Clinton’s Mission to Save Bankrupt Homeowners

The presidential candidate suggests that the government should buy and resell houses that would otherwise be put up for foreclosure. The tax payer has to fork out. Meanwhile, the markets are doing better.

Theoretical demands of some economists are slowly being transformed into explicit political objectives: a major part of the costs of the Subprime Mortgage Crisis could possibly be imposed on the American taxpayer – at least if presidential candidate Hillary Clinton has it her way.

Clinton suggested that the Federal Housing Administration (a governmental institution) could buy houses if the homeowners are threatened with foreclosures. On Monday, Clinton furthermore proposed that the institution could restructure failed mortgages and later resell the houses. A group comprised of well-known economists such as the former Federal Reserve chairmen Alan Greenspan and Paul Volcker should decide if a state intervention to that extent would benefit the country as a whole.

By no means are Clinton’s proposals original. Some observers assert that the wife of former president Bill Clinton is adopting these ideas as her own to win the support of heavily indebted working-class voters. This would be little surprising, given that the economic situation of the United States has been made the major issue of the election campaign over the past couple of weeks.

To demonstrate a better economic expertise than her competitor Barack Obama during the Democratic primaries, Clinton embraces a proposal that has already been put on the table by Democratic Congressman Barney Frank and Senator Chris Dodd. Both politicians suggested expanding the government’s capacity to stand behind mortgages that are reworked on unaffordable terms and write new terms that would prevent foreclosure.

But Clinton’s plans to have the government transitionally buy properties go even further. According to Hillary, the taxpayer will not be burdened with these expenses in the long run. The next Democratic primaries will be held in Pennsylvania, a state with a large bloc of blue-collar workers that could possibly determine Clinton’s political success. This group of workers is especially affected by the real estate crisis and job losses.

While Obama’s camp is trying to downplay Clinton’s suggestions, American stock markets are doing better after last week’s excitement. Market prices slowly increased after JPMorgan Chase quintupled its bid for Bear Stearns stocks from $2 to $10. In addition, an unexpectedly low loss of profits of Tiffany & Co. lead to high spirits in buyers.

PART 2

JPMorgan’s initial takeover bid of 2 dollars per share was considered a give-away price and caused many Bear Stearns stockholders to furiously criticize the investment bank. Most economic specialists saw the very first – and already accepted – bid as an absolute bargain in the context of a bailout.

The stock exchange now assumed that JPMorgan was more likely to really take over Bear Stearns. “We believe the amended terms are fair to all sides”, says JPMorgan CEO Jamie Dimon. The investment bank expects to complete the deal by April 8.

The Federal Reserve Bank of New York is providing $29 billion during the deal to cover eventual risks. This action is being taken with the support of the Treasury Department, to bolster market liquidity and promote orderly market functioning. Experts predict that these actions will trigger harsh criticism of the government, since it helps a troubled bank, but neglects millions of homeowners that are threatened with foreclosure.

A report of the National Association of Realtors added to the good spirits at the financial markets. According to this report, the number of real estate sales has increased in February, for the first time in six months. However, the average asking price dropped 8 percent to less than $196,000. Dan Peirce, portfolio manager of State Street Global Advisors, said that decreasing prices with a simultaneously increasing number of sales demonstrate that homeowners are more and more willing to lower their asking price expectations.