Affordable Housing Institute : US

[Continued from yesterday's Part 1.]

As we look over the frenetic week that proceed the Emergency Economic Stabilization act of 2008 (”EESA,” rhymes with ‘piece-o”), we can see the Inevitability Effect at work:

With this cast of characters and scorecard for proposals, let’s look at who got what, as reported in a later New York Times:

WASHINGTON — Congressional leaders and the Bush administration reached a tentative agreement early Sunday on what may become the largest financial bailout in American history, authorizing the Treasury to purchase $700 billion in troubled debt from ailing firms in an extraordinary intervention to prevent widespread economic collapse.

In broad terms, the driver won, because many became suddenly sober.

Officials said that Congressional staff members would work through the night to finalize the language of the agreement and draft a bill, and that the bill would be brought to the House floor for a vote on Monday.

Addendum 1: save the optics!

The bill includes pay limits for some executives whose firms seek help, aides said.

This proposal is neither selfish nor ridiculous, so by elimination it has to be reasonable. And we are in a political environment. The CEOs were happy enough to take absurdly big bonuses (hi, Frank Raines! Hi, Jim Johnson!) before, so their brethren should pay the price now. Life ain’t fair, but at least it remembers.

I must be sensible – mustn’t I?

Addendum 2: throw the voters a bone

“Throw me a friggin’ bone, here.”

And it requires the government to use its new role as owner of distressed mortgage-backed securities to make more aggressive efforts to prevent home foreclosures.

This proposal is eminently sensible.

As I understand these matters – I am right about this, aren’t I, court blogger? – I’m two for two!

Addendum 3: improve the deal

Equity stake. In some cases, the government would receive an equity stake in companies that seek aid, allowing taxpayers to profit should the rescue plan work and the private firms flourish in the months and years ahead.

I have no idea who brought this one forward – methinks it was House Republicans – but it’s quite positively clever. First of all, the Treasury plan is a voluntary purchase program, so any bank that can make it without government help is free to do so. Second, should they make the trade and dispose of their assets for cash, the government gets an extra kicker, one that doesn’t cost the affected companies annyithing right now.

It might be piggy, but it’s not a deal-breaker. Verdict: sensible.

My ministers serve me well, even the ones I did not choose.

Addendum 4: trust no one, no one

Oversight. The White House also agreed to strict oversight of the program by a Congressional panel …

One-quarter selfish – if there’s money to be given out, everybody who’s got a voice gets listened to – and three-quarters sensible.

The administration had initially requested nearly unfettered authority to run the rescue program. But in negotiations over the last week, the White House agreed to accept tight oversight of the program by an independent board, as well as a requirement that the government increase its efforts to prevent home foreclosures.

This program is big enough that Congress should have a look-see. They’d probably have had it anyway, but making it explicit costs little.

The administration had initially requested virtually unfettered authority to operate the bailout program.

Even recognizing the need for speed, concentrating that much power with no review or approval process is asking for trouble. Verdict: sensible.

Three-quarters is plenty.

Addendum 5: button down the principal-agent risk

Conflict-of-interest. Conflict-of-interest rules for firms hired by the Treasury to help run the program.

This is easy: sensible.

Those who will serve me may serve no other.

Addendum 6: let the lawyers rewrite the loans

But as they moved toward clinching a deal, both sides appeared to have given up a number of contentious proposals, including a change in the bankruptcy laws sought by some Democrats to give judges the authority to modify the terms of first mortgages.

I understand the sympathies that lie behind this one, but down the path of judicial fiat lies utter chaos, since no one anywhere would ever be considered certain. And why stop at mortgages? What about car loans, student loans? The moral hazard would be out of control.

Some Republicans complained that Democratic negotiators were continuing to push for a change in the bankruptcy laws, to give judges the authority to modify the terms of first mortgages, even though some Democrats, including their presidential nominee, Senator Barack Obama of Illinois, said that proposal should not be added to the bailout.

Score one for Senator Obama.

This has the feel of something that certain members introduced not to win it, but to tell their constituents they tried to win it. Verdict: ridiculous.

Please don’t take me seriously.

Addendum 7: punish somebody, even the unpunishable

Democrats had pushed for a fee on securities transactions, essentially a tax on financial firms, saying it was fitting that they contribute to the cost.

Guess who would wind up paying that securities-transaction fee? Why, everyone who bought and sold stocks – in other words, the consumers.

Look, I’m not paying!

Addendum 8: add affordability any way you can

Affordable housing advocates sought to cushion the blow for long-term housing needs by adding affordability provisions, including this one mentioned in an NCHSA update:

Direction to the FDIC, the Federal Housing Finance Agency (in its capacity as conservator of Fannie Mae and Freddie Mac), and the Federal Reserve Bank to sell foreclosed properties under their control at a discount to states and localities participating in the Neighborhood Stabilization Funding program established by the recently enacted Housing and Economic Recovery Act of 2008.

The key phrase here is ‘at a discount.’ I love affordable housing, and think it’s worth paying social capital for. There’s also the nexus of causation – the people who got into trouble stretched to get into homeownership because there wasn’t enough affordable housing, so we should ease this pressure point. Against that, the discount is unquantified, and if quantified, runs into the harsh opposition that taxpayers are already upset about the proposal, thinking it a bailout.

I think this one was sensible, but a casualty of the extreme speed with which this was enacted. Too bad.

Sorry, better luck next legislative crisis

Republicans were also working [successfully – Ed.] to eliminate a provision sought by Senate Democrats that would direct 20% of any profits from the plan to help create affordable housing. The Republicans want all profits returned to the Treasury.

Let’s assume ‘profits’ means ‘net of losses elsewhere in the scheme.’ If so, this is a much more palatable proposal – indeed, more than likely a very good idea overall, because it costs nothing in the current situation, and only gives away a piece of the upside that most members of the public believe will never occur.

That it got excised is a shame.

A shame, not quite a catastrophe

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