It passed without much comment last week when Congress and Our Leader announced their subprime bailout scheme to plug the sinking ship that is our nation's housing market. Government stepping in to take on the burden of individuals' and the lending industry's poor judgment? Now that's a solid dose of fiscal conservatism if I've ever seen one! The stench of patronage on this bill is enough to make the eyes of the Keating Five water uncontrollably.
Let's disregard for one moment the fact that this effort to "help people stay in their homes" is mostly a handjob for the lending industry. It main impact, as best I can tell, is to pay in full the banking industry's most horrible loans and then shift the same onto the taxpayer-funded Federal Housing Administration. As far as helping actual homeowners, it bails out only the most reckless, underqualified borrowers – and not many of them at that. This is an outstanding lesson in positive reinforcement of negative behavior – the less money you make and the bigger the loan you signed without reading it first, the more likely Uncle Sam is to bail you out. The same holds true for the banks, of course. The more reckless and unscrupulous their lending practices, the better the odds that they can benefit from this fraud. By expanding the FHA's reach to mortgages as high as $700,000 the message is clear: screw the working class, we need to protect high-income suburbanites with shitty credit and zero understanding of how to live within their means. If you are struggling but can technically still afford your mortgage when the rates rise (i.e. the monthly payments are not larger than your paycheck) this legislation does absolutely nothing to help you.
Why does legislation like this pass? The sad truth is that this is inevitable because the Greatest Story Never Told wonder-economy of the Bush era is so heavily dependent on A) unsustainable levels of consumer spending and B) mountains of credit to make the unsustainable appear attainable. With record levels of household credit card debt (and enormous mortgages paying for ridiculously overpriced housing) there are no options left to keep John Q. Public going on weekly mall shopping binges. The only ways to keep consumers spending like mad for the holidays (and beyond) are to relieve their debt burden or have an economy that generates meaningful increases in real wages. I'll let you guess which one of those is more likely.
Like every other aspect of the Bush economy – the constant tax cuts, to name one – this bailout amounts to economic crack cocaine. It will provide a tiny bump, the effect will wear off almost immediately, and then we'll need to do another hit. The myth of a flourishing economy is not a high we can sustain. We can create the illusion only in brief spurts, with long, confidence-killing valleys of doubt and reality interspersed.