Wednesday, February 18, 2009

Obama and Bush Congratulate Each Other on Bad Policy

The Obama Administration explained today how they will reduce housing payments to 31 percent of income for as many as 5 million borrowers.

The Bush Administration had also taken a number of steps to make such mortgage modifications.

I have previously explained how these programs damage our labor market (see also here), despite the fact that the labor market is weak enough on its own.

Interestingly, the Obama Administration congratulates the Bush Administration for the steps already taken: "Treasury will develop uniform guidance for loan modifications ... building on the FDIC's pioneering work." [The "pioneering work" was done under the Bush administration]

So we cannot blame just one political party for this public policy damage.


Tino said...

Beyond the two means tested aspects (the 31% of income threshold) and “struggling financially” aspect now a strengthening of the third mechanism.

In “depressing scenario” Mulligan includes the threat of bankruptcy. Now Obama is strengthening this with this “cram down” business. The courts are brought into the market, and presumably take income into account when craming down the debt.

“Among the steps Obama outlined during a news conference in Phoenix during which he unveiled his new housing plan is a provision that would let bankruptcy judges reduce the principal outstanding on a homeowner's mortgage as a way to lower monthly payments.”

Unknown said...

This would be a general comment rather than an opinion on one of the posts. I was wondering how a demand can be created or rather improved in the housing market with 299,398,484 people in the US (2006 census estimate), and 126,316,181 households (2006 census estimate). Now these are general numbers taking into consideration, a significant number of those "households" could be just apartments or rented properties, but it would still make sense to leave them as they are since not all people might be willing to "buy a home".