February 5, 2009
MORALITY, NOT ECONOMICS:
The GOP Has a Dumb Mortgage Idea: It contradicts the ideals of Republicanism and good economics. (ED GLAESER, 2/05/09, WSJ)
[I]t is particularly disappointing to see Senate Minority Leader Mitch McConnell embrace "providing government-backed, 4% fixed mortgages to any credit-worthy borrower" as his alternative to the Barack Obama/Nancy Pelosi stimulus package. Our nation needs Mr. McConnell's leadership, but this idea is bad economics and not a real alternative to the vision of America offered by Democrats. It also stands at odds with all that is good in Republicanism. [...]Allowing any credit-worthy borrower to gain access to wildly subsidized lending would lead to a flood of refinancing. Today, Americans owe $10 trillion worth of housing debt and own $19 trillion worth of housing wealth. Logic suggests that a 1.35% interest-rate subsidy on $10 trillion of debt could cost taxpayers upwards of $135 billion.
Subsidizing mortgages is an idea from the New Deal, not the Republican playbook. Fannie Mae and the Federal Housing Administration were set up by liberal Democrats to encourage borrowing. Subsidizing interest rates appealed to big-government interventionists because the expense is kept off federal balance sheets, at least for a while. The true costs of Fannie and Freddie were long shrouded, despite the efforts of some Republican senators. Likewise, the full costs of subsidizing 4% mortgages will appear only over time, as the government is put on the hook for default after default.
Good Republicans would emphasize the costs and fight against programs that vastly increase the size of government in a misguided attempt to distort markets. Good Republicans embrace fiscal prudence at both the public and private levels.
Don't subsidize the loans, just restore usury laws and forbid mortgage and credit card lending at such premiums.
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