Wednesday, February 18, 2009

Lack of Principles, Peter J. Wallison

Peter J. Wallison, who is the Arthur F. Burns fellow in financial-policy studies at the American Enterprise Institute, has this to say in The Corner about Obama’s $75 million dollar “lifeline.

The Obama loan-modification package is well-designed, and it makes sense to use Fannie Mae and Freddie Mac as the central players. They both have the expertise and staffing to handle a lot of the details, and they already own a large proportion of the mortgages and MBS that have to be refinanced. This principally includes the 10 million subprime and alt-A mortgages they hold or have guaranteed.

However, the program is ill-conceived if it is intended to renegotiate the 6 million mortgages the administration has suggested it will be necessary to address. There is very little chance that this can be done in the time required to prevent the gradual deteroration of both bank assets and the economy generally. What was necessary was a program that treated the problem on a wholesale rather than a retail basis. This could have been done by acquiring the loans at a discount from the banks (relieving the banks of the cost of foreclosure) and passing the discount (together with a lower interest rate) along to homeowners in the form of a reduction in mortgage principal. No time-consuming negotiation would have been required, and the homeowners would have had much lower monthly payments. In short, it’s a well-intended plan, but will fall short of a solution.

Hardly a principled statement, Mr. Wallison, when you consider that AEI’s Purpose and Organization Statement includes the following as integral to their purpose.

AEI’s purposes are to defend the principles and improve the institutions of American freedom and democratic capitalism—limited government, private enterprise, individual liberty and responsibility…

How, exactly, does Mr. Wallison’s statement support AEI’s stated purpose?

Posted by John Venlet on 02/18 at 06:41 PM
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