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Jewish World Review April 2, 2008 /26 Adar II 5768 Time for a '30s-style government mortgage role By James Klurfeld
http://www.JewishWorldReview.com | Enough already with the brouhaha over Sen. Barack Obama's pastor and whether Sen. Hillary Rodham Clinton was greeted by sniper fire in Bosnia. In this crazy kaleidoscope of shifting charges and countercharges that passes as a campaign, there was a moment of real importance last week that shouldn't get short shrift. It had to do with how this country should be dealing with the home mortgage crisis and what the proper role for government ought to be. What's happening to the mortgage markets affects not only those with subprime loans but everybody who owns a home or wants to own a home - which means the vast majority of us. We are facing the most serious downturn in the housing market since the Great Depression, at least according to some experts. And the one proposal that makes the most sense to deal with the problem is, unfortunately, getting tangled in the partisanship of the political debate. That proposal is to create a new version of the Home Owners' Loan Corp., which helped millions of homeowners refinance their loans during the mid-1930s. It has been proposed by such prominent economists as Alan Blinder, the former vice chairman of the Federal Reserve. The principle is simple: A government agency would buy old mortgages from banks and issue new loans to homeowners. The problem was much larger in scale during the Depression, but by 1951, when the HOLC closed its books, the agency had turned a small profit. It seems such a sensible - and time-tested - approach that I'm stunned officials from both parties don't get behind it. But Sen. John McCain, who will be the Republican candidate for president, gave a speech this week indicating he opposed government-backed solutions. A new version of HOLC seemed to be his target. Both Sens. Obama and Clinton favor some aspect of the Blinder approach. This shouldn't be a matter of partisan politics, but a practical question of what will work at a difficult time. But we have been stuck in an ideological straitjacket for the last 27 years. The mantra has been that the market can solve all problems and the government only screws things up. I'll take second place to no one in my belief in the genius of the marketplace, but if we have learned anything in the past century, it's that government sometimes must play a role in regulating and correcting the market when it goes haywire. The mortgage crisis is a classic case. The economic shock we're going through now might finally push the political pendulum back from the pure free-market side. Imagine, for instance, if Social Security had been privatized and there were an even bigger Bear Stearns-type of collapse. The economic repercussions would be staggering. McCain has always struck me as a pragmatist, but he has been especially sensitive to his party's conservative wing in seeking the presidential nomination this time around. And he has not shown great interest in the nuances of economic policy. I fear he is unnecessarily boxing himself into a position he wouldn't want to be saddled with if he gets to the White House. Blinder and other economists say there are any number of ways to create a modern-day version of the HOLC. Getting the housing market righted is critical, because its collapse is at the center of the current economic crisis. But what we don't need is a knee-jerk ideological debate that results in just another example of government gridlock and presidential vetoes. In fact, this is a situation that shouldn't wait for the next president to take office. Congress, with the support of the candidates, should be taking action now. Every weekday JewishWorldReview.com publishes what many in the media and Washington consider "must-reading". Sign up for the daily JWR update. It's free. Just click here.
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James Klurfeld is a professor of journalism at Stony Brook University.
03/11/08: Power rightly belongs to Dem superdelegates
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