Friday, February 06, 2009

The Republicans' stupid mortgage plan

Republican economist Ed Glaeser says Republicans have a stupid mortgage plan:
It is particularly disappointing to see Senate Minority Leader Mitch McConnell embrace "providing government-backed, 4% fixed mortgages to any credit-worthy borrower" as his alternative to the Barack Obama/Nancy Pelosi stimulus package. ...

Since lenders have recovered their sanity and are once again requiring appropriate down payments, buyers are more constrained by the need to come up with 20% of the purchase price than they are by interest rates. Today's down-payment requirements and low interest rates suggests that mortgage markets are working well and have little need for governmental "help." ...

Subsidizing mortgages is an idea from the New Deal, not the Republican playbook. Fannie Mae and the Federal Housing Administration were set up by liberal Democrats to encourage borrowing. Subsidizing interest rates appealed to big-government interventionists because the expense is kept off federal balance sheets, at least for a while. The true costs of Fannie and Freddie were long shrouded, despite the efforts of some Republican senators. Likewise, the full costs of subsidizing 4% mortgages will appear only over time, as the government is put on the hook for default after default. ...

We are in the ruins of a housing market made worse by subsidized lending. The government has no business egging people on to borrow as much as possible to bet on housing prices. There is plenty of room to criticize the current stimulus plan, but Republicans need to adopt Ronald Reagan or Dwight D. Eisenhower, not Harold Ickes, as their intellectual role model.


  1. It is the height of hypocrisy for Free Market true believers to support subsidizing borrowers through tax law and lenders through bail-outs.

    Allow housing prices to be determined by use value, not resale value (speculation).

  2. "USE VALUE"!?!?! OMG! What will that do to homes in PWC and even in West Virginia? That will surely decimate the Case-Shiller index, and we can't have that now, can we?

  3. When are the banks going to loosen up, this is crazy. They get infused with cash and hold it all, still not lending.

  4. VP said...
    "When are the banks going to loosen up, this is crazy. They get infused with cash and hold it all, still not lending."

    As blogger/economist Rebecca Wilder points out, "lending falls in recessions, silly."

  5. Think about it for a second... Would you lend money to a friend of yours who is upside down and owes more than what he started with?