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:
- Bails out huge irresponsible banks like Countrywide Financial that are desperate to pass along their worst loans to the federal government.
- Bails out only the most irresponsible homeowners since banks will refuse to refinance those loans that have the best chance of being paid back.
- Encourages already financially troubled government sponsored entities to act even more irresponsibly.
- Will do next to nothing to actually held the economy.
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.