August 6, 2010

Mortgage Forgiveness Horror

Ed Morrissey has a piece at Hot Air today about an Obama August surprise:

Rumors abound about how the government is going to force Fannie Mae and Freddie Mac to forgive mortgage principal of underwater mortgages to the tune of $800 billion. That is indeed a horror on so many levels I don't even know where to begin.

Quickly though;

1. Can America really afford another stimulus bill? And I mean bill in terms of payments. This is slightly bigger than the original stimulus bill (ARRA). The answer is no. It couldn't afford the first one and this back door attempt to solve the country's economic trouble by throwing money at it is obscene. The wallet is empty, the credit cards are maxed out and here is the President applying for more credit cards. That's no way to run a country, unless you want to run it into the ground.

2. Will this be any more effective as a stimulus measure than the relatively useless ARRA? No. Forgiving a portion of a loan will not stimulate the economy. It is debt relief for those in over their heads and relief for the institutions on the hook for those loans. Those people affected will not spend that relief value elsewhere - they will tread water. And those who want to spend it away will likely be turned down for additional credit because unlike the government, banks have had some sense knocked into them and aren't lending like they used to lend. They at least, have discovered caution.

3. It continues the trend of nationalizing failure by rewarding those who took on too much risk. If there is no risk in the economy then it is doomed. Failure prunes the bad decisions just as success rewards good ones. That's what makes capitalism work efficiently. Intervention twists that model. The bigger the intervention the more the distortion. Banks who lent too much and consumers who borrowed too much are being given a get out of jail free card. If there isn't a Monopoly "community chest" versus community organizer tie-in there, I am Yosemite Sam.

4. This is an attempt to buy votes this fall. The ugliness of its brazenness and vulgarity of it's excess, is topped only by the horror of the possibility that it might work. That could mean two more years of damage to the economy and liberty at a cost of more debt. I know many of you will be unfazed by the offer, even if you might be affected by it. But what about those on the bubble people in swing states like Ohio? Relief is a big incentive for some. The smart thing to do would be to take the money and run - accept the relief and then turn off the source of such continued relief. But that may not happen. Many people who aren't looking at the big picture will see it as Obama looking out for them. News flash - he's looking out for himself.

5. In some sense this propagates a real estate bubble. Confidence in a forgiveness scheme might just drive further similar behavior in the future. That alone could prove as catastrophic as previous bubbles.

This is just scary bad stuff.

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