Finally, the Bush Treasury Department has hit on a good idea. According to this morning’s Washington Post, the Treasury is planning to intervene in the mortgage market directly, purchasing mortgage-backed securities on new loans if the lending banks lower their rates to 4.5 percent. Because the program could be financed by government bonds issued at 3 percent, the government might even make some money while it achieves its primary purpose of getting the housing market moving again. This is a good idea…and not only because I have to re-finance next year!
The collapse of the housing market is what triggered the credit crunch which brought on the general sense of economic panic. People had ridiculously optimistic expectations of housing values continuing to rise and the titans of Wall Street devised mortgage schemes to ride the wave. Those expectations are not coming back anytime soon and the lending practices that recklessly encouraged the housing bubble without making provisions for what to do when the bubble burst are likewise in the rear view mirror. So, stimulating the housing market will not lead to craziness anytime soon but will take away some of the fear that has gripped so many homeowners.
This proposal is also fair. Anyone can re-finance, so those who did not enter into risky mortgages, those who had ample savings to negotiate the economic downturn, they will not be left out in the cold. The problem with rescuing only those facing foreclosure is that it did nothing for the next door neighbor who took on a second job to meet her mortgage payments.
How many banks need to participate for it to work? One. During the Cold War, strategists asked how many American troops needed to be stationed in Europe to deter Soviet aggression and the answer was, "Only one, but you have to make sure he was killed on the first assault." If one bank starts offering mortgages at 4.5 percent, they all do.
George W. Bush has been morphing into Herbert Hoover before our eyes. And Treasury Secretary Hank Paulson still seems not to grasp the importance of accountability: When congressional oversight committees or the press ask what the banks have done with the billions he gave them, he seems surprised at the question. He certainly didn’t evidence any anger when the recently bailed-out AIG sent its corporate executives on a flashy weekend retreat at a resort. Finally, they have brought forth a proposal that captures what should be the essence of government intervention in the economy - a healthy dose of democratic egalitarianism with a great deal of oversight by elected officials.