Regulation

Stimulant or Hallucinogen?

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Not wanting to leave any doubt to his Worst President of the 20th Century title, George W. Bush is all giddy over sticking the American people with an "economic stimulus" package.

News coverage of the package has been universally awful by failing to note the package is: A) Much too small to impact a multi-trillion dollar economy B) Not responsible for cheering Wall St. with the Keynesian fiscal pump-priming, but with the irresponsible lifting of the cap on "conforming" mortgages backed by Uncle Sam C) Fucking nuts.

Topic A is self-explanatory; B requires only the understanding banks had basically stopped writing jumbo loans in some markets because they have no idea what the actual value of real estate might be at the moment. This is a rational response to market uncertainty and can only speed along the necessary real estate correction along with encouraging banks to take losses on their books and move forward.

Sticking government-backed enterprises in the middle of this process removes market discipline from the mix. This brings us to topic C. Even the federal regulator charged with oversight of Fannie and Freddie says bumping the conforming loan limit to $700K (!) is a bad idea. But one look at Nancy Pelosi's rictus grin and it is clear Uncle Sam will permanently support California's real estate bubble.

To recap, in a matter of months we've gotten the Federal Housing Administration to guarantee up to 100 percent of loans up to $367,000, a federal fiat that adjustable rate mortgages will no longer adjust, and now federal GSE guarantees for mortgages of almost three-quarters of a million dollars. No wonder the mighty brain of Bill Kristol looks at the process and calls it a "win-win." We've nationalized the mortgage industry, surely a great thing of National Greatness.

Meanwhile one industry insider relates, "They are doing backflips at Lending Tree. Literally jumping up and down. Their business is going to go through the roof." So too all the bankers who have been saved by a President who quite likely has not a clue what he has done.

Addendum: I was evidently too cute by half by placing Bush in the 20th century by virtue of his November 2000 election, which to my mind makes him eligible for that time frame. Some commenters seem to disagree. Worst president of the last two centuries then?