Senate’s Plan Will Prove Destructive

Published July 7, 2008

Crises tend to keep politicians in power, and with the likely success of the Senate’s $300 billion mortgage aid package, for which Mr. Calbreath expressed emphatic support, the housing crisis will keep members of Congress in office for years to come. (“Homeowners Suffer While Mortgage Bill Sits in Senate,” July 6)

Mr. Calbreath’s protestations to the contrary notwithstanding, the housing market collapsed because people took out mortgages they could not afford. The federal government aided them in this endeavor with a combination of low interest rates from the Federal Reserve and President Bush’s “Ownership Society” initiative.

For most of the twentieth century and all of the twenty-first, the government has attempted to induce people to buy homes. Last year, the multitude of federal mortgage incentives reached critical mass, and the default chicken came home to roost. The market tried to correct for the government’s failure; for several months, the price system has been flushing out of the housing market those people who bought homes and could not pay for them.

Either forgetting or ignoring the fact that the current crisis began because too many people bought homes they could not afford, the Senate now intends to halt the crisis by making buying a home easier. Tax credits for first-time home buyers and federal mortgage guarantees will not only keep too many people in the homes they cannot pay for, but will also draw in new borrowers. This will simply extend the credit crisis, preventing the market from righting itself.

Rather than creating new artificial incentives for borrowing, Congress should eliminate the ones already on the books. That is, of course, unless they actually want the crisis to continue.

Ryan Krause ([email protected]) is a legislative specialist intern at The Heartland Institute in Chicago, Illinois.