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Political Leaders Trying to Fix The Economy

Monday, January 14 2008

By now, it's all over the news that the economy is in serious trouble. Since last summer's subprime lending crash, political leaders have been trying to avert disaster in their efforts to fix the economy and soften the blow of rampant bad debt. But is any of it likely to work? Well, most of it probably isn't. Recession is likely to come. Some say it's already here.

Here is a round-up of what's been done, and what's being proposed.

  1. Predatory lending bill. A bill passed by the House is supposed to curb predatory lending. Unfortunately, it is too little, too late. It won't stop foreclosures, and it doesn't actually attack the problem of debt education in America.
  2. Subprime mortgage freeze. This one kills me. All it does is represent an attempt to keep people in debt for longer without succumbing. This year. And only those who shouldn't have bought a home anyway. When the five years are up, we'll back in the same place -- unless people actually learn from this bout of economic missteps.
  3. New Fed rules on mortgage lending. This is by far the most effective thing to come out of Washington. Maybe it's because it comes folks more on the economy side than the political side. At any rate, the new rule requires mortgage lenders to consider the fitness of borrowers to pay after an adjustable rate resets. This might actually stop some people who shouldn't be buying houses from actually buying them.
  4. $500 tax rebate. This isn't even an attempt to fix the mortgage industry and the problems in it. It is a proposal to prop up the economy. Not by encouraging Americans to pay down debt or save the money. The tax rebate (if it happens) would be accompanied by encouragement to go out and spend it on stuff. It might even result in more debt for average Americans.
These things are on the table. And, as I mentioned at the end of November, the next credit crisis is on its way. Bloomberg reports that Wall Street banks are under investigation for under-disclosing the risky debt bundled into securities.

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