Housing

Recently Congress passed the American Housing Rescue and Foreclosure Prevention Act., also known as the Housing Bill. Its passage was lauded by many who are legitimately concerned about foreclosures and the housing market in our country's economy. I was asked how I could vote against a bill to help American homeowners, but I found this bill to have more to do with helping big banks than helping average Americans.

The answer is that there is more to any bill than its name or the headlines surrounding it. If one only paid attention to bill titles, one could happily vote for almost any bill put to a vote on the floor. Titles do not tell the complete story of a bill's provisions, and many titles are downright deceptive and come close to emotional blackmail of legislators. But we cannot afford to be fooled by fancy titles. The housing bill could perhaps be more aptly named The Big Banking Bailout at Taxpayer Expense Act as large sections of it were written by big banking lobbyists according to Evans and Novak reporter Tim Carney's Capitol Hill sources. At least that title would be honest.

One problem with politicians is that when problems they create come to a head, they typically feel this irresistible urge to DO something, rather than to UN-do something, or to simply back off to avoid exacerbating the situation. Too often, that which they end up doing has very little connection to the cause of the crisis, but plays well in the press and superficially makes everyone feel better. Bills that are rushed through Congress under duress are never studied enough, providing too tempting an opportunity to quietly slip in unrelated provisions that erode freedoms in ways that would never pass as a stand-alone bill. We famously saw this with the PATRIOT Act, but Washington learned nothing from that.

The current housing crisis and the corresponding big government fix are another prime example. First of all, the so-called solution will actually make the problem worse. The problem stems from easy credit and a rush to flood the housing and mortgage markets with money. Relaxed or non-existent lending standards led many into mortgages and houses they could not afford. As more foreclosures hit, the lending institutions will continue collapsing like dominoes under the weight of all the bad paper they underwrote. Some are reacting and reintroducing lending standards. Thus the number of buyers in the market for homes is beginning to shrink back to its natural size, and hyper-inflated prices are falling back down to earth. In these ways, the market is trying to correct itself in the wake of the mistakes government intervention encouraged them to make through easy credit. However, this correction is causing pain, especially to Wall Street investors and those who bought homes at the top of the market bubble, never expecting it to crash, always assuming they would easily be able to refinance.

Madam Speaker, for several years, followers of the Austrian school of economics have warned that unless Congress moved to end the implicit government guarantee of Fannie Mae and Freddie Mac, and took other steps to disengage the US Government from the housing market, America would face a crisis in housing. This crisis would force Congress to chose between authorizing a taxpayer bailout of Fannie and Freddie, and other measures increasing government’s involvement in housing, or restoring a free-market in housing by ending government support for Fannie and Freddie and repealing all laws that interfere in housing. The bursting of the housing bubble, and the recent near-collapse in investor support for Fannie and Freddie has proven my fellow Austrians correct. Unfortunately, but not surprisingly, instead of ending the prior interventions in the housing market that are responsible for the current crisis, Congress is increasing the level of government intervention in the housing market. This is the equivalent of giving a drug addict another fix, which will only make the necessary withdrawal more painful.

The provision giving the Treasury Secretary a blank check to purchase Fannie and Freddie stock not only makes the implicit government guarantee of Fannie and Freddie explicit, it represents another unconstitutional delegation of Congress’ Constitutional authority to control the allocation of taxpayer dollars. While the Treasury Secretary has to file a report with Congress, the lack of any effective standards for the expenditure of funds makes it impossible for Congress to perform effective oversight on Treasury’s expenditures.

The House passed two bills attempting to rehabilitate the housing and mortgage market this week. There doesn't seem to be any shortage of criticism and blame for the bad decisions, and rightly so. Lenders and banks do share much of the blame for the overheated market. Lending standards were relaxed, or even abandoned altogether, creating an exaggerated pool of homebuyers that led to ballooning home prices that many, especially real estate investors, expected to continue forever. Now that the bubble has burst, the losses are staggering.