Greater Direct Involvement Of The Government In Foreclosure Wanted

March 25th, 2008 | Tags: Foreclosure

The economy is being badly mauled by the foreclosure crisis. There is a growing demand from all sections wanting the government to get straight into the housing crisis to stabilize the roller coaster ride to doom. Supporting tottering house loans with money taken from the taxpayers is not being liked. The issue is grabbling the limelight in presidential politics.

Ben Bernanke the chairperson of the Federal Reserved directly called upon the lenders to reduce the principal of the loans weighing down that facing foreclosure risk. Of late certain aggressive steps have been taken by the Fed - $30 billion short term loan to J.P. Morgan to enable it to buy Bear Stearns. Senator Hillary Clinton argued that if a $30 billion life line could be thrown to save Wall Street then another $30 billion should be made available for the communities at risk from foreclosures.

The problem is that while the Fed can help the investment industry it does not have the authority to do the same with borrowers. Lenders cannot be ordered to modify loans. Here comes in the pressure on the Congress to give the necessary authorization. By not doing so the taxpayer’s money is being played around with. So far the Bush administration has not made any step that will be a bail out of the house owners. It has stressed on voluntary negotiations between lenders and borrowers without the involvement of the government. There is a strong belief that the housing problem should be allowed to work itself out without interference. But the critics say that the big bullies are being sheltered while the small fry are being tossed to the wolves. The government should behave in a more impartial manner in mitigating this foreclosure crisis. Other top economists argue that some banks are just too big to collapse while some borrowers should reap the harvest they have sown.

A clear bailout programme for at-risk borrowers is a volatile issue. Who deserves help and who does not? It will lead to dangerous reactions from those who have regularly paid their dues and are now going unrecognized. The reaction will translate into votes. Why should the financially responsible suffer? It will be like the government giving out the message that one need not be responsible. Others say that apparently what looks like helping borrowers is actually a ploy to indirectly help lenders.