I try to keep politics away from this site, but reading this editorial on Hillary Clinton’s plans for fixing the forclosure problem made my skin crawl. Populist idea’s that will save a small part of the population tend to punish everyone else. That is the law of unintended consequences.
Well Hillary’s plan is so dangerous that the pro Clinton Fortune Magazine wrote this editorial.
Hillary’s modest proposal (to wreck the housing market)
I have a plan – a moratorium on foreclosures for 90 days [and] freezing interest rates for five years, which I think we should do immediately,” Clinton announced at what was the last Democratic debate before the Nevada Caucus on Jan. 19. A 90-day moratorium on foreclosures would throw a lifeline to some deserving homeowners, though I suspect it would only delay the inevitable for most. That’s not my beef.
Where Clinton goes awry is her proposal to freeze mortgage rates for five years, which is essentially a much broader version of a deal President Bush recently hammered out with lenders to assist some subprime borrowers. If Clinton’s only goal were to bail out homeowners facing steep rate resets on adjustable mortgages, her plan would work just fine.
For everyone else though, such a freeze would be disastrous. Interest rates on new mortgages would skyrocket – perhaps past 8 percent, as the mutual funds, pension funds and other investors who typically provide capital to the mortgage market shift their money into other investments where the government isn’t impairing returns. With higher mortgage rates eroding buying power, the downward pressure on home prices would only increase. Lower home prices would lead to even more defaults, as more folks who’d lost the equity in their homes choose to walk away from their mortgages.
If you are worried about avaialble capital being diverted driving mortgage interest rates up, shouldn't you be much more concerned (even crazy) with $2 billion per week being diverted to pay off an inane war somewhere out there in the future. Surely delaying the jump in varriable rate mortgages couldn't do that much harm and would ease the minds of millions of hard-working americans caught in predatory lending practices.
We have bailed idiotic businesses with poor to criminal business practices out of the tar pit before (resolution trust). When are we going to start bailing out the citizens of this country trying to make a living and achieve tha American dream?
These lenders that are defaulting on their investors can liquidate their losses in the corporation by dilution of stock or selling assets to foreign investors.
This is not a Clinton, red or blue issue. It is about subsidies, it is about a parity of treatment with corporate interests.
This is a good synopsis of what might happen. Let the markets work. Any government interference only prolongs the hangover or develops into serious unintended consequences.
I agree with you Michael.
I don't understand why they aren't figuring out a way to fix the foreclosure problem.
It is the main reason our economy is tanking.
I would much rather go that way, then be forced to borrow massive amounts of money from the Saudi's, Korea, China, etc.
They are putting our entire country in debt, to save a group of investors that trusted the same unscrupulous lenders that the borrowers did.
Tit for Tat.
I am tired of watching my property, as well as people I care about, having the value tanking.
$800- in tax savings?
I would rather give that up, have the foreclosures stop, and save $40,000- in equity that I will be losing.
I am truly concerned, after hearing Paulson yesterday, about his competency – seriously worried.
He is starting to make Bernanke seem smart – not a good thing.
The reason they aren't figuring out the foreclosure problem is because the government shouldn't get involved in free markets. They create unintended consequences that usually makes things worse.
House prices went way too far. The only way this will be fixed is either home prices drop or home prices stay stagnant for several years until inflation catches up.
I also think we shouldn't be so quick to blame the lenders. I have a good friend who was a mortgage broker. I say was because he tried to do what is right for folks. Potential clients would meet with him hoping to buy a house way beyond their means. My friend would tell them they couldn't afford it. What did these people do? They went to another broker down the street who gave them what they want.
Now these people are getting what they deserve. This is America where personal responsibility is the cornerstone of our country. We need to take care of ourselves, not look to the government for help.