mortgagefinalRodgers0808

MORTGAGE BILL FINAL: TAXPAYERS ON THE HOOK?

Brian Rodgers 2008

Last week Congress passed the Housing and Economic Recovery Act of 2008 (H.R. 3221) and with the President’s signature hundreds of thousands of Americans at risk of foreclosure will soon slough off the oppression and worry instigated by ratcheting interest rates and downward-spiraling home values. Others, though, have seized the news to lament about the ‘hook’ upon which taxpayers have been stuck to pay for what they believe is a crutch for the stupid and irresponsible amongst us.

To these cynics I say let’s set aside that America’s housing crisis was brought on in part by unscrupulous lenders, appraisers, and real estate agents who enjoyed the benefits of information asymmetry thus marking a classic market failure in need of government intervention. And let’s disregard the compelling argument that the housing crisis is the primary basis for the economic woes rippling across the country, and that legislation of this sort may be just the start of setting a recovery in motion. Let’s consider instead the notion that the role of government should be to provide the greatest chance for the greatest number of people to pursue happiness as promised, and that government is not a business that must effect cold, calculated decisions with an eye only on the bottom line. Of course, if this sounds a bit too idealistic, then at the very least let’s consider the real dollars and cents so that perhaps that taxpayers’ ‘hook’ might feel less sharp.

The Congressional Budget Office estimates the cost of the H.R. 3221 at just under $25 billion over ten years, a considerable difference from the media-sensationalized $300 billion, a figure that represents the value of the mortgages potentially insured, very few of which are expected to default because the bill’s primary purpose is to curtail those defaults. That comes to about nineteen dollars a year for each income tax payer. What about Fannie Mae and Freddie Mac? The cost per taxpayer of a bailout of the mortgage giants is about the same, nineteen bucks, though it is likely this contingency will not be needed, leaving the cost per taxpayer at zero.

But the grousing is not limited to just H.R. 3221. The recent failure of IndyMac Bank and the fear of more to follow drew similar concern, but the cost per tax payer here is also zero. Claims for insured deposits will come from a fund paid for by the banks themselves. Sure, banks pass these costs onto consumers as they do when the electric bill or labor costs increase, my point being the purview of the taxpayer must have a boundary beyond which the five degrees of separation game must cease. These per taxpayer calculations can continue for as many lines as there are in the federal budget with everyone finding some expenses that are decidedly less desirable. Since ideology, not practicality, dictates which these are, I will avoid this avenue.

Incalculable, or at least hard to pin down, though, is the cost of inaction. What is the cost of a Fannie Mae or Freddie Mac failure? Trillions, or complete systemic collapse? How about if people replace their banks with their freezers or their mattresses? A modern day Great Depression perhaps? And what if the housing crisis were left to its own devices? I would imagine it to be far worse than a few extra irresponsible homeowners “getting what they deserved.” Of course, we agreed above to set aside such philosophical considerations in favor of a pure financial logic. That having been said, I think I’ll just pay my nineteen bucks. ##

{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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