Effort to Stop Housing, Credit Bailout Plans Is an Uphill Battle

A battle for the hearts and minds of Americans has begun. No, I’m not taking about American Idol.

This battle is filled with arcane terminology, numerous moving parts and seemingly no clear “right” answer.

I’m speaking of course, about bailouts being proposed for homeowners and financial institutions. But before we talk about bailouts, we should ask ourselves these questions:

• Should we keep homeowners, who are stretched beyond their means, in houses they can’t afford?
• Should we let borrowers lose their homes and see what happens in the marketplace?
• Should we treat subprime borrowers differently than prime?
• Should we allow large financial firms to fail?
• Are we damaging capitalism, and thereby the economy by bailing out either group?
• Will our children shoulder a bigger tax and inflationary burden if we bail everyone out?
• Or will the situation be worse if we don’t?

The presidential candidates have carved out their public positions, reports The New York Times:

Sen. John McCain: Homeowners, you’re on your own baby, but bailing out Wall Street firms is okay.

Sen. Barack Obama: I’m going to take the middle road by helping borrowers in most need – the government should help refinance about 2 million mortgages. Tougher laws are needed.

Sen. Hillary Clinton: Hey, people are really hurting, so let’s help refinance about 2 million mortgages and get to work on even larger, more comprehensive bailouts. Tougher laws are needed.

It’s easy to find fault with these positions. For example, responsible homeowners are worried that bailout programs will eventually mean huge tax increases. Another concern: What good is it if Americans get to stay in homes if food and oil prices skyrocket as collateral damage from the bailouts?

But McCain’s position is equally troublesome because he seems to be supporting bailouts of the financial firms that created this mess at the expense of everyday Americans. With McCain backing unfunded tax cuts, our kids will again pay the price.

On the other hand, consider that McCain has positioned himself as a friend of greedy financial firms, while the two Democratic candidates are selling themselves as friends of average working Joes who just wanted a piece of the good life. If the Dems can get their acts together, who do you think Joe is going to vote for this time around?

It doesn’t matter if you think that’s wrong – it’s reality. Perception wins out in human affairs in general, and specifically in American politics.

Those who are against bailouts, then, are fighting an uphill battle. Newly created Stop the Mortgage Bailout recently sent me an e-mail to enlist my support. Here’s an excerpt:

We ask that you consider joining forces with us to stop the bailout. A band of bloggers against the bailout can be a powerful political weapon. Moreover, a united front will present a newsworthy story for the media. By banding together against this ill-advised bailout, we can be heard beyond the readership of our collective pages and make a difference. Together, we can present a stronger message than the sum of our individual voices.

While I commend and even support the effort, I wonder how many struggling Americans, who are unlikely to see beyond their kitchen walls, will join up? Worse, how many politicians are going to side against their constituents when they start complaining louder and louder?

Perhaps a better tack for dealing with bailouts is by offering alternative solutions that everyone can get behind. Here’s a rough sketch of a “bailout” that would put Stop the Mortgage Bailout in a more positive position:

• Create legislation that truly reforms the financial system by tightening leverage requirements. Eliminate or regulate the shadow banking system.
• Make usury credit card rates illegal. Tighten lending rules to prevent chronic abuse of Americans.
• Once and for all, create bulletproof mortgage lending rules that prohibits predatory practices. Lenders, mortgage brokers and real estate agents should have an inviolate fiduciary responsibility to their clients. Or, a neutral party should rule on whether each buyer can financially afford the home. Self-policing apparently doesn’t work.
• Commit to strategies that keeps people in their homes but rewards the financially prudent. Perhaps the government could offer guarantees or subsidies to financially-stable individuals wanting to buy up rental properties. Such a plan will keep homes occupied and provide a revenue stream to those demoralized by current T-bill rates. And by turning foreclosed homes into revenue generators, prices would stabilize more quickly.

I’m sure there are plenty of other great ideas out there that we can all get behind. In the meantime, I sincerely wish Stop the Mortgage Bailout the best of luck, because I as a taxpayer, do not want to be paying for all the poorly-crafted, politically-motivated plans out there.

Comments

[Pete Highland]

It is an uphill battle, but doing something is better then doing nothing. Contact your local reps and let'em hear your opinion. If you took the time to vote them in, take the time to tell them how to vote.

[Ross]

The problem with your analysis of McCain's position is that you seem to not be accounting for ANY importance in national security of our banking institutions.

You also seem to have ignored the fact by propping up the individual home owners circumstances are maintained where by nobody who doesn't own a home today will ever be able to own one because of the present disparity between home prices and personal income.

[brettdl]

Pete: I agree.

Ross: You're right, I didn't look at banking from a national security perspective.

On the second point, I tend to agree. I have written about that in the past.

[WhoAmIIAmWhoIAm]

Clinton, Obama are Wall Street darlings <- Title of recent article...If you know how to cut & paste:

http://www.latimes.com/news/nationworld/nation/la-na-wallstdems21mar21,1,1953804.story

Please reconsider your ideas and if you really want to represent men, please get a little reality in your head. Both political parties are horrible and clueless Americans keep the game going.

[brettdl]

WhoAreYou: Did I sound in any way supportive of either party?

[Richard Harris]

Let Supply and Demand work. Government keep hands off. Let the foreclosures occur. Drive housing prices down to an affordable level. Let the imprudent speculators pay. Nobody's going to raise a fuss when I end up on Welfare because of exhorbitant housing prices.