Housing Rescue Bill - Cost to you? only $25 Billion
July 24, 2008
I have recently written several articles about my support for the Housing Rescue Package that passed with resounding support in the House of Representatives and escaped the threat of Veto from President Bush.
I believe it is an important piece of Legislation that does 2 important key things to add support to the ailing housing and credit markets.
It creates badly need liquidity in the credit markets by permanently lifting the dollar amount of mortgages that can be repurchased by Fannie Mae and Freddie Mac and expands the federal mortgage insurance program allowing up to $300 Billion in insured loans by the GSE’s (government sponsored private entities).
Second, the Bill provides for $3.9 Billion in grants to help states or local governments buy and demolish or rehabilitate foreclosed properties.
Opposition was strong in many Republican camps arguing to block grants on the grounds that “the principal beneficiaries of this type of plan would be private lenders – who are now the owners of the vacant or foreclosed properties – instead of struggling homeowners who are working hard to stay in their homes.”; Fear of the public mentioning the dreaded “bailout” is not something Republicans ever mention or want to hear.
I argued that this is not a Democratic issue or a Republican issue. This is an American issue. I believe that we could face a prolonged recession and economic crisis. A scenario that that the Government needs to act quickly to avert.
Even Republican nominated Treasury Secretary, Henry Paulson said about the theory of such a quick and strong move by the Federal Government is , “(the bill is) of a magnitude more important to turning the corner on the housing correction and supporting our markets and our economy”.
Even more resounding statement came from Rep. John A. Boehner, R-Ohio, the minority leader who voted against the Bill, and “It’s a bill that I cannot support. However, It’s a bill that the market clearly needs ..”
However, I received a variety of criticism and backlash which as you know, I always welcome and encourage.
The main and understandable point of contention is what the ultimate cost to the good paying US Taxpayer.
Best estimates are that this will cost the Federal Government (meaning you, the Tax payer) a minimum of $25 billion.
Other detractors commented that the cost to the Treasury, and the American taxpayer, could reach 100 billion.
The House of Representatives’ Republican whip Roy Blunt objected to what he said would be “a 300-billion-dollar bailout of mortgage lenders, allowing them to offload their worst loans onto the Federal Housing Administration. ” and stated unequivocally that he “believe rewarding, encouraging and reinforcing risky investments should not be the role of the government — and certainly shouldn’t be financed by taxpayers,” Blunt said.
There is little doubt that this legislation will be costly to tax payers. I agree it is not our responsibility to bailout business and consumers at every turn and for every decision that turns out unexpectedly.
However, I still believe this is more than a financial issue that could spiral to a National Crisis if the government fails to act. And I do believe the Government has some role in protecting our national interests personally and financially.
Events have transpired and conspired in an unprecedented way that no one could have imagined to cause a financial calamity. An economic disaster. A Financial ‘Perfect Storm”.
The government must act.
However, the question is fair, “At What Cost??”
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Copyright © 2008 By James Wexler, All Rights Reserved. *Ranking Arizona - *Housing Rescue Bill - Cost to you? $25 Billion*
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4 Responses to “Housing Rescue Bill - Cost to you? only $25 Billion”
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While i am anti government interference in most matters, the potential outcome could be too great for the government not to act.
I’m a regular commenter, and NOT in the US (I’m in England.)
The problem that the markets are seeing with the “bailout bills” isn’t so much that it’s costing you $25bn… but that it’s costing you $25bn YOU DON’T ACTUALLY HAVE.
US Government debt is way past unsustainable levels, to the extent that it’s hard to read the markets now without seeing more investor round the world believing that the US Government might have to default. (Or push up inflation so high the dollar completely tanks.)
Either would basically cripple the ability of US Consumers to buy imported goods - oh, and the knock-on effects on the rest of the world wouldn’t be great either.
The Bailout Bills might still be the “least bad” option though!
The passage of this Bill is an affront to much of what capitalism represents.
The business cycles that represent the build up of markets, then the
subsequent purge of the weak and ineffective is a bedrock of our economy.
By tweaking it in the manner of providing capital to the clueless, we are setting
a bad precedent for the future. There will be no ‘risk capital’, only riskless
investing and an inflationary spiral that will make Zimbabways inflation
look familiar. Caveat emptor, on this one.
By the by…how do we explain this to renters who chose to balance desire
with purse, and wait for The American Dream?
I agree that bailing out Frannie and Freddie sets a bad precedent….however the simple truth is Frannie and Freddie are as Rep. Al Green, D-Texas put it, “too big to fail.”
There are two evils here….neither of which is acceptable. It’s a matter of choosing the least damaging of the two. There can be little doubt a bail out package in some form is necessary. Fannie and Freddie back or own nearly half of all US mortgages, worth about $5-trillion. Without passage of this bill the housing market will be in turmoil for years to come and countless families will face untold hardship.
The choice is pretty clear…. Pay a lot now….or pay a lot more for years to come. Not a good situation all around.
David Langford
Windsor, Ontario, Canada