Hillary Mortgages the Future

The promises she can't keep


You will count speed as a virtue if you're going through a home remodeling, clicking on an Internet link or drafting a cornerback. But presented with looming calamity, most of us would much prefer one that moves slowly. Which is why there is no comfort in hearing that if Hillary Clinton is elected president, she will be "ready on Day One."

In her campaign, she presents herself as an experienced hand with a penchant for practical solutions, suggesting that her opponent, Barack Obama, dispenses nothing but vaporous oratory detached from the real world. When it comes to the mortgage meltdown, though, her policy rests on the assumption that upon arriving in the Oval Office, she'll open the closet and find a magic wand.

Obama, by contrast, acknowledges the bitter truth that when government regulators clamber into a carriage, it can easily turn into a pumpkin.

Their approaches to the problem are not an aberration but a symptom of a larger difference. Obama is not a staunch free marketeer, but he grasps the value of markets and shows some deference to economic laws. Clinton, however, tends to treat both as piddly obstacles to her grand ambitions.

You don't have to take that from me. Some on the left see the Illinois senator as suspiciously unenchanted by their goals and methods. Robert Kuttner, an economics writer and co-editor of The American Prospect, scorns Obama's advisers as "free-market guys who want to use markets to somehow solve social problems, which is like squaring a circle." New York Times columnist Paul Krugman denounced Obama because his health care and fiscal stimulus plans "tilted to the right" and concludes he is "less progressive" than Clinton.

If progressive means issuing dictates that prevent informed people from entering into mutually agreeable and economically valuable transactions, that is undoubtedly true. Many liberals prefer to rely more on command and control. Nowhere is the contrast between the Democratic contenders more vivid than on how to deal with the fallout from the epidemic of mortgages gone bad.

Clinton has a stunningly simple solution, as stated in one of her TV ads: "freeze foreclosures" for 90 days and "freeze rates on adjustable mortgages." Those are a perfect answer, assuming this is the question: How can the government reward irresponsibility, discourage mortgage lending and raise the cost of financing a home?

After all, it's easy to pass a law prohibiting lenders from foreclosing. But the first result of that would be a lot more borrowers deciding that paying the mortgage is no longer the highest priority. Those who have practiced strenuous frugality in order to meet their monthly obligations would get nothing, and those who behaved recklessly would prosper.

The second result would be to choke off the flow of credit. When a bank makes a loan, it needs some assurance of being repaid. When it isn't, foreclosure offers a way to minimize its loss. If Clinton blocks that option for a time, banks will be markedly less eager to offer loans—particularly for anyone with a less than perfect credit history.

Then there is the matter of the interest rates future borrowers will have to shoulder. Lenders offer adjustable-rate mortgages, which carry low rates in the early years, in the hope of reaping higher rates later on. If a President Clinton were to void the second part of these deals, many mortgage companies would stop offering the first part, in effect saying: Freeze this.

Obama is not willing to let this turbulent market sort itself out without the intervention of government, but he offers nothing remotely as alarming as Clinton's dual freeze. Among his main proposals are tougher enforcement of laws against fraud and deception and mandates for "easy-to-understand information" for borrowers—ideas few advocates of economic freedom would find objectionable.

More important than what he advocates is what he doesn't. His chief economic adviser, Austan Goolsbee of the University of Chicago, told me that Obama thinks "we shouldn't have a blanket policy of bailing out everyone." In formulating remedies, Goolsbee says, "you have to think how not to reward bad behavior."

In Clinton's world, that is not a concern: The government can take from the lenders and give to the borrowers without any unwanted consequences. Now who's telling the fairy tale?