This was the rumor last week. It sounds laughable. I don’t want to believe it. The Treasury Department denied it.
But when it comes to the Magic Kingdom that is the Obama administration, the fantastical has a way of coming true.
“From Washington to Wall Street,” Reuters columnist James Pethokoukis wrote on Thursday, “there are rumors that the Obama administration is about to order government-controlled lenders Fannie Mae and Freddie Mac to forgive a portion of the mortgage debt of millions of Americans who owe more than what their homes are worth.”
That’s right. If you bet badly in the housing-market casino of the Aughties, the government is thinking of refunding some of your chips so you can play again. You may have heard something about a sub-prime real-estate bubble that popped and nearly took down the financial system with it? President Obama wants to double down.
Unlike most rumors, this one became more, not less, plausible when you examine the details. The White House has made it clear in recent months that it is frustrated by what the Framers called “the legislative branch,” what President Obama calls “politics” and what I call “the wishes of the American people.”
Obama craves a short-term sugar rush for the economy. If he feels cornered, betrayed and alone, he could use his new ownership of Fannie Mae and Freddie Mac as a free federal candy store and tell America to line up and pig out.
Rewarding subprime borrowers would be characteristic. In more ways than one, Barack Obama seems to want to be known as the Sub-Prime President.
Obama often chides others for being irresponsible. When he does, the effect is a bit like Richard Nixon calling others ruthless. It is Obama who has created a $1.4 trillion deficit. It is he who, back in 2007, called for abandoning Iraq to the wolves by early 2008. It is he who voted against even continuing to fund our troops there. It is he who created a massive new health care entitlement with little means to pay for it except specious claims of efficiency savings.
Yet Obama deems Arizona guilty of “irresponsibility” for taking upon itself the federal duty to keep illegal aliens out of the country. Peculiar.
His favorite use of the word is in connection with Wall Street. Were the banks really irresponsible, though?
The banks made bad bets on housing — but stupidity is not the same thing as irresponsibility. They weren’t being reckless on the assumption that the government would bail them out if they faltered. Some of them weren’t bailed out, and died painfully.
Those that were bailed out largely did the responsible thing: They got their balance sheets back in order and created value. The government, which acquired bank shares in the bailout, has been profiting handsomely by selling them off gradually. The official estimate for the cost of TARP keeps getting reduced — it’s now $109 billion — and “officials at the Fed whisper that they may not lose a nickel on all their extraordinary lending,” reported the Wall Street Journal’s David Wessel.
Fannie Mae and Freddie Mac are an entirely different story. They used their implicit government backing to behave like spoiled rich kids who knew that if they ever got drunk and crashed the Porsche, their daddy would bail them out — then buy them a new car. Estimates of what Fan and Fred will cost us all have zoomed to over $300 billion and there’s no end in sight — they’re still costing us more than a billion a week.
Only Obama would look at Fan/Fred on one hand and Iraq on the other and decide it’s the former that’s working. But since he now runs Fan/Fred, don’t expect to hear him deliver a speech on how irresponsible they are.
When they build the irresponsibility Hall of Fame, there will be a special exhibit on the autoworkers who drove GM and Chrysler into insolvency. The UAW knew it was driving up wages and benefits to unsustainable levels, but it also knew that the Democratic Party had its back. Ordinary bankruptcy would have voided its contracts. Instead, GM endured an Obama-customized restructuring that punished its lenders and left the UAW almost untouched. The UAW did suffer the gross insult of its workers being forced to report to duty on the Monday after Easter — in 2011. In 2012, they go back to getting Easter Monday as a paid holiday. Post-restructuring, their pay and benefits are still around $50 an hour.
Like a lung-cancer survivor waking up from surgery and whispering, “Bring me Marlboros,” the UAW is already hinting that it expects to be rewarded with a nice bump after its contract expires next year, and Obama has told the workers he is excited by the prospect.
Unlike the bank bailouts, the Detroit aid (which is costing 30 times the value of the 1979 lifeline to Chrysler) has no chance of breaking even, Gregg Easterbrook wrote on Reuters. To do that, stock in the new GM would have to rise to the old company’s all-time peak valuation. You’ll see George Clooney driving a Yugo before that happens. Moreover, included in the GM bailout was a gift to GM’s finance arm — a subprime lender.
A strange irony surrounds the idea that homebuyers might be rewarded for inflating the housing bubble.
Economists have been puzzled why so many “underwater” homeowners, whose properties are worth less than they owe the bank on their mortgage and who would thus be wise to simply walk away and let foreclosure happen, are staying put and toughing it out. A University of Arizona paper published last year by Brent T. White concluded that “shame and guilt associated with foreclosure” are a big reason why people stay and pay against their economic interests.
Americans feel shame about being irresponsible. What about the American government?