Foreclosure Rescue Imminent, Regulatory Reform Not
Now that Senate leaders have reached agreement, it seems a sure bet that a foreclosure aid package will be approved - after all, there’s an election coming up. Whether the plan will do more good than harm is less clear. And the likelihood of a comprehensive overhaul of the financial regulatory system this year is closer to none than slim - there are few votes to be gained and lot of work to be done.
According to the Associated Press, the Senate’s foreclosure plan contains $4 billion in grants to local governments to buy and refurbish foreclosed homes, new authority for states to issue bonds to be used to refinance subprime mortgages and a $7,000 tax credit for people buying new homes or properties in foreclosure.
They’re good steps, but they’re small steps and certainly not big enough steps to solve the problem, Mark Zandi, chief economist for Moody’s Economy.com.
Washington Post columnist Robert J. Samuelson thinks rescuing distressed homeowners risks delaying the downward adjustment in home prices needed to restore equilibrium to an overheated market, and thereby postponing a revival in home buying and building.
Foreclosure is a bad place for most creditors or debtors. Although the process is messy, promising to lubricate it with massive federal assistance may retard it as both wait to see if they can get a better deal from Washington, which would then assume the risk for future losses.
The one thing, perhaps the only thing, that most people agree on regarding regulation of US financial markets is that it needs an overhaul.
The origin of the Treasury’s proposal was not the most recent crisis, but rather the idea that US regulatory framework needed to be “updated” (read streamlined) to maintain the financial sector’s competitiveness with other centers, notably London.
The subprime mess does provide an impetus to action, but there are simply too many powerful interests at work to permit an early resolution. Which may be just as well, as regulatory and legislative changes made under duress frequently have undesirable consequences.
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