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Federal housing bailout

If you’ve been living in a cave for the last year, you might be surprised to know that foreclosures are happening at a record pace in St. Louis and around the country. Obviously, this can make for some pretty great buys in the real estate market, but a lot of people and companies are hurting because of this trend. All levels of government have been talking about doing something to stop the bleeding for months, but nothing has been done. Until this past Wednesday that is.

On Wednesday, President Bush signed a housing rescue bill into law. I won’t go into too much detail on the specifics, but you can find write ups on the situation on CNN and Yahoo. Here’s a brief outline from CNN of what the new law will do:

  • A larger role for the Federal Housing Administration
  • A stronger regulator for the GSEs
  • A permanent increase in “conforming loan” limits
  • A new home-buyer credit
  • A ban on down-payment assistance from sellers
  • A new affordable housing trust fund
  • Grants to states to buy foreclosed properties

This is not a polictical blog, but I feel that I have to share my thoughts on this situation. The bill was about 700 pages long, so I’m guessing it was a bit bloated. I have read up on this new law quite a bit and I’m sure it will be of at least some help to market. But that’s not really the thing that concerns me. What concerns me is that this is being billed as a “housing rescue” when it is clearly a “housing bailout.”

We’re a capitalist country. When companies and people make bad investments they pay the price. Fannie May and Freddie Mac might be backed by the government, but they are publicly traded companies. They’re both Fortune 500 companies for god’s sake. So why should the general public have to pay for a bailout because they backed loans they shouldn’t have. They made a bad business choice and their shareholders should be the ones taking a beating, not us.

As for the normal everyday citizens that are going to be helped by this bill, I feel much the same. I don’t want to see anyone on the street, but why are we subsidizing stupidity? We’re basically going to give these people tens of thousands of dollars because they bought a house that was more that they could afford. In what way do these people deserve this money? If they get foreclosed on and their banks take a big loss, that is the banks fault. The owner can always rent. That might sound harsh, but the alternative is even more so.

White House spokesman Tony Fratto’s line about this bill particularly urks me: “The Federal Housing Administration will begin to implement new policies intended to keep more deserving American families in their homes.” So who is going to be deciding who is “more deserving?” This is a grey area where government just doesn’t belong.

If any readers see my comments as cynical and uncompassionate, think of the world we live in. When was the last time the government got something right? Hurricane Katrina, Iraq, Afganistan, scandals… I could go on and on. We live in a word of cause and effect, and if those who made poor business choices don’t feel the effects of their actions, I fear for the precedent that will set. In the end, all this is going to do is make us more dependant on government generosity. This isn’t a matter of Democrat or Republican ideas. Liberal or conservative. Its right and wrong. And this is just wrong.

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