Mark Winston Griffith
Mayors to Bush: Stimulate THIS!
As Bush and Congress worked out the details of an economic stimulus package, the United States Conference of Mayors recently convened in Washington to figure out how their own cities could be saved from threats to their economies. And nothing loomed larger than the specter of even more foreclosures sweeping through heir streets.
As the New York Times reported on Thursday, "facing a collapse in the subprime mortgage market that has pockmarked their cities with vacant houses and crippled their budgets, the nation’s mayors pleaded Wednesday for a huge infusion of federal aid...[M]any agreed that the collapse of the subprime market had left a growing problem of vacant houses, depressed property values, tighter credit, and a need to cut services to close municipal budget gaps...The conference called on Congress to raise the limits on loans bought by Fannie Mae and Freddie Mac to stimulate the mortgage market, and increase Community Development Block Grants to help stabilize neighborhoods."
Bush and Congress, trying to demonstrate that they're not sitting on their hands as the nation faces a possible recession, are drawing up plans to introduce a series of tax rebates, tax cuts for small businesses and other features of an economic stimulus package. Most of the package is simply a doling out of cash to taxpayers, but apparently the House of Representatives also impressed upon Bush to include an expansion of the FHA's ability to insure higher priced mortgages and temporarily increase the size of mortgages that can be bought on the secondary market by Fannie Mae and Freddie Mac.
Are Bush and congress on the right track? There is widespread speculation about whether these measures will do enough to stave off a recession. What's clear, however, is that beyond this stimulus package, the federal government is going to have to go put in place a far more comprehensive set of policies that will protect families, neighborhoods and entire cities from the subprime meltdown.
Posted at 10:37 PM, Jan 24, 2008 in Community Development | Economic Opportunity | Financial Justice | Mortgage Crisis | Permalink | Comments (5)
Comments
You know, it wasn't that long ago that the Wall Street Journal proudly pointed out to shrinking deficits as evidence that Bush's tax cutting policies were working after all.
Was there any time, before Reagan, when the US ran deficits in between recessions, without intervening surpluses in peacetime growth?
Posted by: Alon Levy | January 25, 2008 09:36 AM
I'm glad that they are doing something, but is it enough? And what is the root cause of subprime lending to begin with?
I think it has a lot to do with a lack of education, as do most problems. It may not be the borrower's fault, but something must be done to teach young people the importance of good credit. Personal finance courses sponsered by non-profits have shown promising results. The government needs to get on board. College age students have an incentive to learn to handle credit wisely, as do lower and middle class debtors. Employers are beginning to look at credit scores and most everyone has loans to pay. Prevention goes a long way.
Posted by: Jennifer Smith | January 27, 2008 06:31 PM
I'm glad that they are doing something, but is it enough? And what is the root cause of subprime lending to begin with?
I think it has a lot to do with a lack of education, as do most problems. It may not be the borrower's fault, but something must be done to teach young people the importance of good credit. Personal finance courses sponsered by non-profits have shown promising results. The government needs to get on board. College age students have an incentive to learn to handle credit wisely, as do lower and middle class debtors. Employers are beginning to look at credit scores and most everyone has loans to pay. Prevention goes a long way.
Posted by: Jennifer Smith | January 27, 2008 06:33 PM
I would never argue against consumer education, but that's not the root cause of the problem here. There are plenty of sophisticated PhDs and lawyers who fell into these bad loans. Just ask the assistant district attorney for economic crimes in Brooklyn who was caught up in an abusive subprime loan himself and now is on the stump about it. In fact the terms and practices used by brokers and lenders where designed to obfuscate rather than elucidate.
The sudden rise in loan defaults and foreclosures did not signify that people were suddenly less financial astute. It reflected a breakdown in underwriting discipline. The subprime industy was set up in such a way to financially encourage brokers and originators to book as many loans as possible, and then sell them on the secondary market. It was assumed that any bad loans would get washed through securitization bundles.
Advocates have been screaming about abusive practices and unaffordable subprime mortgages for MANY YEARS, but regulators and legislators did nothing to rein in the practices because too much money was being made.
Of course consumers have a responsibility to make sound financial decisions. People apply for loans, but it is ultimately the role of the underwriter to determine if the borrower can afford the loan and if the loan is suitable. And is ultimately up to regulatory institutions to guide industry practices and create consumer protections.
Posted by: Mark Winston Griffith | January 28, 2008 01:24 PM
Everything you said makes a lot of sense. These are problems that need to be addressed now. I just wonder if education might be a better long term solution to the problem. Getting a PhD doesn't mean someone has had a class on personal finance or knows how to handle their money responsibly. I'd like to be an idealist and say if you teach them they will be smart, but better institutional support from the underwriter is also a must.
Posted by: Jennifer Smith | January 28, 2008 04:37 PM