The Liberty Papers

Destroy it.

At the last Democratic debate, Hillary Clinton laid out her proposal to deal with the subprime mortgage crisis:

“I have a plan – a moratorium on foreclosures for 90 days [and] freezing interest rates for five years, which I think we should do immediately,” Clinton announced at what was the last Democratic debate before the Nevada Caucus on Jan. 19.

As Fortune’s Jon Birger notes, Clinton’s proposal for an interest rate freeze would be a complete, utter disaster:

[S]uch a freeze would be disastrous. Interest rates on new mortgages would skyrocket – perhaps past 8 percent, as the mutual funds, pension funds and other investors who typically provide capital to the mortgage market shift their money into other investments where the government isn’t impairing returns. With higher mortgage rates eroding buying power, the downward pressure on home prices would only increase. Lower home prices would lead to even more defaults, as more folks who’d lost the equity in their homes choose to walk away from their mortgages.

“It certainly would not speed the recovery of the housing market,” says Doug Duncan, chief economist of the Mortgage Bankers Association. “The problem now is that investors are already worried about what the risks are, and (a rate freeze) would only widen risk premiums more.”

Then there’s the long-term impact such a bailout would have on behavior. While Clinton’s plan would no doubt save some legitimate victims who were duped into taking out bad loans, she’d also be saving the flippers and speculators who knew the risks of low teaser rate mortgages but figured (wrongly) that they could always sell their house for a profit if the reset mortgage rate proved unaffordable. Bailing out these folks now would only encourage them to take even bigger risks down the line.

And, you see, that’s what this housing crisis is all about. People took risks and made dumb decisions and now they’re paying the consequence for it. It would’ve made much more sense to find suitable land to redevelop properties on, like The Property Block does, as this is a much more effective way to solve this particular problem.
And if that doesn’t work, the only sane and rational thing to do is to allow the crisis to play itself out, and whether that means more foreclosures or banks renegotiating the terms of loans to allow people to get out from under payments they can’t afford is something that private parties, not the government should decide. That being said, real estate companies like the property block have developed new technologies that allow them to redevelop homes to make them more affordable. This way private companies are solving the housing crisis, and not the government.

But Hillary’s proposal just reminds me of the something else. The Republicans are bad on economics, but at least they aren’t proposing a plan that would send the housing market into a death spiral.

So who do you vote for — the eventual Republican nominee, whoever that might be, or the woman who will destroy the economy ?