Federal Homeowner Preservation Corporation: a blank check from taxpayers

Bank of America announced it will acquire Countrywide, universally thought to be a toxic mortgage corporation, for $4.1 billion on January 11, 2008. This action gave Bank of America about 20% of U.S. market share in the mortgage loan industry. On February 23, the New York Times blew the whistle on a confidential proposal being circulated among members of Congress by Bank of America, calling for a new “Federal Homeowner Preservation Corporation,” to buy up billions of dollars of bad mortgages at a deep discount.

Bank of America claims $739 billion of mortgages are at moderate to high risk of default over the next five years, emphasizing that millions of families are at risk of losing their homes. It is nice to see Bank of America’s executives showing concern for American families, but I suspect that worry would dissolve if the government decided not to fund a bailout. I can only wonder if Bank of America’s people were planning the FHPC long before they bought Countrywide. I guess Congress is above the law, but this resembles government participation in organized crime and insider trading, at the moderately to highly expected expense of $2,400 per U.S. individual.

This bail-out may seem convenient to someone who is unable to pay their mortgage, but the FHPC will undoubtedly encourage irresponsible lending in the future, with the expectation that the federal government will cover any losses. Compounding this threat to economic health, Americans will not feel the need to work to pay off their debts if they know there is a safety net like the FHPC in place, which would decrease American labor, and consequently lower real GDP.

The federal government cannot create, and should not attempt to create, an America where there is no risk of failure, as was the aim of the Soviet Regime. No American would really wish to live in such a place, and if some do, I suggest our funds would be well spent providing those Americans with passports and one-way fares to their ideal nation, Cuba-word on the street is things are looking up there.

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One Response

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