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  • Morning Bell: Hey Hey, Ho Ho, the Housing Slush Fund Has Got to Go!

    Anticipating legislative action on a bailout for Fannie Mae and Freddie Mac in the House tomorrow, the White House reaffirmed a veto threat Monday if the proposed package includes a money for state and local governments to buy real estate. Speaker Nancy Pelosi responded, “Let me get this straight. The president is asking us to do something quite significant on the housing crisis, and he is going to prevent local government from buying up these properties?”

    Pelosi’s statement exemplifies the mentality on the left that makes it essential conservatives and President Bush stand firm on the $4 billion in grant money: liberals refuse to do something for the good of the nation (shoring up the financial system) unless they get something in return (a $4 billion slush fund to dole out to their political allies). It is exactly this sense of entitlement that got us into this current mess, and it must end if we ever hope to make sure this doesn’t happen again.

    The most important thing to remember in this housing debate is that the government is the cause of, not the solution to, this housing crisis. Fannie Mae and Freddie Mac were not founded by enterprising American capitalists. They are government-created relics of the New Deal and Great society. They are leftovers from an era when giant government entities seemed essential to achieving social goals. Fannie and Freddie exist to create liquidity so that lenders can make more home loans. The current crisis was caused because money was so cheap it was too easy for lenders to make many bad loans.

    Conservatives have been fighting to eliminate the systemic risk Freddie and Fannie pose for years. But Freddie and Fannie have long been protected by liberals in Washington, and the companies built a lobbying machine that co-opted many non-profit “housing advocates” such as ACORN (Association of Community Organizations for Reform Now) to solidify their political muscle. As a result, the companies have a long history of beating back regulators looking to curtail their bad practices.

    But Fannie’s and Freddie’s nefarious histories with housing non-profits are not the only reasons conservatives should stand firm on the elimination of the $4 billion slush fund from a housing bailout. The Washington Post editorial board explains:

    Our main problem with the proposal is that it may give lenders a perverse incentive to foreclose. Ordinarily, the costs and risks of foreclosure, including the risk of getting stuck with unmarketable properties, force banks to avoid foreclosure whenever they can. But that deterrence will be weakened if state and local governments suddenly appear on the scene with almost $4 billion to spend on homes that have been foreclosed on. This would not be a concern if the plan were restricted to properties that had been foreclosed on prior to its adoption, but it does not have such a restriction. Without that limitation, the plan shouldn’t pass.

    The long-term goal for conservatives is to eliminate Fannie and Freddie entirely. There simply is no need for the government to pass a housing subsidy through semi-private, for-profit corporations that expose the taxpayers to $5 trillion in potential liabilities.

    Quick Hits:

    • Iraqi insurgents have nearly ceased their once-constant attacks on U.S. convoys with only 1.5% of convoys attacked last month compared to 20% during some months in late 2006 and early 2007.
    • The Ford Motor Co., responding to consumer demand and not government mandates, is about to drastically alter its focus to building more small cars.
    • The European Union began crucial global trade talks Monday with an offer of reducing its farm tariffs by 60% — the highest figure it has yet offered — in a challenge to developing countries to make concessions.
    • According to Rasmussen Reports, 68% of Americans are confident in the stability of the U.S. banking system, even as Treasury Secretary Henry Paulson says more banks in this country are likely to fail.
    • Also according to Rasmussen Reports, 44% of Americans believe reporters are trying to help Sen. Barack Obama win compared to only 14% who believe reporters are trying to help Sen. John McCain win.
    Posted in Ongoing Priorities [slideshow_deploy]

    6 Responses to Morning Bell: Hey Hey, Ho Ho, the Housing Slush Fund Has Got to Go!

    1. Michael J O'Bri says:

      Below is a copy of a letter I sent to Senator Jim DeMint of S.C.

      Senator Jim DeMint

      340 Russell

      United States Senate

      Washington, D.C. 20510

      July 18, 2008

      Subject: Housing Bills

      Corrected Copy

      Dear Senator DeMint:

      I am a banker with 30 years experience in most aspects of banking; Money Center domestic, International Banking, Savings Banks and Savings and Loans.

      I listened to your comments the other day on Fox regarding the housing bills. I agree that the Fannie Mae and Freddie Mac open line of credit begins the final step of nationalizing the housing market. We are marching towards Karl Marx’s utopia.

      The Freddie and Fannie bail out does little to solve the systemic problems in both these GSE’s. The system requires a complete overall, possibly placing these GSE’s in receivership, a full restructuring [break up] and completely privatize. These firms in reality are no longer needed. Should the congress and Treasury not resolve the problems we will be negligent by passing the problem to the next generation. In a normal course of business when a business entity begins to go bad, most lenders DO NOT LEND their way out of the problem, lending 101. It never succeeds.

      The $300 bn bail out for owners and lenders is another mess. Consider this: 99% of all homes purchased prior to 2001 are occupied. Home built after 2001 are 82% occupied. There is an over supply of housing, as such demand will not catch up with supply until price resets and the market comes into equilibrium. Having borrowers who took out way to much house and unqualified mortgages rewards people for misbehavior. Keeping prices above where they need to be only artificially inflates the overall market and extends the problem. The solution will be painful for some folks.

      This bill also rewards CountryWide for bad lending practices. Borrowers who had bad credit backgrounds and either falsified or provided no documentation will now be rewarded. This is certainly a move towards the government taking over the housing market. The taxpayer will ultimately pick up the tab for these people, while 97% of all other mortgagors pay their mortgage on time. Please note the following news wire regarding Romania.

      Romania's president rejects new property law, says nation must return confiscated property

      Canadian Business Fri, 18 Jul 2008 11:52 AM PDT

      BUCHAREST, Romania (AP) – Romania's president is refusing to sign a law that he says represents a "reconfiscation" of property seized by the communists.

      We are marching towards a society where home ownership is becoming an entitlement. The socialist think so and look where it got them

      Finally, Senator Dodd received a most favorably rate from CountryWide. He is sponsoring the housing bill that greatly benefits CountryWide. Is there not a conflict here? The American people are not that stupid.

      I can provide you with detail why these bills are flawed, and will have NO impact other than negative on the economy and the taxpayer.

      Please keep up the great work on behalf of the American people.

      Sincerely,

      Michael J O’Brien

    2. Vicki Eilenberger, L says:

      I hope the Republicans do not cave in on this but stand strong. This would be right up Comrade Obama's liberal, socialistic alley. If the Dems can delay this hoping to have the executive branch in their already bulging pockets we're on the road to more invasive government control.

    3. Danny Fla USA says:

      We have had several great people pass through our fingure tips, who have seen the Energy, the houseing, and the decline of jobs, brougth on by plans, that leave people out of a way, to obtain a living, and afford practical shelter. Now it is food, that is not only unhealthy with Irradiation,- Genetically altered unknowns,and the list seems never ending. Why are we strugling in This Great Country, and who do we thank for disease, and a lower standard of life?We don't need these things, and we certainly don't need anymore freedom ,taken away.

    4. Joe in Texas says:

      I am an outsider with no qualifications so I won't be encumbered by preconceived notions. The devil is in the details. Fanny Freddy Mac May are undesirable but what would make the industry operate? How does one get unstuck? Between the horns?Let the free market work.

    5. Pingback: The Democrats’ $4 Billion Slush Fund

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