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  • More Than Roof Missing from House Housing Plan

    The Washington Post has a decent editorial today titled “Holes in the Roof” on Rep. Barney Frank’s (D-MA) Housing bailout plan still snaking its way through Congress. Leaving aside the fact that the Post low balls the cost of the bill (the $1.7 billion they cite does not include another $1 billion in administrative and counseling costs), they do identify the core flaws of the bill:

    In terms of systemic risk avoided, the bill may be oversold. Mr. Frank’s program is voluntary, and, while banks might find it an attractive way to shift their worst credit risks to the government, owners of mortgage-backed securities are hardly clamoring to take him up on it. There’s almost nothing in it for the holders of securities backed by second liens, a common feature of subprime loans. To be sure, the more home prices drop, the more lenders would participate, but that would leave the U.S. government on the hook for shakier loans, thus driving up the program’s eventual cost.

    But even this description is too kind. In plain English this bill:

    The Post concludes: “No doubt the sprawling, subsidy-riddled housing market is in a lot of trouble. So far, it’s less certain that Congress can figure out a way to fine-tune it.” Instead of fine-tuning, how about Congress just gets out of the Housing business all together.

    Posted in Economics [slideshow_deploy]

    4 Responses to More Than Roof Missing from House Housing Plan

    1. Laurence, Denver says:

      Problems with these types of bail outs (briefly):

      -They affect natural market forces by decreasing consumer risk adversion disproportionately… resulting in increased pricing for legitimate borrowers

      -Banks are rewarded for taking inappropriate risks on poor borrower propoects… Their downside liability is subsidized by Americans thru tax payer dollars and increased private market borrowing costs.

      -Costs associated with Administrating this bill is passed directly to the American tax payer.

      -Entitlement attitutes are enhanced because of this bad precedent… This will also raise tax payer costs associcated with other entitlement programs

      Summary… Americans need to take care of themselves and this variable rate mortgage crisis needs to be solved where it began… at the contract level between the bank and the consumer. Let them work the problem out… not the government.

    2. Lee Waldo Cocoa Flor says:

      Taking responsibility for one's own action is the beginning of growing to adulthood. It should start early and become a part of an individuals lifestyle and extend into the business world as a natural occurance.

    3. Lee Waldo Cocoa Flor says:

      If you are going to moderate my comments then correct my spelling at the same time.

    4. Pingback: NixGuy.com » Culture of Corruption 2008

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