Wednesday, February 20, 2008

Government and the Housing Bubble

via Housing Bubble Blog

[Former President Bill] Clinton [explained] his wife's plan.... "She wants to freeze monthly payments for 90 days, and give $30 million to states," in order to implement a bailout plan.

"We'll tell the mortgage companies: you eat 20 percent, we (the government) will eat 20 percent, you won't foreclose on these people," he said. "When you're in a hole, you quit digging."

First of all 20 + 20 is something less than one hundred (I don't have time to work it out here,) so Mr. Clinton is clearly not referring to the entire cost of the program. Could he be suggesting that banks just drop loan principal amounts by 40 %? That doesn't sound right, either. I think the metaphor "once you've dug a hole, find someone to bury in it" might be more apt.

Now, as Dan'l Webster said, a strong conviction that something must be done is the parent of many bad measures. However, government's clearly going to have some role in mitigating the mass homelessness and joblessness resulting from the Greenspan Housing Bubble. But, we can't just step in and start covering mortgages -- those loans were made by bad actors, and they've got no business getting bailed out by the taxpayer.

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