Though the Democrats won the recent battle over President Obama’s trillion dollar “stimulus” plan, conservative opposition remains critical. Why? More of the same is on the way.
First, the president is set to push through another bank bailout. Second, Obama will soon approve the “Homeowner Affordability and Stability Plan,” which will
1) Require responsible homeowners to pay the mortgages (up to $728,750) of irresponsible homeowners (contra the “Affordability” portion);
2) Reward irresponsible lending institutions in a myriad of ways for renegotiating rates with borrowers that the lenders knew couldn’t afford the mortgage payments;
3) Allow bankruptcy judges to rewrite mortgage contracts between lenders and borrowers (undermining the “Stability” portion) ; and
4) Double the taxpayer capital injection (to $400 billion) into Fannie Mae and Freddie Mac, the esteemed institutions of fiscal constraint that are partly responsible for our economic woes.
Here’s what the American People get in return:
1) Nothing. Only a small number of homeowners are eligible: those who secured their loans through Fannie or Freddie, or those whose lenders securitized their loans through Fannie or Freddie. Most homeowners get nothing, except getting stuck with the bill.
2) Another bad-mortgage bailout in the future. Historically, about 50% of homeowners who renegotiate failing mortgages end up defaulting on the new terms.
3) Redistribution of income. The plan redistributes income from 92% of mortgage-holders who responsibly pay their bills on time to irresponsible, reckless defaulters who promised to pay more than they could afford. Some taxpayers will pay more in taxes so that others can pay less for housing.
4) Continued deteriorating economic conditions. The plan will produce mortgage-backed securities based on debt that exceeds the value of the underlying assets—precisely part of the foundation for the current economic trouble.
5) More market instability. The bankruptcy law modifications are particularly troublesome. This abrogation of private contracts undermines the certainty of loan agreements and threatens the availability of credit and market stability.
Worse, only the bankruptcy law rewrite requires Congressional approval, as most of the funding will come from TARP money. I don’t know what this is, but it isn’t responsible, and it isn’t democracy. Continued, articulate opposition on behalf of conservative solutions is necessary between now and the 2010 midterm elections, or there will be more of this for years to come.