It seems that the White House has tried everything they can to keep housing values from dropping to a historically-rational level.  They have blocked foreclosures, offered gimmicky tax breaks that did nothing but steal demand from future quarters, and spent tens of billions on HAMP.  All of these came from the Obama administration’s emphasis on the unfairness of bailing out Wall Street while doing nothing about Main Street and the individual homeowners who got stuck with bad bets on real estate.

Now, however, Bloomberg reports that Barack Obama will widen the eligibility for taxpayer-subsidized rescue programs to the speculators that Democrats routinely demonize in every other context:

The Obama administration will extend mortgage assistance for the first time to investors who bought multiple homes before the market imploded, helping some speculators who drove up prices and inflated the housing bubble.

Landlords can qualify for up to four federally-subsidized loan workouts starting around May, as long as they rent out each house or have plans to fill them, under the revamped Home Affordable Modification Program, also known as HAMP, according to Timothy Massad, the Treasury’s assistant secretary for financial stability. The program pays banks to reduce monthly payments by cutting interest rates, stretching terms, and forgiving principal. …

Investors are central to the federal government’s strategy for reviving real estate with home prices down 34 percent since July 2006 and as foreclosures deplete the pool of buyers who can qualify for a mortgage. Federal Reserve Chairman Ben S. Bernanke told homebuilders in Orlando, Florida last month that the U.S. economic recovery has been “frustratingly slow,” in part because weak housing markets are holding back consumer spending.

The homeownership rate, which peaked at 69.2 percent in June 2004, fell to 66 percent in the fourth quarter of 2011, according to the U.S. Census Bureau. A new Fannie Mae program designed to reduce the overhang of foreclosed homes is encouraging potential buyers, including private-equity firms, to purchase properties in bulk and convert them to rentals. Almost one in four home purchases in January was made by an investor, according to the National Association of Realtors. And investment and vacation properties made up 21 percent of houses in the foreclosure process in January, according to Irvine, California-based RealtyTrac Inc.

In my column today for The Fiscal Times, I point out that these owners were making business investments, not buying homes to shelter their families, and that Obama now wants responsible taxpayers to indemnify these speculators for their irresponsible behavior:

At least the rationale for government intervention on behalf of individual homeowners made political sense, if not fiscal or market sense.  The federal government, with backing from congressional Democrats, had encouraged individuals to buy rather than rent, and distorted the market so that they could get mortgages that their families couldn’t afford.  Even though individual homeowners should think of their houses as investments – and investment carries risks – it became bad politics to remind people of this simple fact over the last three years.

That, however, does not apply to speculators.  They didn’t buy houses to shelter their families; they bought them specifically as investments, and were rewarded with handsome profits in the bubble they helped fuel.  Those investments carried significant risks, and reversals in this field are hardly unprecedented, as anyone who lived through the collapse of the real-estate market in Southern California in the late 1970s would recall.

What possible reason could there be for taxpayers to subsidize the losses of people who treated real estate as a speculative investment market and bet badly?  Most of these taxpayers acted responsibly in buying their own homes or choosing to rent rather than overextending their finances.  Obama proposes to penalize people who acted responsibly by making them cover the losses of those who acted irresponsibly, and who as a group profited handsomely from those bets until the bottom fell out in 2008.

Further government intervention to rescue irrational home values created by previous government intervention is a fool’s errand in any case.  However, asking taxpayers to rescue speculators sounds like “Flip This Bailout.”

I also point out that the Case-Shiller index for the 20 largest housing markets has dropped below the level when Obama first came into office, and is at its lowest since late 2002.  That, however, is exactly what should be happening.  We need housing to fall back to rational valuation, which would be roughly the 1998-99 level plus inflation over the past 14 years, as housing values until then strongly correlated to overall inflation.  Instead, Obama wants to be seen as the President who saved home values no matter how irrational they are at the moment, and is spending a fortune in that attempt — and sticking taxpayer dollars into the pockets of those (as a group) who profited from the bubble and played no small part in its inflation.

We don’t need more government intervention to fix what government intervention broke in the first place, and we certainly don’t need responsible homeowners to pay off the losses of real-estate speculators.  Flip This Bailout should be canceled before its pilot airs.