No sooner had I finished berating the candidates for failing to pay attention to the housing-finance meltdown than Hillary Clinton devoted a whole speech to the subject. And a pretty good speech too.
Not that I agreed with it all. I think the proposed 90-day moratorium combined with a "voluntary" five-year freeze on interest-rate resets is a bad idea: a drastic remedy, and yet to little effect. What is the point of prolonging the agony? And I cannot say I am impressed by the call for an "Emergency Working Group on Foreclosures": a working group, even if it is a Working Group, is not a solution--though I grant you that the idea of putting Alan Greenspan (as Hillary suggests) on a panel to sort through a mess somewhat of his own making has a definite appeal. However, much of the rest of what Hillary said seems sensible. For instance, she agrees with Larry Summers' idea for a new bankruptcy procedure that would curb repossessions and allow mortgages to be written down. Though she got the thing a bit muddled:
I’ve also proposed that we amend the bankruptcy code to give judges the discretion to write down the value of struggling families' homes. Believe it or not, bankruptcy judges can write down the value of many other things to help families pay off their debt, but not their homes. They can write off the value or write down the value of second homes, which seems kind of ironic to me. Making this amendment to the code will help families in bankruptcy pay off their mortgages and stay in their homes.
It is not the value of the homes that would be written down, obviously, but the value of the mortgage debts secured against them. Assuming that is what she meant, I agree with her: it's a good idea.
By the way, one argument offered against doing this (though it's debatable whether it is in fact an argument for or against) is that it would discourage future mortgage lending. A recent study, "The Effect of Bankruptcy Strip-Down on Mortgage Markets" by Adam Livitin and Joshua Goodman, pours cold water on that notion.
The most important proposal was that the FHA should start buying impaired mortgage-backed securities--except that, to be precise, she only said that it should "stand ready" to do so. The question is, when and under what circumstances ought the FHA, or some other taxpayer-financed entity, actually start buying up this stuff. But I cannot be too hard on her for failing to answer that question because nobody else appears to know the answer either.
Senator McCain also gave such a speech yesterday (your colleague at the Atlantic, Mark Ambinder, has it up on his blog). Would love to hear your thoughts on it.
Posted by Vermando | March 25, 2008 1:05 PM