Welcome to Politics Bites, where every afternoon at It's A Free Country,we bring you the unmissable quotes from political conversations on WNYC. On today's Brian Lehrer Show, Dean Baker, co-director of the Center for Economic and Policy Research and Peter Wallison, Arthur F. Burns Fellow in Financial Policy Studies at the American Enterprise Institute, talked about the government's role in home ownership.
In the long aftermath of the subprime mortgage crisis and burst housing bubble, the U.S. Department of Housing and Urban Development and the U.S. Treasury are reassessing the role of the federal government in the housing market. Since at least the end of World War II, Washington has played a role buying and insuring home mortgages from consumer banks as a way to encourage homeownership. But the government's involvement is the mortgage market has often mean the taxpayers underwrite risk and are on the hook when a speculative bubble bursts.
Peter Wallison, of the American Enterprise Institute argued that Washington should get out of the business of underwriting mortgages, just not right now. The private market can find a way to make money lending to middle class people at responsible terms, he said. But at the moment, Fannie and Freddie's role is important because they underwrite so many 30 year fixed-fixed rate mortgages for middle class families.
When we are at a time that we are no longer in this crisis. When we are not coming out of the results of what I think were Fannie and Freddie's previous work, then we can have a system that does not rely on the government.
Dean Baker, co-director of the Center for Economic and Policy Research, rejects Wallison's contention that Fannie and Freddie are primarily responsible for the crisis. But he too thinks the government sponsored entitites should get out of the secondary mortgage market.There are simplier and less risky ways to encourage broad home-ownership.
If the choice is between some sort of mixed public private or some sort of, to my mind, sort of convoluted system of having a public guarantee issued by a private corporation, I would just as soon say, no, just go back to the private sector. If we want to subsidize home ownership, we already do that. If we want to do it more, we could do that through the tax system. It's probably an easier and simpler way and it does involve less risk.
Baker and Wallison sharply disagreed on what was at stake in the discussion, and the nature of the private mortgage market. The market can't be trusted to operate in the best interest of the country, Baker said.
I think there is something at stake which is whether we think the private sector, left to itself, can be counted on to be responsible and not to have inflating bubbles like this. And you know, my view is no, they were part of the story.
If the governement continues to participate in underwriting mortgages, it is only a matter of time before the taxpayers will be funding another bailout, Wallison said.
If we decide that the government should remain in housing finance, we are going to run into exactly the same problem, some crisis in the future, because government's involvement creates moral hazard.Liste