We mentioned this morning the chatter about the Obama administration possibly using Fannie Mae and Freddie Mac to perform major mortgage forgiveness as a way to "bail out Main Street" (blech), and buy votes for the November election.
We're not convinced that this is good politics (let alone good policy). After all, there's a lot of frustration at the idea of homeowners getting bailouts they don't deserve.
The conservative blog Hot Air is already tearing into the plan:
A massive write-down of principal in underwater mortgages would cost us additional tens of billions of dollars, if not $100 billion or more, in order to get these mortgages to market level. That money won’t come out of thin air, either. Either it will take taxpayer dollars to make up the difference, or the sudden and arbitrary writedown will make Fannie/Freddie investors a whole lot more poor than they were before. The Obama administration can’t afford to send Wall Street reeling with that kind of shock, especially this close to an election and with the economy already sinking, so it would almost certainly require massive taxpayer subsidies to accomplish, on top of what’s already been spent on TARP bailouts.
In other words, it’s exactly the same kind of Obamanomics that we have seen for the last eighteen months — spend what we don’t have now, run up debt like crazy, and hope that a momentary spike will translate into political success. Unfortunately, that has also been the formula for long-term economic failure.
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