Tomorrow, the House will consider a massive housing bill that not only forces taxpayers to guarantee over $300 billion in new home loans for troubled borrowers, but also includes an unprecedented bailout for the trillion dollar mortgage giant Government Sponsored Enterprises (GSEs), Fannie Mae and Freddie Mac. This package is being rushed to the floor without having any hearings or markups on the matter, and will likely come up under a rule that limits debate and precludes amendments.
Many opposed the core housing bill because it would bailout big banks that made risky bets in housing by forcing 95 percent of Americans (those who rent, own their own homes outright, or are on time with their mortgages) to bail out the other 5 percent (those who are near or in foreclosure). The bill now also contains $4 billion in new CDBG spending for local communities to buy foreclosed properties, which would do nothing to help struggling homeowners, as well as imposes a backdoor home mortgage tax to fund a housing slush fund for leftist housing activist groups, like ACORN and La Raza.
Most troubling, though, is a GSE bailout that could put taxpayers on the hook for as much as $5 trillion dollars worth of risk – an amount larger than the economy of every single country in the world except the United States or China. The bailout would give Fannie and Freddie an unlimited line of credit from the U.S. Treasury and force the taxpayer to buy equity in the companies to help further prop up their stock prices. In the worst case scenario of these companies completely failing, taxpayers would see the $9.5 trillion national debt explode by 50 percent in an instant. Though a complete implosion is unlikely, all of the so-called experts have said the same thing about every other aspect of the current housing market turmoil. In essence, we are now being asked to allow the GSEs to privatize their profits but socialize their losses.
Newspapers across the political spectrum have questioned the desirability of this kind of GSE bailout, from the Wall Street Journal to the New Yorker. Even the Washington Post has editorialized that the bill would “potentially increase the very risks [the] plan is intended to mitigate,” and asked “wouldn't it be wiser to revamp the whole GSE structure, rather than construct an increasingly elaborate apparatus to address -- or conceal -- the fact that it no longer works very well?”
Given their massive market exposure, I don’t believe that we can allow Fannie and Freddie to fail. However, the fact remains that there are other alternatives out there. If Congress is forced to use taxpayer funds to bail Fannie and Freddie out today, we must take all the necessary steps to make sure we never, ever force taxpayers to do it again by making sure they are not too big to fail tomorrow and in the years ahead. To do that, the only true reform is to transition Fannie and Freddie – over a reasonable time period – to truly private companies without special government privileges by phasing out their GSE charters and exposing them to the discipline of a competitive marketplace in the conforming loan area.
I will be introducing legislation that does just that, winding down the charter of either GSE over a five year period pursuant to their accessing any expanded borrowing authority by the Treasury or at the Fed’s discount window. My bill will also call for either company to be placed into receivership if they are unable or unwilling to make the tough choices and get their financial house back in order.
Instead of simply rubber stamping this flawed bill, there are alternative legislative vehicles that would help address the problems we are facing in the housing markets Financial Services Committee Ranking Member Spencer Bachus introduced the “Homeownership Protection and Housing Market Stabilization Act,” which contains language to create a new GSE regulator, modernize the FHA, and combat mortgage fraud. Rep. Scott Garrett has introduced, the “Federal Housing Finance Regulatory Reform Act,” which is a standalone version of the Senate-passed GSE reform bill to ensure the safe and sound operations of the GSEs minus the bailout, the troublesome Housing Trust Fund, and some additional spending unrelated to the GSEs. Additionally, many Members have chosen to support the RSC’s Economic Growth Act, which would add needed liquidity to the market and promote long-term economic growth by allowing full and immediate business expensing, reducing the top corporate income tax rate from 35 percent to 25 percent, ending the capital gains tax on inflation, and simplifying the capital gains rate structure.
There are five trillion reasons why we ought to take our time to consider this bill and all of the possible alternatives to it instead of hurriedly cramming it through on top of an already flawed housing bill. Taxpayers have the right to expect a serious, long term solution rather than a quick fix that puts them on the hook today and keeps them there tomorrow.
As a Renter
JoeH July 22nd, 2008 at 2:19 p.m. (link)
I'm a renter, not because I cannot afford a mortgage, but because I'm not at the point in my life where I'm ready to accept the responsibility for that debt.
As such, I find the idea of covering for people who made poor decisions with tax payer funds outrageous. If a co-worker moved into a house twice the size of yours, you wouldn't offer to pay half his mortgage, you'd tell him is was a stupid idea and he should get out ASAP.
This same sentiment holds for everyone I know who has struggled to pay their bills. My family home was lost when I was in college, and it would have been beyond the pale to ask others to take our responsibilities for us.
I hear you
Next93 July 22nd, 2008 at 2:42 p.m. (link)
Well Joe, I couldn't agree more. I'm at the other end of the continuum, I a homeowner who's making my mortgage payments on time.
The idea that I need to also be paying someone else's mortgage because they got a loan they couldn't repay is just about enough to make me want to start throwing tea into the harbor and rounding up the minutemen. This is about the worst version of socialism I can think of; shared risk without shared rewards.
The Obamasiah says that Americans deserve a government who's response to the mortgage crisis is more than "you're on your own". I say that we deserve a government that leaves us alone to pay our own mortgages and ONLY our own mortgates.
Oh, and anyone who claims to be the victim of a "predatory lender" is a lying sack of excement. There must be three different forms (maybe four in some states) that you sign at the closing, telling you specifically how long you will be paying your loan, how much you will be paying at the start of the loan, how much it can go up, how fast it can go up, and what you will pay over the life of the loan. These are not dense lawyer-friendly documents, they're clear, striaghtforward, and essentially impossible to misunderstand.
Anyone who manages to get through a closing without seeing those forms is too stupid to be living on thier own.
"You can't save the Earth unless you're willing to make other people sacrifice" - Scott Adams (speaking through Dogbert)
Personal responsibility
allison04 July 22nd, 2008 at 3:57 p.m. (link)
What do earmarks for ACORN and other favorite pet projects have to do with bailing out companies that made bad loans and people who took on debt they could not afford. When we moved to our current house, I was advised that we could afford more house. Luckily, we did not spend more. By the time the annual tax increases are paid, we would not be able to afford the house we purchased.
I am amazed that these special earmarks make it into larger and only marginally related bills. The line item veto or ethical legislators would help avoid this practice.
No mortgage bailout!
Vegas_Rick July 22nd, 2008 at 2:46 p.m. (link)
Period! As I've said before on this site, I am one of the dummies with an alt-A mortgage. I made the wrong decision at the wrong time.
I just called my Representative, Congressman Jon Porter to tell him I expect him to vote "NO!" on the mortgage bailout bill tomorrow. I suspect I wasted my breath. He has a 47% rating from Club for Growth and votes for every big government bill the Dems generate. 2010 can't come soon enough for this guy!
Those who control energy, control society.
Bail out?
IndependentfrMI July 22nd, 2008 at 2:49 p.m. (link)
We heard the Mortgage Cos advertising, no job verification, no income verification and no residency verification, now we hear they need bailouts. People must live within their means and the Feds need to learn to live within our means. I sturggle to make ends meet and do without to provide for family and yet I'll have to pay more taxes to bail out companies that use creative (deceptive, unlawful) methods of selling and finiancing. The government uses taxpayer monies like it is their personal bank account, enough is enough. When faultering companies are allowed to fail others will spring up in their place if there is a market for it. If there is a bailout will the taxpayer get the profits of said companies since it is their money used for the bailout? If it isn't it should be illegal. What if we used congressmen's salaries to pay our taxpayer debts.
Preaching to the Choir Sir, but…
Marcus_Traianus July 22nd, 2008 at 3:09 p.m. (link)
The very attractiveness of GSE’s is the implied government guarantee. Otherwise anything they securitize would be just another market issue. In this finicky financial environment, pulling that implied “guarantee” would be disastrous. Therefore, Mr. Paulson is embarking upon the right path; but Congress needs to do its part. In that regard sir, you are absolutely correct. This middle of the night, no amendment band aid, and legislative giveaway serves no one but certain political constituencies. Once again, we the people get to pay.
Our government has for years dabbled in these organizations and missed numerous opportunities for reform (see 2004 accounting scandals; remember how Armando falcon was treated by Congress?). The problem is that Congress, not the banks, has caused a substantial amount of these issues by perpetuating the current structure and yielding to Fannie/Freddie influence.
In the 109th Congress there were some real common sense proposals put forth in HR 1461 (passed the House) which were either watered down or stalled. The Bush Administration was at the forefront, warning as early as 2005, this current GSE structure could endanger our financial system. They actually asked for stronger regulation and a cut in ridiculous 5% of GSE profit, “affordable housing” (see sub-prime) mandate. There were also recommendations to phase out Fannie/Freddie lines with the Treasury (the amendment failed in the House, not one Democrat and 2/3 Republicans did not vote for it – You did), stop the Fed from buying their debt, reduce their residential holdings, eliminate their income tax exemptions and transition their business model. Gee, that would have been timely had it started 3-4 years ago.
You have always been a fighter on this issue and that is highly laudable. As a long term veteran of our financial industry I say keep plugging way and we have your back.
"Nec Aspera Terrent" bene ambula et redambula Contributor to The Minority Report
To late.
Pi Over Three July 22nd, 2008 at 5:15 p.m. (link)
We already bailed out mortgage companies.
I don't think we should be bailing out either, but since we are already bailing out the banks, and in a huge way, we need to help the struggling homeowners as well.
To not do so would morally bankrupt.
The big lenders pay people 6 or 7 figure salaries to estimate risk. They were clearly counting using government welfare to soak up any losses, and then erred on the side of more risk for more profit.
Individual homeowners don't have this available to them. Hell, they (including me) don't even have the financial education to make an informed decision.
Have you added to the population of the McCain 2008 minicity yet today?
I drive a car powered by hydrogen - C8H18 to be exact.
Responsibility, the lost virtue
gandolphxx July 22nd, 2008 at 5:38 p.m. (link)
"A democracy cannot exist as a permanent form of government. It can only exist until a majority of voters discover that they can vote themselves largess out of the public treasury." - Alexander Tyler (in his 1770 book, Cycle of Democracy)
With the mortgage bailout, the 'stimulus I & II and the democrats plans for the next cycle I fear that we will learn the truth of this quote.
50% of us pay 97.5% of the taxes and yet the cry is to pay more to bail out folks who were irresponsible and lenders who were stupid.
Responsibility also means being responsible...
woodsman July 22nd, 2008 at 8:04 p.m. (link)
I think it is time for the House and Senate to start thinking about the bills as if they were using their own personal money and not ours. The recent efforts to throw money at situations lacks any sort of credibility and frankly I'm starting to get more than a little annoyed at the pace of injecting debt into the economy.
Any suggestion to privatize the suspect firms should be considered only with a clear cut goal in mind with ramifications for those signing up for this.
There has to be a no nonsense recourse for those who contribute to this plan. The sole variable missing from the equation is those who want responsibility should be responsible. The majority of people follow this tenant and I think it's reasonable to ask for this in return.
If I make a poor judgement, I pay for it. If the House or Senate makes a poor decision...who pays for that?