I realize that Senator Schumer is from New York, and that Wall Street is also in New York, but his latest bailout plan goes beyond ordinary pandering.
Senator Charles E. Schumer (D-NY) introduced legislation today that would significantly enhance the ability of Fannie Mae and Freddie Mac to both provide capacity for lenders to refinance borrowers trapped in subprime loans and bring relief to the increasingly troubled "jumbo" market sector.
Schumer's "solution" to the subprime mortgage meltdown is to re-inflate the bubble. He wants to give our tax dollars to Fannie and Freddie so that his investor class pals can recoup their mortgage investments. Schumer couches the bailout in terms of preventing foreclosures, but do not be fooled by this language! The real recipients of this pork are wealthy investors.
To see through Schumer's smokescreen, just follow the money. Fannie and Freddie borrow money from the Treasury, which is part of what makes them "Government-Supported Entities". They use that money to buy mortgages from wealthy investors. See who gets bailed out in this scenario? It certainly isn't the borrower.
Now, Fannie and Freddie can choose to refinance the mortgage, once they own it, but that's completely unrelated. Many of these subprime mortgage borrowers can't afford the payments after their "teaser" rates reset, so they need a refinance if they are to stay in their house. But there's absolutely no reason why Fannie and Freddie have to take on this role. It makes much more sense for the current owners of these mortgages to take on the job. After all, they were the ones profiting from the mortgages when times were good. They should be the ones taking the risks when times are bad.
Schumer's plan can be summarized in one sentence: public risk with private gain. The government is taking on all the risk, while private investors reap the gain. The public shouldn't stand for this kind of shameless giveaway.
Moreover, Schumer, the Senate, and all Americans need to think carefully before considering any kind of housing bailout. Today's house prices represent twenty years of wages to an average working family. Do we want a future where you spend half your life paying for your house? Do we want a country where first-time home buying is a daunting, highly-leveraged bet? Or should we let the market come back to Earth, come back in line with wages, and return to historical levels of reason?
Schumer's bluster about foreclosure is just a prop so he can sell his Wall Street bailout. If a homeborrow is foreclosed upon, they won't be living in the streets. In fact, they will probably be renting the same or similar house at half the monthly payments. This can hardly be seen as a bad thing. We should let ourselves be tricked by the false story of millions of families sleeping in gutters. We should not let ourselves be robbed by hedge funds and mortgage banks looking for a bailout. We should say no to Senator Schumer's risky bailout scheme.