Morning Bell: End Crony Capitalism

Conn Carroll / August 18, 2010

At 300 East 23rd Street in the exclusive Gramercy Park neighborhood of Manhattan, where to get into parts of the park you need a key granted just to residents, a new 98-unit luxury apartment complex has been built with an outdoor movie theater and panoramic city views. The problem is that not enough buyers are coughing up the $820,000 to $3 million the project’s developers are asking for the privilege to own a unit in the building. But don’t worry, the Obama administration is coming to the rescue. Last December, the Federal Housing Administration loosened its financing rules so that U.S. taxpayers would have the honor of backing loans with downpayments as low as 3.5%. Now rich Manhattanites can better afford condos in buildings with pet spas, concierges and rooftop lounges like the one in Gramercy Park, all on the taxpayers’ dime.

You read that correctly: the FHA, created in 1934 to make homeownership attainable for low- to moderate-income Americans, is now subsidizing Manhattan luxury condominiums. How did we get here? The mindset that allowed this unconscionable public policy to occur was on display yesterday in Washington, where Treasury Secretary Timothy Geithner hosted his Future of Housing Finance symposium. While Secretary Geithner promised “fundamental reform” of our nation’s housing policies, he also insisted that the federal government must continue to play a strong role in U.S. mortgage markets: “There is a strong case to be made for a carefully designed guarantee in a reformed system, with the objective of providing a measure of stability in access to mortgages, even in future economic downturns.”

Geithner was not asked if FHA’s backing of Manhattan luxury condos fit his definition of a “carefully designed guarantee in a reformed system,” but American Enterprise Institute fellow Alex Pollock was there to at least throw some cold water on Geithner’s central-planner arrogance: “You can either, in my view, be a private company or a government agency — one or the other, but not both.” (more…)