Paul Krugman has a great column in today's New York Times (http://www.nytimes.com/2007/12/10/opinion/10krugman.html?_r=2&hp&oref=slogin&oref=slogin) that looks at George W. Bush's mortgage bailout proposal and finds it sadly lacking in many ways, not the least of which is that lenders are the main beneficiaries. Are you surprised? I am not - it is typical of Bush to not give a damn for the average citizen while floating a smoke screen to give the appearance that he is dong something. Here are highlights form the column:By Bush administration standards, Henry Paulson, the Treasury secretary, is a good guy. He isn’t conspicuously incompetent; and he isn’t trying to mislead us into war, justify torture or protect corrupt contractors. But Mr. Paulson’s actions reflect the priorities of the administration he serves. And that, ultimately, is what’s wrong with the mortgage relief plan he unveiled last week.
The plan is, as a Times editorial put it yesterday, “too little, too late and too voluntary.” But from the administration’s point of view these failings aren’t bugs, they’re features. In fact, there’s a growing consensus among financial observers that the Paulson plan isn’t mainly intended to achieve real results. The point is, instead, to create the appearance of action, thereby undercutting political support for actual attempts to help families in trouble.
In particular, the Paulson plan is probably an attempt to take the wind out of Barney Frank’s sails. Mr. Frank, the Democratic chairman of the House Financial Services Committee, has sponsored legislation that would give judges in bankruptcy cases the ability to rewrite mortgage loan terms. But “Bankers Hope Bush Subprime Plan Will Scuttle House Bill,” as a headline in CongressDaily put it. As Elizabeth Warren, the Harvard bankruptcy expert, puts it, “The administration’s subprime mortgage plan is the bank lobby’s dream.” Given the Bush record, that should come as no surprise.
There are, in fact, three distinct concerns associated with the rising tide of foreclosures in America. One is financial stability: as banks and other institutions take huge losses on their mortgage-related investments, the financial system as a whole is getting wobbly. Another is human suffering: hundreds of thousands, and probably millions, of American families will lose their homes. Finally, there’s injustice: the subprime boom involved predatory lending — high-interest loans foisted on borrowers who qualified for lower rates — on an epic scale. The Wall Street Journal found that more than 55 percent of subprime loans made at the height of the housing bubble “went to people with credit scores high enough to often qualify for conventional loans with far better terms.” And in a declining housing market, these victims are stuck, unable to refinance.
But Mr. Paulson’s plan is entirely focused on reducing investor losses. Any minor relief it might provide to troubled borrowers is clearly incidental. And it is does nothing for the victims of predatory lending. Relief is restricted to borrowers whose mortgage debt is at least 97 percent of the house’s value — which means that in many, perhaps most, cases those who get debt relief will be borrowers who owe more than their house is worth. These people would be nearly as well off in financial terms if they simply walked away. And what about people with good credit who were misled into bad mortgage deals, who should have been steered to loans with better terms? They get nothing: the Paulson plan specifically excludes borrowers with good credit scores.
Still, you might say that the Paulson plan is better than nothing. But the relevant alternative isn’t nothing; it’s a plan that — like Barney Frank’s proposal — would actually help working families. And that’s what the administration is trying to avoid.
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