Obama’s Continued War on the Market

by Andrew Mellon

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In a further attack on the housing market, the New York Times recently reported that President Obama may be amending his loan modification program to make it even more difficult for defaulting homeowners to be foreclosed upon.  The Times states:

The Obama administration, under intense pressure to help millions of people in danger of losing their homes, is considering a ban on foreclosures unless they have first been examined for potential modification, according to a set of draft proposals.

That would raise the stakes from the current practice, which strongly encourages lenders to evaluate defaulting borrowers for a modification but does not make it mandatory.

Meg Reilly, a Treasury Department spokeswoman, said Thursday that the proposed foreclosure ban was “one of the many ideas under consideration in the administration’s ongoing housing stabilization efforts.” The proposal was first reported by Bloomberg News.

To be fair, the effects of this program may be minimal, with some interpreting the ban to be more about PR than anything substantive:

Laurie Goodman, a senior managing director at the Amherst Securities Group who has been highly critical of the government’s modification program, said even if the proposal came to pass, it would not be “a major change. We think there is a large public relations element to this.”

…The Mortgage Bankers Association said its members were already doing what the administration was considering.

“Lenders generally go to foreclosure as a measure of last resort, after all other options, including loan modification, are exhausted,” said John Mechem, the trade group’s vice president for public affairs.

Any enhancements the government made to the modification program would be unlikely to stem many foreclosures, said Howard Glaser, a prominent housing consultant.

Regardless of the impact however, this potential loan modification addendum adds insult to the injury of an already wrongheaded and destructive policy, and will only prolong the pain in the housing market.

The reasons for the woes in housing are quite simple.  Banks extended mortgages to borrowers that were poor credit risks, and many borrowers took out mortgages that they shouldn’t have either out of speculation or profligacy.  That the depression is throwing people out of work and keeping many jobless exacerbates the problem, in that unfortunately many who could have reasonably expected to afford their homes now cannot given their lack of sufficient cash flow.  Of course, truly prudent buyers might have saved to purchase their homes outright with cash.

In any event, to fix the housing market requires these folks to be foreclosed upon.  Keeping homes off the market artificially suppresses supply, propping up prices that already necessarily needed to fall, as house prices rose to unjustifiable levels due to the Fed’s pump priming, the CRA and the surge in demand these two factors engendered.  To keep people in homes they cannot afford besides creating moral hazard and distorting banks’ balance sheets also has the effect of keeping worthy buyers from purchasing homes at decreased prices.  It further prevents apartment owners from renting out their excess inventory to underwater and/or insolvent former homeowners.  The effects of the government intervention in the housing market are amplified significantly when one considers the volume of securities backed by mortgages not being adequately serviced.

Government has no business in throwing this market into disequilibrium.  But President Obama believes otherwise.  In campaigning for Harry Reid and while announcing a further imprudent measure to provide $1.5 billion in mortgage relief in five states hit acutely by the downturn, Obama had this to say about the housing market:

“Now, government has a responsibility to help deal with this problem. Government can’t solve this problem alone. We got to be honest about that. Government alone can’t solve this problem. And it shouldn’t…It can’t stop every foreclosure, and tax dollars shouldn’t be used to reward the very irresponsible lenders and borrowers who helped bring about the housing crisis. But what we can do is help families who’ve done everything right stay in their homes whenever possible.”

This is typical Obama.  He knows how to frame the issue so that while what he is saying sets a dangerous precedent, he comes off as pragmatic.  He uses his rhetoric to appease those being taken advantage of by his policy, while spinning nicely the fact that he is going to screw them over. It is akin to when he defended himself as an “ardent defender of the free market” while touting his massive intervention into all aspects of the economy at the recent “Business Roundtable.”

Every single time he addresses an issue, you can bet that it will follow the same formula: “on the one hand [insert rational, conservative argument], but on the other [insert emotional/generally bleeding heart, liberal argument].”  It allows him to come off as a moderate and practical leader while he obfuscates the public by saying nothing.  His true stripes only show when he speaks in front of his people.

At the end of the day, the man should be judged by his actions and not his words, and his actions in the housing market are illustrative of his overall view of government’s role in the economy.  Wherever market forces are working to correct the imbalances and malinvestments of a 70-year credit expansion, this President is going to implement policies to prevent the market from working and perpetuate an illusory economy.

Factor in his foreign policy and treatment of our war with Islam, and you get the sense that this President is intentionally trying to hurt this country.  Somewhere, Jeremiah Wright is smiling.  Ironically, for all of President Obama’s apologies for our arrogance and destructiveness, as he helps sully our preeminence and power with his own policies, he remains the most arrogant and destructive American of all.


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Posted Mar 2nd 2010 at 8:37 am in Congress, Economics, News, Obama, Uncategorized | 124 Comments