Concern for his Base

Krugman:

...Mr. Paulson’s actions reflect the priorities of the administration he serves. And that, ultimately, is what’s wrong with the mortgage relief plan he unveiled last week.

The plan is, as a Times editorial put it yesterday, “too little, too late and too voluntary.” But from the administration’s point of view these failings aren’t bugs, they’re features.

In fact, there’s a growing consensus among financial observers that the Paulson plan isn’t mainly intended to achieve real results. The point is, instead, to create the appearance of action, thereby undercutting political support for actual attempts to help families in trouble.

In particular, the Paulson plan is probably an attempt to take the wind out of Barney Frank’s sails. Mr. Frank, the Democratic chairman of the House Financial Services Committee, has sponsored legislation that would give judges in bankruptcy cases the ability to rewrite mortgage loan terms. But “Bankers Hope Bush Subprime Plan Will Scuttle House Bill,” as a headline in CongressDaily put it.

As Elizabeth Warren, the Harvard bankruptcy expert, puts it, “The administration’s subprime mortgage plan is the bank lobby’s dream.” Given the Bush record, that should come as no surprise.

There are, in fact, three distinct concerns associated with the rising tide of foreclosures in America.

One is financial stability: as banks and other institutions take huge losses on their mortgage-related investments, the financial system as a whole is getting wobbly.

Another is human suffering: hundreds of thousands, and probably millions, of American families will lose their homes.

Finally, there’s injustice: the subprime boom involved predatory lending — high-interest loans foisted on borrowers who qualified for lower rates — on an epic scale. The Wall Street Journal found that more than 55 percent of subprime loans made at the height of the housing bubble “went to people with credit scores high enough to often qualify for conventional loans with far better terms.”

And in a declining housing market, these victims are stuck, unable to refinance.

So there are three problems. But Mr. Paulson’s plan — or, to use its official name, the Hope Now Alliance plan — is entirely focused on reducing investor losses. Any minor relief it might provide to troubled borrowers is clearly incidental. And it is does nothing for the victims of predatory lending...