make a deal with the Democrats on this.
Why would the Republicans go along with this? Well, if they resist a mortgage bailout, they’ll be portrayed as wanting to throw millions of innocent, preyed-upon homeowners (a great many of whom are minorities) out into the street.
It worked after Hurricane Katrina, so why not try it again?
So far, Shelby has agreed not to block some fairly simple and minor proposals, including a tax subsidy for value that is “forgiven” in mortgage workouts that involve short sales or reductions in principal amount.
[Sidebar: what did I just say? Well, if you negotiate a lower principal amount on your mortgage, you end up owing less money and the bank will receive less money. The IRS considers you to have received value from the bank, in the amount by which your loan liability was reduced. The bank writes off the loss (getting a tax break), and you’re liable for income tax on the amount of the reduction. Makes sense, actually. The Senators just agreed that this tax liability for the homeowner will be waived.]
Democratic Holy Grails
Shelby has not agreed to either of the Democratic Holy Grails, which Dodd has now started talking actively about. Shelby did agree to listen to the debate and keep an open mind.
Democrats would like to see one of two things happen:
First, an expansion of the Federal Housing Administration. This is an agency established in 1934 that provides mortgage insurance, usually paid for as a premium that is added to a homeowner’s monthly payment. It protects the lender in case of default.
Since many of the home mortgages now in force are for principal amounts well above the current value of the underlying house, the risk of default is far higher. The idea is to expanding FHA so they it insure many more mortgages, possibly through subsidies of the premium payments.
The second, and wetter, dream is to bring back something like the Depression-era Federal agency that literally was in the mortgage business, providing second mortgages or even outright acquiring mortgages from the original lenders.
The Economics, the Morality, and the Politics
I think the politics behind these grand dreams of increased Federal power are clear enough: “mortgage relief for distressed homeowners” can easily be portrayed as the kind of compassion that people will want to vote for.
Economically, the outcome of an extensive mortgage bailout would be very serious, and very bad. The case being made is that Really Bad Things™ will happen if a large number of people are foreclosed out of homes they can’t afford.
But the housing market is still far too high to equilibrate now. There is a huge overhang of supply, and buyers are waiting for better prices later.
If we support the market in place now, we will inhibit the natural redeployment of capital that would occur if the market is allowed to equilibrate on its own. Ultimately, we may be letting ourselves in for a long period of economic stagnation, just as the Japanese did fifteen years ago, when they refused to allow banks to fail.
And there should be no need to re-iterate the moral case against a bailout. You may indeed feel that homeowners shouldn’t bear the losses for their own decisions. I don’t agree, but that’s ok. You should not suppose that lenders, who are professionals, should be insulated from the losses they would suffer in foreclosure.
They made the decision to extend these bad loans, and they need to take the hit and learn their lesson. A bailout will ensure that they’ll be back for more, later.
-Francis Cianfrocca ("blackhedd")
"That Was an Extraordinary Thing To Do" — Comments (4) »
Mortgage Relief: Senate Republicans Blink 20 Comments (0 topical, 20 editorial, 0 hidden) Post a comment »
Is it too late to get in on this deal? I'm thinking that I'll take out a mortgage on my house (which is paid for), default on the loan by not making the payments, and then have the gov'mint pay the mortgage off.
It's a win/ win for everybody. I get to keep the money from the original mortgage, and the politicritters get to feel good about helping me out.
The general assumption seems to be that there is public support for a home owner bailout, but I don't see why that should be the case. There are a lot of people in trouble with their mortgages, but it's not *most* people and I wouldn't see why bailing them out would be generally popular.
Regarding Shelby: I just recently changed my registration back to GOP after six years as a libertarian, but if the GOP can't even fight something as clear cut as this, I'll just switch right back.
-luvthelp
There is an opportunity here to stick some well deserved shame onto the shameless.
Senator Obama's campaign has forced me to reconsider a number of my more idiotic beliefs. One of these idiotic beliefs is the idea that unity is good just because it isn't disunity. To seek unity or comity for the sake of avoiding divisiveness with a shameless opponent is to hand that opponent a cudgel with which he will kill you. The left is that shameless opponent.
The president has an opportunity to address the public via television as he did on the issue of funding embryonic stem cell research. He can show us a clear picture of who pays and who profits from any bailout. I suspect that President Bush is loath to single-out groups of Americans for having created this crisis, but the alternative of letting the left paint these profligate thieves as hapless victims worthy of a bailout at my expense is unacceptable.
If the number of people directly affected by upside-down mortgages and the inability to make their monthly notes is small, and if these people are the kinds of irresponsible handout seekers who vote democrat anyway, then do not let the democrats hit a "there but for the grace of God go I" homerun.
There but for the good sense of living within my means. . .
Maybe there's something I don't understand but the case against a bailout seems easy enough to make and I believe that it would have a great deal of traction with the american public.
In addition to pointing out who pays and who benefits I'd also like to see someone explain to the public that losing one's home is not the end of the world. There is no shame in renting. To hear some on the left talk about the situation, you'd think these people and their families are going to be living at the YMCA.
-exits
The lefty class warfare argument says that I should feel ashamed enough to support having my tax dollars spent on people shameless enough to live beyond their means or gamble big in the hopes of windfall profits so that these same idiots don't feel [unjustified] shame for having to rent.
I am convinced that it is time to fight fire with fire when it comes to class warfare. I am not advocating shame as an offensive policy tool, but somebody else's self-respect is not worth having the government use its force to steal the fruits of my labor and the savings I've made through prudence. If Senator Edwards wants to satisfy his will to power by advancing seditious "Two Americas" populism to shame us into redistributionism, then using shame to defend along the lines of "yeah--one for AMERICANS and another one for the worthless crybaby losers who couldn't measure-up" shouldn't be off the table.
I've been lukewarm about Senator McCain even though there is no danger of my not voting for him in November, but his comments about the credit situation last Tuesday has raised my hopes that he may be maverick enough to air some painful truths that we let fester out of a misplaced sense of decorum.
Come to think of it, I think shame would be a useful offensive tool in the War on Terror.
We'll never know will we....we've all just got to go along to get along. It's a new day of cooperation and "Bipartisanship, (read doing what the Democrats want) brought about by our new standard bearer!
All hail the new politics of respect and cooperation!
--"Faith is a free work to which no one can be forced. Nay it is a Divine work, done in the Spirit."--Martin Luther
John McCain is the only republican I've actually heard make the case against a bailout just as he was the only GOP presidential hopeful campaigning in Iowa against subsidies for ethanol production.
Contrast this with the White House which is just dying to cave in and spread the compassionate conservative love. McCain was a better conservative than Bush in 2000 and he's a better conservative today.
-exits
Just as "only Nixon could go to China," it will take a reputation for bipartisanship to address a number of "third-rail" political issues.
Senator McCain's remarks about irresponsible homeowners, his campaigning against ethanol subsidies, and his quixotic insistence on cutting spending during debate over the tax cuts give me hope.
I did not care for Senator McCain's criticism of Secretary Rumsfeld. Even though I know it is nowhere near this simple, the success of the surge tells me that Senator McCain was right and I was wrong.
The big question is which way he turns when the democrat primary mess ends and the MSM turn all their guns against him.
Perhaps it take a bit of distance to see it (I'm here as an interested bystander from England) but McCain is taking a remarkable consistent free-market line in his speeches, being very sound putting forward economic logic rather than pandering to simplistic prejudices. It strikes me that he may well be planning to take the straight-talk line to mean that he doesn't dodge these issues, that in other times candidates will duck away from.
Quite whether this is a winning strategy we won't know for a while, but in many ways it's the most conservative platform I've known, at least if free-market issues are your focus. Too often left-wing lies on these issues have been left to stand for fear of sounding heartless or pro-big-business.
Far from being weak on economic matters, he strikes me as talking more sense that nearly any other leading politician of recent years.
I'm not criticizing Johny Mac for his stance against the Bailout. I'm just sick of the "New Tone" crap from GWB and the overall stance of the Republicans in Congress that "you know, The Dems are going to get what they want anyway so we might as well join the stampede and take credit for it too!
I shouldn't have singled McCain out for this it pervades the entire Republican Party leadership!
--"Faith is a free work to which no one can be forced. Nay it is a Divine work, done in the Spirit."--Martin Luther
Briliant analogy...This says what I've tried to get my head around for years.
Senator Obama's campaign has forced me to reconsider a number of my more idiotic beliefs. One of these idiotic beliefs is the idea that unity is good just because it isn't disunity. To seek unity or comity for the sake of avoiding divisiveness with a shameless opponent is to hand that opponent a cudgel with which he will kill you. The left is that shameless opponent.
--"Faith is a free work to which no one can be forced. Nay it is a Divine work, done in the Spirit."--Martin Luther
I was confronted in person with the unity argument by an otherwise intelligent person three weeks ago. My response was to ask how we could achieve unity on an issue over which we maintained a fundamental, principled disagreement. I braced for being accused of wanting divisiveness, but the conversation abruptly ended. I like to hope that I broke the spell.
The lesson I took from this is that divisiveness is unavoidable so long as so many among us are willing to believe things that are simply not so. Heck, even if everyone were suddenly and magically capable of reasoning logically, understanding hard facts, and evaluating causal relationships, there is much about which we could differ.
If you rightly argue in good faith, then there is no shame in being in disagreement with somebody. I would go further to say that demanding agreement for agreement's sake is an underhanded tactic that needs to be called whenever it is used.
I meant to exclude the following from my comment:
Senator Obama's campaign has forced me to reconsider a number of my more idiotic beliefs. One of these idiotic beliefs is
and praise you for this comment:
...the idea that unity is good just because it isn't disunity. To seek unity or comity for the sake of avoiding divisiveness with a shameless opponent is to hand that opponent a cudgel with which he will kill you. The left is that shameless opponent.
I've always tried to come up with a way to say concisely that it's a huge mistake to agree to something you know to be wrong against an opponent that never stops pushing for more just so you can be nice because he will always beat you. You nailed it with that post.
Hope ya don't mind me plagiarizing it...cause I'm sure to repeat it at some point!
:>)
--"Faith is a free work to which no one can be forced. Nay it is a Divine work, done in the Spirit."--Martin Luther
and I am sure the plan is more detailed than what was reported in the story, however based on what I read this is more nonsense.
First, they will provide municipalities with money to buy up foreclosed properties and even to take on distressed loans. The biggest problem is the numbers. They are going to provide something in the neighborhood of 10 billion for this action. We are facing a real estate crisis and the Senate thinks ten billion will be anything but window dressing.
Second, they are going to re work the tax code so that struggling home builders will be able to see tax breaks quicker. Now, again, what the Senate is doing is rewarding irresponsible behavior. I was against it on the consumer side and I am no less against it on the business side.
Was it over when the Germans bombed Pearl Harbor
An quick and dirty estimate, but close enough for guvmint work.
I think that the deal presented on fox is just the opening salvo and no one really knows where it's going to end up. I'd be shocked if they only coughed up 10 billion.
Shelby may be a small government voice but he came in at #3 in the lastest pig book from CAGW. Racking up $465MM of earmarks in fiscal 08 does not a conservative make.
Let's not forget Shelby's roots...He was a Democrat and switched in 1994.
--"Faith is a free work to which no one can be forced. Nay it is a Divine work, done in the Spirit."--Martin Luther
And so the long slow march to Socialism continues...With Republican help no less.
The Keystone Cops of politics cave again and we all get the shaft. Party of less government my rosy red A__!
--"Faith is a free work to which no one can be forced. Nay it is a Divine work, done in the Spirit."--Martin Luther
....Fidel Castro's and Hugo Chavez's eyes, ears, and stooge in the Senate should be watched closely, and never, ever, have your back turned to him.
Remember the crocodile tears he shed publicly, in concert with Bianca Jagger, when Daniel Ortega lost the Nicaraguan elections.
You accord him a statesman's status when his real record falls more in line with Benedict Artnold's.