Elizabeth Warren: We Must Open Our Wallets To All Deadbeats Everywhere Always
What does it say about Washington, DC's professional class when out of five people overseeing a $700 billion Treasury Department program, only two of them show any concern for American taxpayers, and one of those two is a member of Congress?
The Congressional Oversight Panel (COP) for the Troubled Asset Relief Program has put out a 210-page report [pdf] on foreclosure mitigation efforts. The amount of special pleading in this report shocks the conscience. COP has an interesting story to tell: that Treasury's decision to commit $50 billion in TARP funds to the Home Affordable Modification Program (HAMP) is a fiasco. But instead of sticking to that truth, COP repeatedly uses the program's failures as propaganda for expanding the program.
We're told, for example, that "the foreclosure crisis has moved beyond subprime mortgages and into the prime mortgage market" and that a crisis once limited to "home flippers, speculators, reach borrowers…and homeowners who were sold subprime refinancings" has now engulfed "families who put down 10 or 20 percent and took out conventional, conforming fixed-rate mortgages to purchase or refinance homes that in normal market conditions would be within their means."
First of all, this is overblown. The most recent OCC Mortgage Metrics Report has prime mortgage default rates at 3 percent -- double the usual average, but unalarming. Rather than bringing in outside reports, though, let's be sporting and find the inconsistencies within COP's own report. On page 30, we learn that "as many as 50 percent of at-risk mortgages also have second liens. Therefore, it is critical that second liens be addressed as part of a comprehensive mortgage modification initiative."
Those second liens, boy, they're like secondhand smoke and gay sex. You're just sitting there minding your own business when some goon comes along, hands you a barrel of money, and then expects you to pay it back. My heart goes out to all those families with fixed-rate confirming loans who put down a large equity portion and yet mysteriously are getting stuck by a greedy second lien holder. And the pixies, the sprites, the leprechauns and the centaurs -- my heart goes out to all of them too.
What makes the report interesting is that it's not the work of conscious idealogues but of earnest good-government believers. In a way, picking out the chop logic and weird passive phrasings (duly aped by the media in, for example, this A.P. piece that says foreclosures are "stalking" innocent home borrowers) is too easy. This is just what happens when smart, honest people try to tell dumb lies. Characteristically, the report brushes past what should be an "oversight" committee's main concern: that Treasury's accounting of TARP expenditures is laughably thin and incomplete.
In fact, it's because Chairwoman Elizabeth Warren (making the case for an improved and expanded program on the YouTubes here) and her cohorts believe they are acting in the nation's best interest that we need to remember something: This is not some nearly theoretical public choice exercise, where the distributed costs to taxpayers are balanced against the concentrated benefits to some group. To the (mercifully limited) extent a foreclosure modification program works, it imposes a very concentrated cost on a very large group: home buyers. There are millions upon millions of Americans out there who want to buy homes and would be able to do so if homes were affordable. If the Treasury Department wants to help out homeowners, it will let house prices lose whatever amount they still need to lose (I'm calling it 30 percent) to make home-buying an attractive proposition again. (And it's worth noting that the Secretary of the Treasury has a direct personal financial interest in supporting inflated home prices.)
And so I suggest you dispense with the main report and skip right down to page 138, where the dissents begin. Rep. Jeb Hensarling (R - TX)'s opinion makes the case against expanding foreclosure mitigation programs with great coherence and ample documentation.
