Congress Will Force Bush to Accept Housing Bailout

Will President Bush go for a housing bailout? In both his speech to the Economic Club of New York on Friday and, later that day, a televised interview with CNBC's Lawrence Kudlow, the president stopped short of ruling out such a move, though he was critical of the idea. Yet the more folks I talk to in Washington, the more likely it seems to me that the White House will, in the end, support a proposal quite similar to the one being pushed by Democrat Barney Frank in the House. As one former member of the Bush economic team put it: "I do think the odds of enactment have increased and will continue to increase as the economy worsens." Republicans in Congress, up for re-election unlike Bush, may force his hand. Read this new analysis from Daniel Clifton over at Strategas Research (boldface mine):

President Bush traveled to New York on Friday and the main takeaway we received from his speech is that he vehemently opposes Congressional Democrats' efforts to increase the government's role in the housing market. More specifically, Bush made clear his priority was to prevent as many people from losing their homes and will thus oppose legislation authorizing the government to purchase troubled mortgages. And he reiterated and increased his opposition to bankruptcy judges modifying mortgage products for homeowners in bankruptcy. If the credit/market situation continues to deteriorate, at some point, Republican members of Congress will seek to do something and force the Administration to compromise with the Democratic leadership.

Bush publicly bristles at the idea of a bailout—using taxpayer dollars to help make whole the people or institutions that made bad financial decisions. And analyst Jaret Seiberg of the Stanford Group, an institutional research firm, says any bill framed as a bailout is "dead on arrival." But, he adds, the Frank bill does force borrowers, servicers, and homeowners to de facto pay for the rescue, since lenders will be accepting a reduced payment and homeowners will both pay an insurance premium on their new mortgage and forfeit a portion of the profit to Uncle Sam when the house is eventually sold.

But action is far from assured. Economist Alan Viard, who worked for Bush's Council of Economic Advisers, says the administration "will be reluctant to approve anything" like the Frank bill unless the economic situation deteriorates significantly from here.