1-888-995-4FDR
One of the questions about President Bush's new housing plan is whether it creates more trouble for markets or less. Mr. Bush is offering to help families in danger of losing their homes by extracting promises from investors who own the mortgages to freeze adjustable rate loans, potentially forgoing interest rate increases that were part of the original loan contracts.
In other words, the President is choosing to injure one party — those to whom the money is due — in the name of helping another, the borrowers. Families in trouble, the president offered, could call a number for a private foundation — not a government office — to begin credit counseling: 1-888-995-HOPE. Mr. Bush explained his choice Thursday in the White House Roosevelt Room.
The room may have been named for Theodore, but the "Hope" line recalls Franklin Roosevelt's New Deal. FDR also struggled with the trade off between debtors and creditors. Roosevelt was notorious for his disregard for lenders in credit markets. In his first inaugural, he dismissed them as "a generation of self seekers." He also told citizens that his would be an era that transcended money. If that sounds weird, welcome to the start of the Great Depression.
"The money changers have fled from their high seats in the temple of our civilization," FDR said. "We may now restore that temple to the ancient truths. The measure of the restoration lies in the extent to which we apply social values more noble than mere monetary profit." Roosevelt himself spent a lot of energy abusing lenders, a fact which contributed to the duration of the Great Depression.
There were many areas where Roosevelt was far to Mr. Bush's left. One was his abrogation of the gold clause in bonds (not that Mr. Bush has watched the gold price). Mr. Bush's idea that borrowers call a private foundation, not a government office, for credit help comes straight out of the playbook of not Roosevelt but Herbert Hoover. The 31st president, an engineer by background and a careful Constitutionalist, stressed voluntarism by the private sector over government coercion.
Mr. Bush also shows signs of treading to Roosevelt's left. In FDR's day, the interest-only loan was the rule. People had to refinance after five years. Rates varied dramatically from town to town. FDR detested at least this uncertainty. And so, a bit like Moses offering a tablet, he delineated the format for the modern fixed mortgage in a letter to Federal Housing Administrator James Moffett. "President Orders 5% Interest Rate on Housing Loans," read the story in the New York Times on November 2, 1934.
The 5% rate, the 20 years that a borrower had to pay back the loan, the rule that he need put only 20% down — all these parameters, so familiar to us today, came from Roosevelt. His clarifying step reduced uncertainty. By postponing a true solution to the subprime problem, Mr. Bush is abusing the adjustable rate system. He is also moving toward making housing an entitlement question rather than a property question. Not even FDR went that far.
