George W. Bush Channels Richard Nixonby Doug Mataconis
Back in the 1970s, Richard Nixon decided to solve the inflation crisis by arbitrarily freezing wages and prices. Today, President Bush will announce a plan to address the subprime mortgage crisis that pretty much does the same thing with interest rates:
President Bush will announce this afternoon an agreement with major mortgage firms to freeze interest rates for five years for financially troubled homeowners — a plan advocates say will help forestall a major foreclosure crisis but some conservatives say amounts to a bailout of people who made bad financial decisions.
The plan would apply to homeowners who got adjustable-rate subprime mortgages between Jan. 1, 2005, and July 31 of this year and are facing a sharp jump in their rates before July 31, 2010. It would also offer to put them on a fast track to refinance their mortgages through lenders or through state and local housing authorities, according to several people briefed on the matter who spoke on condition of anonymity because the deal has not been officially announced.
Eligible homeowners are those with enough income to pay their mortgages at lower rates but not so wealthy that they could afford the increase in monthly payments. The plan would be offered only to people who live in their homes, an effort to exclude real estate investors and speculators.
This is a bad idea on so many levels it’s hard to know where to begin. As I’ve noted before, a large share of the blame for the what’s happened in the subprime mortgage field specifically, and real estate in general, can be narrowed down to two things. First, for far too long Americans believed not only that housing prices would continue to rise, but that they would continue to rise at the rates that, in retrospect, were clearly historical aberrations. Second, and partially because of the irrational exuberance in the housing market, individual homeowners were purchasing homes they couldn’t afford and entering into loan transactions that, frankly, were unwise. When the housing bubble popped, it’s no surprise at all that people who were living on the edge to begin with starting falling into default and, eventually, foreclosure. Now that the economic chickens have come home to roost, Bush wants to re-write the rules.
Some people, it seems, are noticing:
Darren McKinney, 48, a renter in the District, said he has been waiting for housing prices to fall so he can buy a condo without resorting to a dubious loan. He turned down an opportunity to buy his 600-square-foot apartment for $310,000 in late 2004 because he thought it was “absurdly overpriced.”
Now the government is rewarding people who made irresponsible decisions and bought homes beyond their means, he said.
“There are those of us who purposely sat on the sidelines during the course of the last three years while the senseless frenzy was going on, and we presumed the free market would be allowed to correct itself,” McKinney said. “The government is now meddling in the market and looking to prop up lenders and borrowers alike, and those of us who wisely bided our time get screwed.”
You and the economy, sir.