Economic Proposals Abound in Congress Congress is back in session this week after time spent back home talking with constituents. The result is a number of proposals and plans from both parties to try to help beleaguered homeowners. But how would it work, and who is going to foot the bill?
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Economic Proposals Abound in Congress

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Economic Proposals Abound in Congress

Economic Proposals Abound in Congress

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Here in the U.S., the administration yesterday came out with a plan to overhaul the way financial markets are regulated.

Secretary HENRY PAULSON (United States Treasury Secretary): Hopefully, with the proper tools and authorities, greater transparency and better information flow, we will better able to avoid some problems and more effectively work through others.

MONTAGNE: That's Treasury Secretary Henry Paulson announcing the plan. It's already under fire from state officials and smaller banks, who say it gives the Federal Reserve too much power.


The Bush administration's latest plans are of great interest to members of Congress, who've just been home in recent days and hearing from their constituents about the economy, among other things.

To talk about that and much more, we turn to David Wessel. He's economics editor of the Wall Street Journal, regular guest here.

David, welcome once again.

Mr. DAVID WESSEL (Wall Street Journal): Good morning.

INSKEEP: So what do lawmakers think of what Paulson said?

WESSEL: Well, they're all over the map. A number of lawmakers think that this is a step in the right direction. But a lot of them think that this is a great conversation to begin as long as they do it their way.

Congressman Barney Frank in the House, Senator Chris Dodd in the Senate, have their own schemes for reorganizing financial regulation. And of course, presidential candidates Clinton and Obama are coming forward with their own.

INSKEEP: Now, if you are a member of Congress facing reelection this fall, are you really concerned about future reforms in the financial markets or are you really asking, more likely, how can I help homeowners right now, today, before election day, preferably?

WESSEL: Well, that's a good question. And I think what's going on right now is that both the Congress and the administration are trying to put out a very big fire and work on a fire-prevention plan. What Mr. Paulson put forward is his version of a fire-prevention plan, but there is an enormous amount of pressure to do something about the continuing fire.

Most notably, there is now, it seems to me, a consensus - even Mr. Paulson has signed on - that the government's going to have to do something for the 8.8 million homeowners whose mortgages are worth more than the value of their houses, which means that they can't refinance even if they want to.

INSKEEP: OK. So what proposals are out there to help them?

WESSEL: These are enormously complex proposals that basically do one thing. They take the loans away from lenders and investors at a price less than their face value. That is, if someone lent $100,000 on a mortgage, the mortgage is now trading in the markets at 80,000, the government takes it over in one way or another at 80,000, and then the government - perhaps through the Depression-era Federal Housing Administration - refinances the loan at a more affordable rate for the homeowner.

INSKEEP: So the government is going to say to a lender under this proposal, were it to become law, I'm going to take over that loan, I'm going to pay you for it at a discount, and I'm going to go to the homeowner and get them a price that they can afford.

WESSEL: Basically, yes.

INSKEEP: And then the lender ends up having to suffer somewhat, but then the federal government ends up taking over the risk of the shaky loan.

WESSEL: Basically, yes.

INSKEEP: And there must have to be a lot of tax payer money involved in that part of it.

WESSEL: Well, I think it's inevitable that we're going to have explicit taxpayer money here. So far, all the taxpayer money that's been put in has been put in through the back door by the things that the Federal Reserve has done and so forth.

To the lenders and investors, the losses have already occurred. They're never going to get 100 cents on the dollar. So some of them may actually volunteer to get out of these things at a loss. And for the government, how much this actually costs taxpayers, well, that depends on what happens to housing prices over the next few years.

We had an agency like this during the Depression and actually over time, it managed to make money. But the risk would be with the taxpayers. And if things don't work out well, the taxpayers would take a hit.

INSKEEP: When Hillary Clinton on the presidential campaign trail talks about $30 billion to help homeowners, is this the kind of plan she's talking about?

WESSEL: Yes, actually. Senator Dodd and Congressman Frank are talking about putting as much as $300 or $400 billion into this operation, some of which the government might get paid back.

Senator Clinton and others are also talking about using some federal money to help state and local governments deal with this. Perhaps they would buy foreclosed houses and rent them out to people who've been kicked out of their homes.

INSKEEP: If you're a Republican, you must feel ambivalent, to say the least, about the government getting even more involved in people's lives in this way.

WESSEL: Seems to me that the Republicans fall into two categories. One camp, having heard from their constituents and seeing the risk not only to the well-being of many people but to the overall economy - Wall Street, the banks, this whole thing - have recognized that their ideological predisposition to keep government out of things is not suited to today's problem.

But another set is hearing - as, frankly, I am - from people who say, look, I got a mortgage, it was a mortgage I can afford, I'm paying it, why should my tax money go to help somebody who made a foolish decision or a lender who made a foolish loan? And I think that those people are also fairly vocal. And it seems to me that Senator McCain, the Republican candidate, is hearing them because he is talking more their language, saying that the government ought to step very cautiously here.

INSKEEP: David Wessel of the Wall Street Journal. Good to see you again.

WESSEL: A pleasure.

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