Bursting Obama’s Housing Bubble

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The collapse of the Obama administration’s mortgage relief program comes at a time when establishment Democrats are refusing to acknowledge the failure of government to spur economic growth. What’s worse, the administration’s Keynesian acolytes are beginning to call for more new spending, even in light of the program’s collapse.

The mortgage program was initiated in February 2009, less than a month after Obama took office. It offered $75 billion to homeowners who saw their home values fall far short of the money they owed to banks for loans. Another $200 billion was guaranteed to corrupt government entities such as Freddie Mac and Fannie Mae, which fostered much of the housing and bank crises in the purported interest of social justice. These government institutions offered loans for little to no down payment with promises of continuing and unending equity. When the housing bubble burst, so did this promise to homeowners; they were forced into foreclosure or into the arms of a government bailout.

But for many, a bailout hasn’t come. It was reported this week that nearly half of those who were part of the mortgage program have been forced to drop out due to an inability to provide proper documentation, including proof of employment. Such documentation is lacking because many homeowners, thanks to 10-percent national unemployment, have no jobs. The program has continued to complicate a housing mess that has roots as far back as the Carter and Clinton administrations.

This news should alarm the administration and encourage it to take an immediate pro-growth stance toward the economy, but most indications are that it won’t. Some Democrat politicians are calling to make the Bush tax cuts permanent or to institute other pro-growth solutions, such as temporarily suspending payroll taxes. However, this sensible approach runs contrary to the background of administrations officials, who are short on real-world private sector experience, and long on the teachings of economists like Paul Krugman.

To understand the economic priorities of the administration is to understand Krugman. The mortgage program is rife with the tendencies of his type of economics. The New York Times columnist and Nobel prize-winning economist has led the call for more spending, and even a second stimulus, claiming the first one wasn’t effective enough — despite the failure of the initial program. He’s attacked more libertarian suggestions, such as Rep. Paul Ryan’s economic roadmap, with farcical claims of budgetary malfeasance and improper scoring.

Ryan has refuted all of these claims, but this surely won’t curtail Krugman’s weekly screeds in the New York Times, which are often low on facts and ideas, and replete with ad hominem. His approach to economics and opinion writing is best illustrated in his book “Conscience of a Liberal.”

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  • Gamaliel Isaac

    The new deal programs were over after World War II. That's one reason the economy recovered.

    • Johnb

      At least with the new deal they built some roads and dams. Infrastructure improvements.
      Not much but at least something. Obama has nothing to show for our trillion dollar investment. No roads (lots of signs though) no improved National power distribution system. Nothing except some subsidized green projects that will continue needing subsidizing.

  • The_Inquisitor

    Krugman has it backwards. It isn't equalization of income which spurs economic prosperity; it's non-equalization of income which spurs economic growth.

    Those who are successful in the market get the big incomes. They then invest that wealth which means that they direct and control the productive process into the future.

    Now who would you rather have in control of the nation's production? Obama? A nincompoop like Krugman? Or a proven successful entrepreneur?

  • JasonPappas

    It is politically difficult to say that truth–the housing market has to fall if sound lending policies are to prevail. I fault Obama for subsidizing housing prices and home ownership. Sad to say, I don't think the Republicans would do any better.

    Our culture of self-sufficiency and self-responsibility is at a historic low. We need a culture war but not the kind that we see in pop-books like Bill O'Reilly's. It should be focused on the virtues of hard-work, earning one’s keep, and respecting the property rights of others. That means we don’t always get what we want … only what is rightfully ours, i.e. what we’ve earned.

    It isn’t economic knowledge that we need to spread … it is ethics. We all know it is wrong to ask to be given another people’s property. We must chart a path to establish a rights-respecting regime where bailouts, subsidies, and government management are ultimately eliminated. If we don’t make this an ethical issue, we will lose.

    • Sprinklerman

      The problem is that there are far too many who do not go to church. When Obama said that "when we spread the wealth around it good for everybody"; not it is not, it's a sin. Sharing the wealth means that someone is committing a mortal sin. "Thou shalt not covet thy neighbors house or anything in it."

      Anyone who would accept government handouts commits a mortal sin. Anyone who in the government promotes a share the wealth policy is committing a mortal sin.

      The problem is that there are far too many children who are now parents who have never been in church and do not understand what the ten commandments mean or how they should guide their everyday life. Their children are suffering the same ignorance and the same fate.

      Go to church this Sunday and take your kids!

  • http://www.intellectualconservative.com Steven Laib

    Government doesn't want to admit that the market is better off without their intervention. If it did, it would lose power and the ability to horsetrade with big businesses.

    • Dennis X

      Since the end of tax incentives the housing market for the sale of previously owned homes has gone dowm 27%.

  • TaterSalad

    He is still blaming Bush #43: