From today’s newspaper, a recent piece of completed legislation, bill H.R. 3221: Foreclosure Prevention Act of 2008 is described as
… the most aggressive intervention by the government into the housing market in more than a generation, perhaps since the New Deal….
The enactment of the legislation comes in the same week that the administration announced that Mr. Bush would leave behind a record $482 billion deficit, which will probably grow substantially if home values continue to decline and if there are further reductions in corporate and personal income as many economists are forecasting for the rest of the year. Because of the growing deficit, Democrats said, the debt ceiling had to be lifted regardless of the housing bill.
The new housing law includes a plan aimed at helping as many as 400,000 homeowners pay off their troubled mortgages and replace them with more affordable, government-insured loans. The program is voluntary and the lenders must agree to take a sizable loss, reducing the principal of each loan, before they can be refinanced.
David M. Walker, the former comptroller general of the United States and head of the Government Accountability Office who is now president of the Peter G. Peterson Foundation, said that Mr. Bush might have been unwise to sign the measure.
“Providing authority to the secretary of the Treasury to extend credit or to buy stock is one that will end up costing the taxpayers tens of billions of dollars.” …
Mr. Walker noted that other government interventions in the private market, including a rescue of the Chrysler automobile company had provided an opportunity for taxpayers to profit. But when it comes to the mortgage giants, he said, there is no upside.
“The way this is structured,” he said. “It’s only a matter of how much the taxpayers are going to lose.”
Source: Sweeping Housing Bill Signed by Bush, from NYTimes.com, emphasis and links added.
I agree with Mr. Walker: this bill is financially unwise. Do we really expect the Government to save us from our own foolish mistakes? We are the government. We, the people.
A word on the time that the U.S. Government saved Chrysler:
The Chrysler Corporation on 7 September 1979 petitioned the United States government for US$1.5 billion in loan guarantees to avoid bankruptcy. …
The United States Congress reluctantly passed the “Chrysler Corporation Loan Guarantee Act of 1979” on 20 December 1979, prodded by Chrysler workers and dealers in every congressional district who feared the loss of their livelihoods. The military then bought thousands of Dodge pickup trucks which entered military service as the Commercial Utility Cargo Vehicle M-880 Series. With such help and a few innovative cars, especially the invention of the minivan concept, Chrysler avoided bankruptcy and slowly recovered.
By the early 1980s, the loans were being repaid at a brisk pace and new models … were selling well.
So, what is the proper role of government?