The Bitter Bill

We did not need yesterday’s dismal report on existing home sales (they fell more than expected) or today’s new home sales report to inform us that the US real estate market is the center of the recessionary/slowdown vortex. In truth, most of the economic and credit issues that are creating havoc for Americans emanate from the rotten housing market, which is why the House passage of the housing bill this week has been in the works for seven months. Who knows whether or not it will help, but ultimately, it is a bitter bill for responsible taxpayers to swallow.

The bill itself is a pot luck effort, filled with so many ingredients that it is impossible to cover them all in one article. The major highlights include something for every irresponsible party affected by the housing and credit crises, as well as some provisions that are aimed at helping the housing industry itself. (Note: the costs cited are estimated over ten years): $5.3 billion in low-income housing; $4.6 billion in tax-credits for first-time homebuyers; $3.9 billion in grants to allow states to buy foreclosed homes; and FHA insurance for up to $300 billion of home loans at a cost of $729 million. The bill will also give Fannie Mae and Freddie Mac a new regulator, financed by the lenders themselves. As a result of the bill, lawmakers had to raise the national debt ceiling to $10.6 trillion from $9.8 trillion.

The bill now goes to the Senate, where it could face tougher opposition, but is expected to pass. Considering that President Bush has withdrawn his veto threat, it looks like the taxpayers will be on the hook for the housing mess in a big way for many years to come. I am choking on the bill not just because it is so obvious that Congress and Federal regulators were perfectly content to sow the seeds of the problem and help their wealthy friends along the way, but because as they pat themselves on the back on the passage of the bill, they continue to frame issues in simplistic and often false ways.

I get frustrated when I talk about this mess, which is why I was told to “keep it down” when getting into a lively debate over dinner. A friend said that the people who “did” this should be punished. “Did what? You don’t mean to suggest that evil lenders were forcing borrowers to assume mortgages? Or that Wall Street salespeople begged clients to buy higher yielding securities? For every transaction, there were two willing participants, both of whom were succumbing to the greed of the day.” (This is when I was unceremoniously “shushed”.)

There is so much blame to go around in this turmoil that it is hard to know where to start. At every step along the way, there were decisions that required people--lenders, borrowers, lawmakers, Wall Street executives, Wall Street clients--to weigh the perceived risks involved in the transaction at hand. When things were going well, all of the parties erred on the side of being overly optimistic and took what can now be seen as reckless actions. (There were some illegal excesses, which should be remedied by existing fraud provisions.) Overall, greed trumped judgment, for everyone involved and now we are ALL paying the price.