Back in March, Dean Baker of the Center for Economic Policy Research wrote a paper about the effects of the type of bill that the Senate is voting on this week. Not only will the bill be a backdoor bank bailout, but it will actually be harmful to many of the people it purports to help. Here is his conclusion:
The proposals currently being circulated to have the government buy up or guarantee mortgage debt for homeowners facing foreclosure are likely to benefit banks more than homeowners. Under proposals similar to the one developed by OTS, most homeowners aided by the plan would never accumulate any equity in their home. Furthermore, they would be paying nearly twice as much in monthly housing costs for the period that they stayed in their homes as if they rented a comparable unit. While this proposal does little to aid homeowners, it could lead to the transfer of billions of dollars, or even tens of billions of dollars from taxpayers to banks.Everybody thank Senator Chris Dodd and Congressman Barney Frank for the bank bailout.
The current housing crisis was allowed to develop because those in positions of responsibility somehow failed to see an $8 trillion housing bubble. This bubble created an average of $110,000 in housing bubble wealth for every homeowner in the country, hugely distorting the housing market and the economy. It would be unfortunate if the same people who were responsible for this massive failure were allowed to compound the economy’s problems with ill-conceived bailout plans that ostensibly are designed to help homeowners, but really only benefit banks and other mortgage holders.