The New York Times is reporting Housing Bailout Bill Seems to Be on Shaky Ground.

Even as the housing foreclosure crisis deepens, legislation to rescue homeowners and their lenders appears to be in significant political jeopardy.

The bill, which passed the House on Thursday, is quickly becoming a casualty in a battle between the Bush administration, which says it opposes any taxpayer bailout that would only further encourage risky lending practices, and Democrats who say that homeowner assistance is the only way to contain the damage to the broader economy.

In a twist, Democrats sought to claim the support of Ben S. Bernanke, the Federal Reserve chairman, who this week called on Congress to help mortgage holders. That claim prompted a spokeswoman for Mr. Bernanke to deny that he was favoring any piece of legislation over another.

The Democrats also said that Treasury Secretary Henry M. Paulson Jr. appeared at first to encourage their bill, or at least not stand in its way. But Mr. Paulson’s spokeswoman vehemently denied that.

The Bush administration on Friday said it would only support legislation that did not require taxpayer funds. The Congressional Budget Office estimates that the House-passed measure would refinance as many as 500,000 homes over the next five years, at a cost to taxpayers of about $2.7 billion.

“Taxpayers shouldn’t be taking on the risk of foreclosure,” said Tony Fratto, a White House spokesman.

Last month, Senator John McCain, the presumptive Republican nominee for president, sharply pivoted and called for government aid to homeowners in danger of losing their homes. His plan was more modest than the Democratic plan. But it was notable because, only a month earlier, he had warned against broad government intervention to solve the mortgage crisis, saying it was “not the duty of government to bail out and reward those who act irresponsibly, whether they are big banks or small borrowers.”

Last week, Sheila C. Bair, chairman of the F.D.I.C. and a former assistant secretary at the Treasury Department in the Bush administration, proposed a $50 billion government loan program to help struggling borrowers. The Bush administration publicly distanced itself from the proposal.

After administration officials engaged in talks with House Democrats over their measure, President Bush said on Wednesday that he would veto it. The Democrats say they made several changes sought by the administration in an effort to gain its support. But in a statement of administration policy, the White House said the legislation was burdensome and prescriptive.

“It would force the Federal Housing Administration and taxpayers to take on excessive risk, and jeopardize F.H.A.’s financial solvency,” the statement said.

Political Pandering

The flip-flop by McCain is interesting. McCain had it correct the first time. Political pandering? What else can it be? Far worse is Sheila Bair’s $50 billion proposal, best described as from outer space.

As for me, I am very leery of the democratic sponsored program that supposedly will save 500,000 homes at a cost to taxpayers of only $2.7 billion. Either the number of homes that will be saved will be far less, or the cost will be far more. Most likely both.

Best Deal Is No Deal

All of the competing plans are bad ideas to varying degree. And as long as Congress is bickering over them, nothing will get done.

The only thing unusual in this case is that typically what emerges out of Congress is worst feature of every bill, where everyone gets everything they want. What appears to be happening now, is that the plan keeps getting scaled back further and further.

Hopefully they put this off long enough or Bush vetoes whatever is passed, so that action is delayed until next congress takes over.

Repeating what I said yesterday in Energy Plan Political Pandering

Whenever Congress puts together a bill attempting to find a solution to some sort of real or imagined problem, my immediate thought is that the bill do one of four things:

  • It will worsen the problem at hand
  • It will do nothing to solve the problem but instead create a new problem somewhere else
  • It will worsen the original problem and create new problems
  • In the very best case it will do nothing at all

The best case in this case is that no bill is passed. What will work equally well is that if a bill is passed, it it vetoed and left for dead.

You Can Help

Email Bush On Foreclosure Prevention Nonsense

Please call and/or email the White House to voice your support of a presidential veto of any housing bailout bill:

Phone: 202-456-1414 or 202-456-1111

Just say, “I am calling to ask you to veto any housing bailout that comes out of Congress.”

Click Here To Email President Bush: comments@whitehouse.gov

Writing or emailing Bush cannot possibly hurt. So what’s to lose? Phone or Email Bush today.

Mike “Mish” Shedlock
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