Bailout watch: Here come the Democrats

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From Reuters: ‘As the U.S. government edges toward a more forceful response to the housing market crisis, a senior Democrat on Wednesday said a bill being created may call for federal purchases of distressed mortgages.’

More: ‘House of Representatives Financial Services Committee Chairman Barney Frank (pictured) said the bill from House Democrats may be unveiled next week to tackle what he called the worst housing slump since the Great Depression of the 1930s.’

This has the makings of an odd and potentially powerful alliance: Democrats who want to take aggressive action to stop foreclosures and banks and lenders that want the government to buy the bad mortgages that are poisoning their balance sheets.

Commentary: The anti-bailout argument is probably strongest in Los Angeles, where housing is expensive relative to income, and home ownership levels are relatively low. That’s not because Angelenos don’t want to own their own homes -- it’s because housing is expensive here and many of you are smart enough to figure out when a mortgage doesn’t pencil out.

The financially cautious and patient have every right to be angry about plans to use government money to bail out those who inflated housing prices here through foolish loans and foolish decisions. There is no reason to believe a government bailout would be applied with any sense of fairness. Yes, it might help the economy. It would also aid the reckless at the expense of the cautious.

Enough bloviation. If you want to read something smart, check out Stephen Roach’s cautionary essay in the New York Times, warning that we are at risk of turning Japanese -- in a bad way: ‘Like their counterparts in Japan in the 1990s, American authorities may be deluding themselves into believing they can forestall the endgame of post-bubble adjustments. Government aid is being aimed, mistakenly, at maintaining unsustainably high rates of personal consumption. Yet that’s precisely what got the United States into this mess in the first place — pushing down the savings rate, fostering a huge trade deficit and stretching consumers to take on an untenable amount of debt.’

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Photo Credit: www.house.gov/frank/