For once, I hope Jimmy here is right.
Main Street may be about to get its own gigantic bailout. Rumors are running wild from Washington to Wall Street 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. An estimated 15 million U.S. mortgages – one in five – are underwater with negative equity of some $800 billion. Recall that on Christmas Eve 2009, the Treasury Department waived a $400 billion limit on financial assistance to Fannie and Freddie, pledging unlimited help. The actual vehicle for the bailout could be the Bush-era Home Affordable Refinance Program, or HARP, a sister program to Obama’s loan modification effort. HARP was just extended through June 30, 2011.Well now. That would certainly solve a considerable majority of underwater mortgages (although not jumbo mortgages, as Fannie and Freddie aren't allowed to hold any of those by law.) I'm not sure where Jimmy is hearing this from, but quite frankly if we can forgive trillions in bank debt for just Wall Street banks, we can do something for millions of homeowners who are underwater and threatening to swamp the economy all over again.
The move, if it happens, would be a stunning political and economic bombshell less than 100 days before a midterm election in which Democrats are currently expected to suffer massive, if not historic losses. The key date to watch is August 17 when the Treasury Department holds a much-hyped meeting on the future of Fannie and Freddie.
Will this be how QE 2.0 begins? It's a very likely target here in an election year. Keep an eye on this Fannie/Freddie story.
[UPDATE] CalcRisk calls bullshit on Jimmy and considers in Drudge Bait at best:
This nonsense is part of the silly season. Sure, some small changes could be made to Fannie and Freddie, but nothing like this post would suggest.
Not. Gonna. Happen.
Alert Drudge and the tinfoil hat sites - they will run with this story. It is a political post ... I'm already sorry I mentioned it.Fair argument for this. Yes, Obama's failure on HAMP really is bad enough to make this plan look great.
If this happens, this will be much welcome relief. Which is probably why it won't happen, but still. Main Street needs a freakin' bailout.
ReplyDeleteOptimism is undeniably beautiful, but a distraction. This would be helpful, but it's not the cure. It's just symptom alleviation.
Right, but an $800 billion cure for this is certainly better than the failed HARP program.
ReplyDeleteI like it. It would help a lot. (It would have helped even more if it had happened in the first hundred days.)
ReplyDeleteAlas, we'll get a lot of Santelliesque howling about "freeloaders." Given that, and the near-certainty that the White House's selling job will be godawful, it'll probably turn out to be a political net minus for Democrats. But it's still good economics (and in a saner world it would be good politics).
Okay, back to my normal roll as optimism troll. Sigh, happens every time I get three or four pieces of good news in short order.
ReplyDeleteBetween this and Reid's strong recent moves in the Senate... I catch a whiff in the air of a concerted effort by the Donks to give Main Street America a shot in the arm and the Republicans a bullet in gut just in time for campaign season.
Lord, let it be true. Swing away, guys, and don't suck, for once!
Yeah, "better than nothing" is still better, but it's not what we should be relying on.
ReplyDeleteI still have a feeling this will blow up in their collective faces. Either via earmarks within the bill, provisions added to bribe a few senators or through companies that lose money or stocks decline as a result. Since companies can just inject as much money, I mean free speech as they want into a campaign, it could still end up hurting the Dems. At this point though they need a hail mary in order to prevent being blown out in November.
ReplyDelete@Waffles:
ReplyDeleteI have a hard time arguing with any particular thing you're saying, except the "companies losing money or stocks declining" bit. If I understand what Pethokoukis is saying, the only losers might be Fannie and Freddie... basically, the government would be paying them (partially or in full) to take a multi-billion dollar haircut on their underwater mortgages. I don't think private mortgage holders would be affected. Unless this finally helps stabilize the housing market and/or reduce deflation, in which case, private mortgage holders should jump for joy.
It won't happen. It's pure hope. And would be political suicide.
ReplyDelete