Krugman: Henry Paulson’s Priorities

[RamboLiberal]

By Bush administration standards, Henry Paulson, the Treasury secretary, is a good guy. He isn’t conspicuously incompetent; and he isn’t trying to mislead us into war, justify torture or protect corrupt contractors.

But 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.

http://www.nytimes.com/2007/12/10/opinion/10krugman.html?_r=1&hp&oref=slogin

[JPZenger]

1. Key quotes

Here are some key quotes from the above article:

"Relief is restricted to borrowers whose mortgage debt is at least 97 percent of the house’s value — which means that in many, perhaps most, cases those who get debt relief will be borrowers who owe more than their house is worth. These people would be nearly as well off in financial terms if they simply walked away.

And what about people with good credit who were misled into bad mortgage deals, who should have been steered to loans with better terms? They get nothing: the Paulson plan specifically excludes borrowers with good credit scores. In fact, the plan actually provides an incentive for some people to miss debt payments, because that would make them look like bad credit risks and eligible for relief."