TheWeekInCongress

FREE MARKET CRITICS OF MORTGAGE CRISIS BILL OVERLOOK THAT THE MARKET ALREADY FAILED.

Brian Rodgers, 2008

It is disheartening and worse, common. Communities that not long ago basked in the aura of success now wither. Unfinished homes sit, just frames, ugly with the deeds of vandals; rusty real estate signs litter front yards street after street. Among those remnants of the housing crisis into which America has lurched are scattered the foreclosed dreams of millions who aspired to that predominant American ambition, home ownership.

It was a disaster looking for an opportunity to happen. As the housing bubble swelled so too did irrational behavior. Average people were handed vast sums of money with no invested equity and almost no documentation supporting their ability to repay; income was immaterial, as was stability. The more industrious quit their jobs to make a living flipping homes, taking advantage of artificial appreciation to trade up beyond their means in a fashion akin to a Ponzi scheme. Real estate agents and appraisers played their parts, some reportedly even selling their homes to each other at inflated prices in order to provide comparable sales data to lenders so they could justify loans. And of course there are the banks, ecstatic to have discovered yet another round of great American wealth in subprime securities, dry oil fields and dot com busts be damned.

Congress aims to provide relief to beleaguered homeowners with HR 3221, the American Housing Rescue and Foreclosure Prevention Act. Spending $2 billion over the next five years the bill, among other things, would make available to homeowners at risk of foreclosure affordable, government insured mortgages for primary residences on the condition that their banks knock off a significant portion of the principal debt.

Critics of the bill assert that it rewards the irresponsibility of borrowers who eagerly leapt into a confusing and overwhelming swirl of APRs, ARMs, and interest rate accelerations, and lenders equally eager to enlarge their balance sheets. Resolving the dilemma each face, they contend, is best left to the devices of the free market.

Although I admit the critics present a compelling argument portraying this legislation as a reward, their characterization ignores the exceptional nature of these times; and it is shortsighted when one considers the profound market ramifications already suffered and how stubborn adherence to laissez-faire inaction could further advance the crisis. Corporate institutions, large market forces themselves, merely behaved as expected, but clearly the housing industry got mired in a self-indulgent cycle that stranded buyers and dreamers on the flimsy side of an asymmetrical balance of information. Put more plainly: The market failed. Even the most conservative economists agree that market failure is ample reason for government intervention.

In the context of that failure the question is raised: Did the frenzy get so lathered as to bastardize the American dream? And if so, is there a solution? I shudder to think of the fabric of hope as so delicate that it can be blithely shredded just to feed the expectations of Wall Street money managers who profited from spreading the debts globally. Cynics may bemoan this point and perhaps make some grand statement about the responsibility of free will. But people are not stupid and neither did they choose irresponsibility as charged. Greed, a predominant market force, diminished their chances of making quality decisions. After all, if one’s agent, appraiser, and banker all smile how much farther should one look for a frown? Particularly when that much sought after dream is suddenly in reach.

The Foreclosure Prevention Act may just temper America’s current predicament, but more significantly it embraces the notion that government can partake in bolder, more dynamic solutions, that compassion is a worthy ambition. The legislation promises a much broader impact than imagined on first glance. HR 3221 is not a reward for bad choices; it is liberation from this distress of which so many are weary. Economic analysts regularly crave some overture as a signal to the market that the American government will not watch idly as it reels into oblivion. At the very least the Foreclosure Prevention Act will inspire some confidence, and just maybe it will resurrect hope.

{Brian Rodgers is a recent graduate of the University of Central Florida where he earned Honors in the Major in Political Science. He was a research assistant under nationally recognized congressional scholar, Dr. Scot Schraufnagel. Rodgers was awarded the Bledsoe-Young Award for the top graduate of the year. Currently, he is a student at the University Of Florida Levin College Of Law.}

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