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Home Publications Blogs Beat the Press Corker-Warner Plan for Replacing Fannie & Freddie Is a Jobs Killer

Corker-Warner Plan for Replacing Fannie & Freddie Is a Jobs Killer

Wednesday, 26 June 2013 04:23

Okay, this is cheap line day, but in fact this is true. Even in a best case scenario, where there are no more hazard issues, the bill for a reshaped government mortgage loan guarantee put forward by senators Bob Corker and Mark Warner would be a job killer in standard economic models, like those used by the Congressional Budget Office and others. The logic is simple. The guarantee would subsidize loans to housing thereby steering more capital to housing and away from other forms of investment. The result is lower productivity growth, which would mean lower real wages and fewer jobs. It would have been worth including the views of an economist who could have explained this scenario to the Washington Post's readers.

It is also unlikely that the system will be able to escape the problem of moral hazard that has afflicted the current system. (Wall Street types are smart.) The real question that should be posed is whether this additional form of housing subsidy, on top of the mortgage interest deduction, is the best use of public money. Unfortunately the article never frames the issue this way.


Note: Warner's first name has been corrected -- thanks Barkley.

Comments (4)Add Comment
Corker-Warner Think We're Fools
written by Robert Salzberg, June 26, 2013 5:47
So clueless lawmakers propose that by pulling away the punch bowl of government backing conforming loans with 20% or more down, suddenly private enterprise will fill the gap? Or homeowners will pay more for insurance?

Banks screwing up was the reason we began backing loans in the first place during the Great Depression. Fannie worked well until we partially privatized the system and didn't regulate it very well or notice a giant housing bubble so it failed again. The mortgage giants are making money again so it looks like if we hold onto them, we'll make back all the money we lost and then some.

Fool me once, shame on you, fool me twice, shame on me, but now we're talking about being fools for a third time?

Let's get real. Me, you, and all other Americans basically have control of over 1/2 of all mortgages and are backing 90% of new ones. America essentially has socialized mortgage insurance on top of paying over $100 billion a year in various subsidies to help people buy homes.

Instead of figuring out how to allow banks to screw it up again, we should embrace the fact we control the mortgage market and figure out how to better spend our money.

It would be much cheaper to eliminate the mortgage deduction and replace it with direct loans from the government similar to what we did with student loans. Banks will make money through administration of the loans and can still make loans but at their own risk.
written by Last Mover, June 26, 2013 8:09

Somewhere in here is the usual big commie lie, we just have to keep looking to find it. Why else would Dean Baker be taking the stand that it's one more ruse designed to privatize gains and socialize losses for the 1%?
Mark, not John, Warner?
written by Barkley Rosser, June 26, 2013 9:13

I suspect you meant to say "Mark Warner," not "John Warner." Centrist Dem Mark Warner replaced centrist Repub John Warner as a senator from VA. I do not believe that there is currently a John Warner in the Senate. I think you got these two confused, and I think that it is indeed, Mark Warner who has coauthored this bill with Corker.
2 wrongs don't make it right...
written by pete, June 26, 2013 9:53
College educated folks earn more than others. Why should others subsidize college education? This is nonsense...pure nonsense. Now you wish to take this to the next level and have renters subsidize home buyers...again a redistribution from poor to wealthy. Pure nonsense. How in the world would the government determine the proper interest rates for different levels of risk etc? I prefer the market solution here. The spread of mortgage over treasuries varies from time to time, and that is a good thing. Look how much trouble they are having coming up with the interest rate on student loans. Silly. Why not cars too? Why not just have one credit card for everything, housing, education, shopping at WalMart, all run by the government, where they can keep track of spending, taxes, etc. Probably could abolish the IRS this way.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.