What's that aroma wafting across the country? Can you recognize it? It's a faintly familiar scent. You know what? It sure smells like another federal government bailout of a major industry.
Yup, it's getting close to that time when the U.S. government, and the taxpayers, will dig deep to save another faltering business sector from itself. The last time we all chipped in on such a massive scale was in the late 1980s, when the feds sponsored a multi-billion dollar bailout of the savings & loan industry. Originally the tab was suppose to be $25 billion but it actually came in around $160 billion.
This time, it's the deeply-troubled housing sector that gets saved. We just don't know when it will happen, or how much it will ultimately cost. But it's coming, probably after President George W. Bush leaves office.
The housing market has been getting scorched for some time, but the fire bell just started really clanging this week.
That's because U.S. Treasury Secretary Henry Paulson Jr. went public, saying the worse is yet to come because the number of foreclosure proceedings on single family homes could hit one million this year. On top of that, three of the nation's largest banks cooked up a plan to provide a "safety net" for sellers of investment instruments of loans, credit card receivables and --you guessed it--crummy mortgages.
You would think these dire business circumstances would prompt our MBA President to spring into action. Not so.
Right now, the Bush strategy is to offer some tips to the bankers on how to clean up this mess. His sage advice includes: advocating an expanded role for Fannie Mae and Freddie Mac in order to provide some relief for those looking to work out mortgage refinancing; pleading with mortgage lenders to reach out to cash-strapped buyers and voluntarily work out refinancing deals; and encouraging banks to buy those crappy mortgage-backed investments that no reasonable investor would touch with a 10-foot pole.
At the same time, the administration is backing off from advocating any real reforms or relief.
For starters: How about cracking down on highly-speculative mortgage banking practices? Or legally discouraging excessive Wall Street speculation in questionable mortgage debt? And what about punishing debt ratings agencies that gave a stamp of approval to billions in worthless mortgage-backed securities?
All this makes you wonder. Could Bush, like another GOP President named Herbert Hoover, have such an unshaken faith in the private sector's ability and willingness to clean up its own mess that he won't act?
Or could there another reason behind all this inactivity?
Maybe Bush knows that the only way to save the housing market, and the economy, is through some type of government bailout plan but he just can't bring himself to do it. His dad bailed out the savings and loan business--it was George H. W. Bush's first major domestic decision. But if recent history and the escalation of the War In Iraq tells us anything, it's that this son does not emulate his father.
Perhaps Bush the younger is hoping the housing crisis will remain in a holding pattern so he can dump the distasteful task of a bailout on the next president. There is precedent for this type of thinking. Bush has said his successor will have to deal with the issue of any military pull-out of Iraq because he won't address it, despite the fact that the majority of Americans want to wind down the war.
Maybe Bush knows that these two situations are connected. After all, how can you solve the housing crisis if we're already spending billions fighting in Iraq?
I share Bush's distaste for a federal bailout of the housing industry. I also wish the private sector alone could free us from this quagmire. And I wish it wasn't going to cost so much.
But that's not going to happen.
However, waiting will assuredly make matters more dire--far worse than the savings and loan crisis because the housing troubles touch nearly every facet of the economy.
If Bush won't get that conversation going, then it's up to Congress, or that crowd running for president, or the public itself.
I'm confident this country is creative and resourceful enough to find some type of public-private way of rescuing home owners from massive defaults and bankruptcy. All the facts and circumstances say that time is wasting and some type of comprehensive housing bailout will have to emerge.
Yes, I know, that really stinks. But it's better than the alternative.