With his economic policies on housing failing for the past year, Barack Obama has decided to double down on postponing the inevitable. In order to stem the coming tide on foreclosures, Obama has come up with the notion that banks should simply stop getting paid for their loans, at least for those people out of work. This child-like solution will mean that Obama will subsidize even more mortgage payments:
The Obama administration plans to overhaul how it is tackling the foreclosure crisis, in part by requiring lenders to temporarily slash or eliminate monthly mortgage payments for many borrowers who are unemployed, senior officials said Thursday.
Banks and other lenders would have to reduce the payments to no more than 31 percent of a borrower’s income, which would typically be the amount of unemployment insurance, for three to six months. In some cases, administration officials said, a lender could allow a borrower to skip payments altogether.
The new push, which the White House is scheduled to announce Friday, takes direct aim at the major cause of the current wave of foreclosures: the spike in unemployment. While the initial mortgage crisis that erupted three years ago resulted from millions of risky home loans that went bad, more-recent defaults reflect the country’s economic downturn and the inability of jobless borrowers to keep paying. …
Officials said the new initiatives will take effect over the next six months and be funded out of $50 billion previously allocated for foreclosure relief in the emergency bailout program for the financial system. No new taxpayer funds will be needed, the officials said.
In other words, those who are unemployed now will have further incentive to stay on unemployment, although in this tough job market, incentives really aren’t that big of a problem. The $50 billion may not be new, but if it hasn’t been spent yet, it’s still money going out the door to subsidize other people’s mortgages instead of being used to pay down the nation’s debt. In a tough economy, responsible homeowners can rightly wonder why they will wind up being punished economically for making the right decisions. Robin Koerner makes that argument at The Moderate Voice:
If I had not been so responsible, Obama’s plan (I still cannot quite believe it) would have given me (via my bank) YOUR money, humble tax-payer, as a gift to reduce my mortgage, and I would have gained to the tune of many thousands of dollars.
However, because I did the responsible thing, MY tax money will be going to help those who were in exactly the same situation as I, but weren’t responsible enough to live within their means and meet their obligations, perhaps because they bought a bigger car than they needed, were paying interest on credit cards they shouldn’t have been using, or whatever…
How dare the government do this? How dare they? This isn’t capitalism. It isn’t even communism. It is some upside down, messed-up mediocracy. …
So now, not only will I be subsidizing the procreative choices of others that I, out of my own sense of basic responsibility (Thanks Mom) will not make, but also, my wealth will be transferred directly to a subset of them for the particular purpose of bailing them out of exactly the same situation that I had to bail myself out of – and was only able to do so precisely because I have been so careful to live within my means and save what I could for an emergency.
Obama’s supporters will give two answers to this argument. One, they will say that we need to provide a safety net to those less fortunate, and that the action plan will rescue the housing values of all Americans by limiting foreclosures. The second argument is false, since we haven’t been limiting foreclosures at all; we’ve merely been postponing them, and not doing that terribly well, either. The $50 billion will get spent and most of the homes that benefit it will still get seized, which is about the clearest example of throwing good money after bad one can get.
As far as the “less fortunate” and safety nets argument goes, most Americans agree on providing basic safety-net programs for the poor and disabled. We don’t agree on providing them for people who took risks and chose poorly in doing so. It creates a moral hazard where bad decisions come with no consequences, and therefore more bad decisions follow. Better to let people fail and remain free to learn from their mistakes than to cocoon them from the consequences of their actions. Instead, Obama proposes to do exactly what got us into this problem — floating money on even more debt to artificially inflate the housing markets for just a little while longer.
Call it bad money after bad.
Update: Did the Washington Post change its headline to soften criticism of the White House?