BUSH'S PLAN TO PEE ON ECONOMIC FOREST FIRE

BY MICHAEL LINN JONES

I knew this was coming, like some movie where there is a bad dream that comes true the day the dreamer wakes up.

MORTGAGE RATE FREEZE REACHEDby Martin Crutsinger, AP economics writer, is one such story that may as well not come true at all.

WASHINGTON - Hundreds of thousands of strapped homeowners could get some relief from a plan negotiated by the Bush administration to freeze interest rates on subprime mortgages that are scheduled to rise in the coming months.

"There is no perfect solution," President Bush said Thursday as he announced an agreement hammered out with the mortgage industry. "The homeowners deserve our help. The steps I've outlined today are a sensible response to a serious challenge."

Bush has been accused of moving too slowly to address a crisis that has spread to the broader financial market. But he also was careful not to sound as if he were imposing a government solution and violating his free-market principles. He billed his plan as a voluntary, private-sector arrangement that involves no government money.

"We should not bail out lenders, real estate speculators or those made the reckless decision to buy a home they knew they could never afford," Bush said after meeting with industry leaders at the White House. "But there are some responsible homeowners who could avoid foreclosure with some assistance."

SNIP,

This offer would apply only to people living in their homes and who have not missed any payments at the lower rate. It also only would apply to loans taken out between 2005 and this past July 30 and scheduled to rise to higher rates in 2008 and 2009.

Atrios has some comments in NOT GONNA DO ANYTHING:

People who qualify:

have an income and live in their homes
are currently making their payments on time

would default if their interest went up
Also:

ARM mortgage has to have been taken between 1/05 and 7/7
Has a rate reset between 1/8-1/10

And you don't qualify if:

have missed payment
can afford mortgage rate increase
don't have an income
own homes which are worth less than their mortgage
The last one is the kicker, as it kicks out the class of people who might actually be able to refinance on their own.

I became increasingly skeptical that such a broad-based bailout would be workable for various reasons, but as is usually the case with anything the Bush administration gets involved in, they aren't even really trying.

Jame Joyner of OUTSIDE THE BELTWAY also has a piece, MORTAGE COMPANIES TO FREEZE "TEASER" RATES. He makes a very good point:

Duncan Black contends that stipulations in the plan will actually have the perverse impact of helping those who need it least, since to qualify your must still be worth at least the amount borrowed. Then again, it also excludes those who can “afford” to pay the higher rate, which is simply bizarre. If government is going to bail people out for poor choices, then it should be done on an equal basis.

I couldn't agree more with Mr. Joyner. Either let the so-called "free market" make its correction or help everybody out who is stuck with what is now known to be a lemon.

In the 1920's there were many who partook in buying stocks on margin. It was a great bubble as long as it lasted but the day came when that bubble burst and many people lost their shirts. This time it's subprime mortgages, a mess so badly handled that the perpetrators of the schemes are totally lost themselves.

What is NOT needed is another Jackson Square Moment whereby the President of the United States stands up, talks tough, looks tough......and does nothing more than offer a bowl of pudding that looks nice but tastes like......well, not pudding, anyway.

By saying that there are SOME "responsible" mortgage holders, President Bush reminds me of Herbert Hoover stating in 1932 that the "deserving" poor would not be allowed to starve.

That implies that the "undeserving" poor could just learn to boil bark from trees I suppose. And this "great" move by the president and Secretary Paulson is another window dressing that solves nothing. It addresses nothing.

All it does is show once again that our first M.B.A. Commander-in-Chief knows as much about the real economy of America as he does about matters military.

Mr. President, with all due respect one does not go into a room of post-party alcoholics and offer them near-beer. Either they dry out or grab a fresh supply of booze.

Your proposal, sir, is a half-step to nothing.
********************************
Cross-posted at Michaellinnjones.com

*****Reuters has picked up this post...