It is a Good Thing that Senator Clinton has this Housing Mess Figured Out!

NEWS FLASH!!!!!! Senator Clinton revealed her plan yesterday to “bring our nation’s financial house in order.” This was from her press release.

“Simply put, in order to bring our nation's financial house in order, we need to begin with housing itself. That is why my economic stimulus plan calls for $30 billion in assistance to states and communities to help them fight foreclosures. I have also called for a 90-day moratorium on sub-prime foreclosures and a five-year freeze in rates on sub-prime adjustable mortgages.”

There are two things that frighten me about politicians. First, they could potentially know very little about the economy and the housing markets. During the political season, politicians tend to turn into economists. Second, politicians actually think that the American people are that stupid. If it were as easy as 1-2-3, the current administration would have already fixed it.

First, there is an estimated 1 trillion dollars of adjustable rate mortgages still to reset over the next few years. Throwing $ 30 billion in aid to the housing problem is like giving an antibiotic to someone who has a fatal disease. In addition, bailing out homeowners by providing assistance creates moral hazard. This is not a good precedence.

Second, by freezing sub-prime rates, you throw out the basis of contract law. President Bush already tried to offer this as a solution. However, he soon found out the disaster he would have created by doing so. This type of thing creates huge problems in our credit and investment markets. The lawsuits could potentially get completely out of control.

Third, please stop calling it a sub-prime problem. It goes way beyond sub-prime mortgages.

When evaluating the candidates, remember political sound bites offering “the” solutions is the method of getting elected. Don’t be fooled that these politicians actually have an answer. If there were a solution, the current administration would have already figured it out.

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