Policy Documents

Housing Finance Reform: Fool Me Once, Shame On You; Fool Me Twice, Shame On Me

Edward J. Pinto –
July 31, 2013

Edward J. Pinto writes in an essay that was crossposted at Real Clear Markets, that Senators Bob Corker (R-TN) and Mark Warner (D-VA) have introduced the "Housing Finance Reform and Taxpayer Protection Act of 2013" (the Taxpayer Protection Act), which also promises to protect taxpayers, but, like the Safety and Soundness Act, poses a danger to homeowners and taxpayers alike.The act will inevitably fail because government guarantees suffer from three flaws:

  1. an inability and unwillingness to price for risk,
  2. the resulting asset allocation distortions, and
  3. the politicization of risk-taking.

In the case of the proposed Federal Mortgage Insurance Corporation (FMIC), it will inevitably promote pro-cyclical policies that increase leverage during boom periods, creating the very risk the Taxpayer Protection Act purports to protect against.