the visible hand

it is the theory which decides what can be observed – einstein

Housing bill: No upside for taxpayers

Posted by ecoshift on July 30, 2008

I’ve never been under the illusion that our congressional representatives are capable of negotiating with business as advocates for taxpayers. It’s almost as if there’s a perceived conflict of interest if lawmakers negotiate a deal where government profits from it’s support for corporate enterprise. But, it’s really a shame that ordinary taxpayers end up taking on the risk of a bailout rescue that will help keep housing prices high with no potential upside should the bailout rescue be successful… 50 billion here, 50 billion there — pretty soon….

Anyway, here’s the money quote: “The way this is structured it’s only a matter of how much the taxpayers are going to lose.”

Bush Signs Sweeping Housing Bill –
Published: July 31, 2008 (I know today’s the 30th, but that’s what it says on the NYT website.)

The law authorizes the Federal Housing Administration to insure up to the $300 billion in such loans but the Congressional Budget Office has estimated that only $68 billion of that authority is likely to be used. The original lenders will have to pay upfront fees into an insurance fund, and borrowers will pay continuing insurance premiums of 1.5 percent a year to insulate taxpayers against losses from defaults.

The budget office has estimated that 35 percent of the refinanced loans will end up in trouble again.

The authority for the Treasury Department to help Fannie Mae and Freddie Mac is limited only by the debt ceiling. The budget office has said that a $25 billion expense should appear on the federal budget for the next two fiscal years, representing its best estimate of how much the program will end up costing taxpayers.

But the budget office said there was a better than 50 percent chance that the rescue authority would not be used, and there would be no cost, while there was a 5 percent chance that one or both of the mortgage giants would lose another $100 billion or more, costing taxpayers a vast sum.

Some experts have said that the law was wrong-headed in its effort to retain the hybrid nature of the mortgage finance giants, which are private companies with publicly traded stock, but which have an explicit guarantee of help from the government — an arrangement that critics say privatizes the profits but socializes the risk and any losses.

David M. Walker, the former comptroller general of the United States and head of the Government Accountability Office who is now president of the Peter G. Peterson Foundation, said that Mr. Bush might have been unwise to sign the measure.

“Providing authority to the secretary of the Treasury to extend credit or to buy stock is one that will end up costing the taxpayers tens of billions of dollars,” Mr. Walker said in an interview earlier this week.

Mr. Walker noted that other government interventions in the private market, including a rescue of the Chrysler automobile company had provided an opportunity for taxpayers to profit. But when it comes to the mortgage giants, he said, there is no upside.

“The way this is structured,” he said. “It’s only a matter of how much the taxpayers are going to lose.”

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2 Responses to “Housing bill: No upside for taxpayers”

  1. gulo gordo said

    “an arrangement that critics say privatizes the profits but socializes the risk”

    Whoa. The NYT actually printed that phrase? Even with the “critics say,” that’s close to writing about the Emperor’s marvellous transparent trousers.

  2. ecoshift said

    Morning Gulo,

    It seems we are entering a period where it is possible to challenge the rhetoric of capital. Though clearly capital still has a majority in congress.

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