Senate Housing Rescue Bill

By Tommy Leung on 05/19/2008 in Politics

The Senate Banking Committee has a bill to create a multi-billion dollar mortgage rescue fund. The socialism does indeed continue. The plan will “guarantee” mortgages for homeowners who now have an upside-down mortgage. According to Democratic Senator Dodd, “The bill addresses the root of our current economic problems — the foreclosure crisis — by creating a voluntary initiative at no estimated cost to taxpayers which will help Americans keep their homes.” In even more hilarity, the article also quotes Senator Shelby, of Alabama, as saying, “This is a victory for the taxpayers” because “[w]e’re not funding this.”

Unfortunately for Senator Dodd, the root of our current housing problem is not foreclosures, that is a result of the housing problem. Housing prices are still inflated and is likely to continue to fall. The government will try to artificially inflate prices as long as they can but their efforts have resulted in a great deal of inflation that we are seeing at the pump and the supermarket. The only way to solve this crisis is to let the market work. Prices of houses will have to fall and there will be a lot of defaults in the process.

There is no reason why there should be any socialism for the banks and investment institutions that lent out the money or decided to invest in mortgage backed securities. These bad investments need to be liquidated in order for real economic growth to begin again. The guarantee of these bad mortgages is only going to result in a lot more inflation. It is of no difference what magical solution the politicians in Washington come up with to pay for this “rescue”. We are going to ultimately be the ones who will pay for it.

That is what makes Senator Shelby’s remarks so hilarious. This is not a victory for the taxpayers. We may not pay for this in direct taxes but, we are going to be paying for this through the stealth inflation tax. An increase in the cost of food and gas is no better than an increase in taxes. The only winners–if any–are the banks.

By Tommy Leung