Obama may be looking at a big giveaway on the eve of this fall’s elections: mass reduction of outstanding principal debt on upside down homes. While I am averse by nature to big government interventions, this one has more to recommend than the earlier bank bailouts. After all, homeowners are probably, on the whole, net taxpayers. Further, mass indebtedness is encouraging walkaways and bankruptcies among people that would not, outside of this housing bubble, have done so.
But the problem is that this program treats the symptom and creates the roots of new, additional bubbles. It would force the government to incur additional federal debt to keep Fannie and Freddie on the gravy train. Like his health plan and his stimulus packages, itt puts off to tomorrow the need for deleveraging, which will take a decade or more. Finally, with massive unfunded commitments to social security and medicare, this measure would simply accelerate the day of a dollar/federal government default. This will be the day the music stops. Even with the ability to turn on the printing press, this kind of moving money in circles and irresponsible borrowing can’t go on forever.
Obama’s cynicism knows no bounds, I must conclude. This giveaway serves no real social end other than transferring wealth from the public at large to a small number of homeowners (and voters), some irresponsible, others less so. The inequities would be massive: those who have struggled heroically to keep up with obligations, those who put more money down and avoided second and third mortgages, less wealthy renters who have watched the bubble come and go, and those whose homes are paid off would all be paying to a class made up of both unlucky and improvident borrowers, some of whom bought homes they could clearly not afford with almost no money down at the height of the bubble.
Of course, it would be hypocritical to embrace the original bank bailout (which I opposed) while being against this. And as between the two, I’d prefer a bailout that stimulates and assists the average American versus international bankers. But we can’t be giving away a trillion dollars every other year without going completely broke as a country. And the worst aspect of all these bailouts is that everyone–including me–is becoming more and more cynical about the old fashioned rules of providence, moderation, and the identity of interests of business and the country at large. It’s becoming a predatory war of all against all, and the federal government’s largesse is the battlefield.