Fiscal Stimulus, Executive Branch Style

This conjecture from Jim Pethokoukis would be shocking if it comes to pass:

Main Street may be about to get its own gigantic bailout. Rumors are running wild from Washington to Wall Street that the Obama administration is about to order government-controlled lenders Fannie Mae (FNM) and Freddie Mac (FRE) to forgive a portion of the mortgage debt of millions of Americans who owe more than what their homes are worth. An estimated 15 million U.S. mortgages – one in five – are underwater with negative equity of some $800 billion. Recall that on Christmas Eve 2009, the Treasury Department waived a $400 billion limit on financial assistance to Fannie and Freddie, pledging unlimited help. The actual vehicle for the bailout could be the Bush-era Home Affordable Refinance Program, or HARP, a sister program to Obama’s loan modification effort. HARP was just extended through June 30, 2011.

The move, if it happens, would be a stunning political and economic bombshell less than 100 days before a midterm election in which Democrats are currently expected to suffer massive, if not historic losses. The key date to watch is August 17 when the Treasury Department holds a much-hyped meeting on the future of Fannie and Freddie. A few key points:

Read the whole thing for the reasoning behind his conjecture. If it happens, it will be just another example of why the government should not be involved in running business enterprises that could be done, even if imperfectly, in the private sector. It will also be another example of how we have moved a bit further away from democracy in allowing such a move solely by the executive branch of government.

About Andrew Samwick 89 Articles

Affiliation: Dartmouth College

Andrew Samwick is a professor of economics and Director of the Nelson A. Rockefeller Center at Dartmouth College in Hanover, New Hampshire.

He is most widely known for his work on the economics of retirement, and his scholarly work has covered a range of topics, including pensions, saving, taxation, portfolio choice, and executive compensation.

In July 2003, Samwick joined the staff of the President's Council of Economic Advisers, serving for a year as its chief economist and helping to direct the work of about 20 economists in support of the three Presidential appointees on the Council.

Visit: Andrew Samwick's Page

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