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

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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.