Mortgage Bailout: Questions Without Answers
Here is the full text (PDF) of the proposed bailout of the mortgage industry. It isn’t very long, take the time to read it.
In essence, it permits the federal government to purchase mortgage and mortgage-related assets from any US financial institution.
The first question you should be asking is this: What are mortgage-related assets? That would be a good question. Mortgages are easy enough to define. They’re loans secured by the equity in a piece of real estate. But what are mortgage-related assets? Does that definition extend to the mortgage funds that have created the havoc in the marketplace that we already see?
And then this: What are the rights of the borrower? Note that the act grants the government the authority to designate financial institutions as government agents, acting on behalf of the government. Which financial institutions? What benefit will they derive? I’m thinking specifically about banks like Bank of America, which has made what I consider to be incredibly imprudent decisions to buy Countrywide Financial and Merrill Lynch. To what end? If designated as an agent of the government, do they then become responsible for the servicing and collection of government-acquired mortgages?
And the best for last. Spending and debt caps: What are they and what do they mean? Under Section 6, the amount allocated to the purchase of mortgage-related securities is $700 billion. However, Section 10 increases the statutory limit on public debt (yes, that’s our National Debt) to 11.3 trillion from 8.2 trillion. That’s an increase of 3.1 TRILLION, even though the authorized limit for mortgage purchases is 700 billion.
Tired of numbers? Me too. But what is the purpose of increasing our debt limit in relation to this particular piece of ’emergency legislation’ if not to pad the balance sheet to make the Bush administration look better than it should? My own theory is that the increase in the debt limit is a way to get the cost of the Iraq war onto the balance sheet without debate.
The Patriot Act taught me not to trust anything put before the taxpayers with the “urgent that we do this RIGHT NOW” admonition. That’s how we signed away part of our Constitutional rights. And just like now, it was done in a climate of fear and uncertainty.
Fear and uncertainty is the tool by which Bush, Cheney, McCain and Palin browbeat everyone into being forced to accept their point of view. Because so much of what they do would not stand up to public debate, they invoke fear-based ’emergency legislation’, and then slide in provisions that don’t make much sense unless they’re considered in the larger context of world events.
For some perspective, here’s a chart of the growth of our national debt since 1940:
For extra credit, you can map out the increases to the party in power for some real eye-popping madness, but for purposes of this post, consider the end point of the graph – years 2000-2007.
Increasing the debt cap by 3 trillion dollars means a weaker dollar — weaker than it was even before this disaster. Now that may be inevitable, given the credit gorge we’ve been on. According to some, the alternative was a complete collapse of the dollar. However, what I take away from it is a promise that higher taxes are inevitable, no matter who is in office. So there remains only one lingering question: Who will spread the tax burden more fairly?
The answer can be found easily enough in the candidates’ tax proposals. One gives relief to those earning 6 figures; the other gives relief to 95% of taxpayers. While I’m not a huge fan of either proposal, I’ll opt into the one that lessens the burden for the majority wherever possible.
Paul Krugman has some questions about the bailout, too. Go read it here.