President Obama will travel to Phoenix this afternoon to give a speech on home ownership, mortgages and the role of Fannie Mae and Freddie Mac. The White House hasn’t released a text of the speech yet, although we do have this fact sheet. My initial response is that this is as tone deaf as the president using an Amazon.com distribution center as the embodiment of “middle-class jobs” (although, as the Seattle Times’ Brier Dudley wrote, this may not have been a coincidence). The last thing Phoenix needs is a presidential boost to its pathological and unsustainable dependency on sprawl house-building, which sent the metro economy into a full-out depression when the bubble burst and faces an uncertain future because of climate change and water. The president could bring this huge but limited city a national laboratory, a billion in research dollars for Arizona State University or a new contract for Boeing’s helicopter plant in suburban Mesa — one of the relatively few well-paying nodes in an otherwise low-wage, housing-dependent economy. But more housing? It’s like standing outside an AA hall and intercepting first-time meeting-goers with a case of booze.
There’s also the unfortunate specter of the president’s failure to help average Americans even as Wall Street was bailed out by taxpayers. The Home Affordable Modification Program was intended to help as many as 9 million struggling house owners modify the terms of their mortgages. But the program has reached about 880,000 people. One big problem has been foot-dragging by the banks.
As I read the new proposal, if that’s the right word, the president wants to continue Fannie and Freddie, at least for a time, but under a different business plan. And then make a transition to a mortgage market based entirely on private capital.
We need a rock-solid foundation for financing homeownership with a bigger role for the private sector, where taxpayers aren’t on the hook for the irresponsible behavior or bad decisions of financial institutions and we finally put an end to an era where Fannie Mae and Freddie Mac could expect a bailout for risky behavior in pursuit of profits
The longshoreman/philosopher Eric Hoffer wrote that “every great cause begins as a movement, becomes a business, and eventually degenerates into a racket.” This is certainly true of Fannie and Freddie, Depression-born programs that for years steadily and honestly provided guarantees for much of the mortgage market. Once deregulation and easy Fed money created the housing bubble, Fannie and Freddie were enablers — although they were late to the big profits Wall Street raked in from subprime mortgages bought from the likes of Washington Mutual and then bundled into securities and sold to investors. The racket collapsed, but reform has been halting at best. The bust eviscerated about 40 percent of the wealth of the average household.
Now nobody likes Fannie/Freddie and most want the government out of the mortgage-guarantee business (see the debate here). But how that affects the ability of many Americans to afford a house is an open and controversial question. Mr. Obama’s plan will likely get no further than gun control after Newtown or “comprehensive immigration reform.” And while I don’t doubt his goodwill, this “middle-out economics” misses a key point. The American Dream is not owning/flipping a house. It is opportunity amid responsible liberty. From an economic perspective, it means better jobs, better wages and widely shared gains. In other words, the America I grew up in, before it was whittled away, policy by policy. But I suppose that’s just nostalgia.
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Today’s Econ Haiku:
Woodward, Bernstein, Graham
Exposed a president’s lies
How will Jeff play it?