Now that President George Bush has dropped his veto threat, the gargantuan housing bailout is on the verge of becoming law, pending passage in the Senate. Thus, a housing bubble that has long been artificially inflated by the ever-growing presence of the government (and quasi-government) in the lending market, especially the lower-income segments; will now be artificially re-inflated, especially in the lower-income segments, by a government doubling down on its bad bets. Since Fannie Mae and Freddie Mac already have their federally guaranteed fingers in about half of all U.S. mortgages, what will be their market share at the end of this downturn/re-regulation process? Sixty percent? Eighty?
To see one reason why we got so quickly to this point, look no further than this objective news lede in the Washington Post.
The House yesterday easily approved legislation that seeks to slow the steepest slide in house prices in a generation, rescue hundreds of thousands of homeowners at risk of foreclosure and reassure global markets that mortgage-finance giants Fannie Mae and Freddie Mac will not be allowed to fail.
In other news, Jesus yesterday easily approved legislation that seeks to turn water into wine.