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Morning Bell: Another $275 Billion Down the Drain

Posted By Conn Carroll On February 26, 2009 @ 9:00 am In Economics | Comments Disabled

The House of Representatives is set to vote on a bill today [1] that would round out the legislative authority necessary for President Barack Obama to institute his $275 billion mortgage bailout plan [2]. Taken together the plans three main components (enabling some select borrowers to refinance their loans through Fannie Mae and Freddie Mac, enabling other select borrowers to modify their loans at the cost of taxpayers and lenders, and changing bankruptcy law to allow mortgage cram downs) will bailout the most irresponsible borrowers, raise the cost of borrowing for honest and prudent home buyers, and do nothing to stop the inevitable and necessary correction in housing prices.

  • Bailing Out the Most Irresponsible: [3] Obama’s mortgage bailout bestows new and costly benefits on those who took on more debt (including credit cards, auto loans, and mortgages) than they could handle. Worse, the value of the benefits vary in direct proportion to the degree borrowers were financially irresponsible. Borrowers with as high a debt service payment to income ration of 55% will be eligible for the taxpayer bailout.

For over a year, first the Bush Administration and now the Obama Administration [8], have been throwing billions of taxpayer dollars at a problem that does not have a big, invasive, government solution. The road back to economic prosperity lies in an honest assessment of our future spending liabilities, cutting spending, and not raising the tax burden on the American entrepreneurs who have always been the true source of our economic growth. [9]

Quick Hits:


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URL to article: http://blog.heritage.org/2009/02/26/morning-bell-another-275-billion-down-the-drain/

URLs in this post:

[1] set to vote on a bill today: http://news.yahoo.com/s/ap/20090226/ap_on_go_co/mortgages_bankruptcy

[2] $275 billion mortgage bailout plan: http://www.iht.com/articles/2009/02/18/business/19housing.php

[3] Bailing Out the Most Irresponsible:: http://www.heritage.org/Research/Economy/wm2311.cfm

[4] the mortgage cram down provisions would create additional risks for lenders who will be forced to compensate for that risk by making new mortgage rates more expensive for future home buyers.: http://www.heritage.org/Research/Economy/wm2310.cfm

[5] largely confined to just five states: http://www.cato-at-liberty.org/2009/02/24/the-foreclosure-five-dominate-case-shiller-price-indexes/

[6] few borrowers will qualify for Obama’s bailout: http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/02/22/MN4R1621N4.DTL

[7] re-default rates on mortgages that have already undergone mortgage modifications: http://www.cnbc.com/id/28115624

[8] first the Bush Administration and now the Obama Administration: http://www.foundry.org/2009/02/09/the-seven-floats-of-the-bush-obama-borrow-bailout-parade/

[9] an honest assessment of our future spending liabilities, cutting spending, and not raising the tax burden on the American entrepreneurs who have always been the true source of our economic growth.: http://www.heritage.org/Research/Budget/wm2309.cfm

[10] $318 billion tax hike: http://online.wsj.com/article/SB123559630127675581.html

[11] a new $112 billion tax: http://www.washingtonpost.com/wp-dyn/content/article/2009/02/25/AR2009022503360.html

[12] According to Gallup: http://www.gallup.com/poll/116107/Americans-Reject-Sequel-Auto-Bailout.aspx

[13] threatening the rebuilding and stability in Iraq.: http://www.nytimes.com/2009/02/26/world/middleeast/26reconstruct.html?ref=todayspaper

[14] American households with kids: http://www.usatoday.com/news/nation/census/2009-02-25-families-kids-home_N.htm

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