That's the inside word from the Washington Post. To remove any possibility of misinterpretation, here is the exact quote from the paper:

"To cover the cost of the program, Sens. Christopher J. Dodd (D-Conn.) and Richard C. Shelby (R-Ala.) agreed to use a portion of the profits from mortgage financing giants Fannie Mae and Freddie Mac that had been set aside for low-income rental housing."

There you have it, redistributing money from low-income renters to banks that made bad mortgages. Where are the supporters of the free market?

Of course, there is still hope. Maybe this was just a trial balloon being floated by Dodd and Shelby. Maybe the Post got it wrong (it ihas been known to happen). But, if this is really the policy that Congress is going to pass, it is an extraordinarily cruel blow to low and moderate-income families.

--Dean Baker

I have written at length about why the proposed housing bailouts in their current form are bad housing policy. The basic point is that they would have the government guarantee new mortgages at prices that are still inflated by the housing bubble.

This is bad for three reasons. First, because the prices are still high, it leads to a situation in which homeowners will pay far more on their mortgage and other housing related costs than they would to rent a comparable unit. This takes away money needed for health care, child care and other necessary expenses. That is not a favor to moderate-income families.

Second, since the deflating bubble will cause house prices to fall, homeowners in the bubble areas will not accumulate any equity. The third point follows directly from the second point: because prices in bubble areas are likely to fall below the guarantee price, the government is likely to have to make good on the guarantees. Handing money to banks for their bad loans is not good policy.

But there is a more basic issue that should bother progressives. Progressives usually argue for policies that benefit low and middle income people at the expense of the wealthy. This one goes the other way.

Read more »

Progressives have generally sought to promote affordable housing. We usually think that it is a good idea that moderate income people can buy or rent good housing. However, Congress seems determined to go on the opposite path, striving to keep house prices out of reach of tens of millions of families.

At least this is how the NYT describes the story. According to the NYT, a major purpose of the housing bailout bills before Congress is to keep house prices from falling.

There was a housing bubble in the United States over the last decade. After just keeping pace with inflation for a century, house prices rose more than 70 percent after adjusting for inflation over the years from 1996 to 2006.

Have the NYT editorial writers not noticed this bubble or do they think the housing bubble was a good development that the government should try to foster?

Read more »