It's not quite right to describe the White House's new plan as a bailout of subprime mortgage borrowers. It's actually a bailout for a tiny fraction of those with adjustable-rate mortgages, not subprime loans.

Nearly half of all subprime mortgage rates are fixed-rate loans, and only 32% of ARMs are subprime. With all the misplaced political anxiety about rates being reset, you might think all of those victims who signed up for these mortgages had no idea their rates could be adjusted.

The Bush administration claims its plan will help "up to" 1.2 million people. Most of that promised help consists of nothing more than another phone number to call for counseling about refinancing - a redundant service unlikely to prove wildly popular. Refinancing has been soaring anyway, thanks to 30-year mortgage rates dipping below 6%.

If risky subprime borrowers were supposed to be the main beneficiaries of refinancing assistance, it would have been the height of irresponsibility for President Bush to suggest greater involvement of the Federal Housing Administration, Fannie Mae and Freddie Mac. Shifting default risk to U.S. taxpayers could be very costly.

In reality, the only financial aid in this plan goes to those who qualify for the five-year freeze on mortgage rates - a curiously selective little group, estimated to number between 145,000 and 360,000.

When it comes to resetting mortgage payments below the level borrowers agreed to, why give a special deal to Sam but not Suzie? On the day the plan was unveiled, the Mortgage Bankers Association reported that 0.78% of mortgages went into foreclosure in the third quarter, and 5.59% were far behind in their payments.

Neither group qualifies for any help under the Bush plan. Neither does anyone with imperfect timing - those who took out a mortgage before 2005 or after this July. Among the few lucky enough to slip through that narrow window, the primary criterion for a rate freeze is a weak credit rating, below 660.

And what happens after five years? Presidential contender Sen. Hillary Clinton

(D-N.Y.) already is talking about stretching it to seven years, and that bidding war has just begun.

On the face of it, these criteria for political favoritism seem only marginally more sensible than limiting special loan terms to, say, short people or redheads.

Is it a bailout? The stock market sure thought so. Stock prices of mortgage companies and homebuilders soared on the news. After all, the plan was designed by and for those same companies - key members of the Hope Now Alliance.

Treasury Secretary Henry Paulson describes the arbitrary rewriting of financial contracts as a win-win situation for everyone. If that were true, the government wouldn't have to get involved.

Bush says he only wants to bail out borrowers, not lenders. Yet the whole point of this scheme is to cajole or bribe more borrowers into making more mortgage payments - to lenders.

Some in the media describe all this heavy-handed political intervention as the Bush administration's "free-market approach" to the threat of non-performing mortgages. On the contrary, honoring contracts and property rights is absolutely essential to the proper functioning of a free society and free economy. A mortgage is a binding contract between consenting adults.

Another president, Richard Nixon, gained ephemeral popularity by freezing wages and prices in 1971, but the end result was disastrous for the economy.

The Bush administration may hope now for some political benefit from freezing interest rates for a select subgroup of high-risk borrowers. But whenever politicians attempt to protect borrowers and lenders from their folly, they just encourage more folly.

Alan Reynolds, a senior fellow with the Cato Institute, is the author of "Income and Wealth." A version of this article first appeared in The Wall Street Journal.

http://www.jsonline.com/story/index.aspx?id=696879

PLATTSBURGH — While many issues are being debated in this year’s congressional races, the recent bailout of Wall Street is getting the most attention.

Michael Oot, the Democratic challenger in the 23rd District, says he would not have supported the version of the federal bailout that Congress passed earlier this month.

“They put $158 billion of pork in it,” he said.

“While there may be a need to come to the rescue of Wall Street, we also need an economic-stimulus package that puts money in the wallets of middle Americans.”

Critics of the bailout have voiced concern that too much of the $700 billion package is going toward bonuses for executives in the companies that have contributed to the financial meltdown of Wall Street.

Oot’s opponent, incumbent Republican John McHugh, said that if Oot did not like the final version of the bill, he can blame Democratic House leaders for what it included.

“I agree that this bill was not the place to carry these provisions. They should have been separated, and they probably would have passed on their own, but the Democratic leadership precluded us from taking them out,” McHugh said, who voted to approve the bailout package.

“So if Mr. Oot has a problem with that, then he should really talk to the Democratic leadership because they made the call.”

Oot said corporations simply do not have a conscience and that deregulation of financial markets in 1999 led to the financial crisis because corporations have little or no rules to hold them back from greed.

“They (corporations) have no moral guidance unless we give them a moral path they have to go down.”

The bailout should include specific measures to ensure that corporations do not again fritter away public money, Oot said, adding that district residents are furious over the situation.

“It doesn’t look like they (Congress) have a plan. They are just throwing money at it,” he said.

“We need a moratorium on mortgage foreclosures until we can help out the guy who was the victim of this failure.”

McHugh said the bailout package, while not perfect, should help stop the bleeding on Wall Street and help many Americans.

As for &ldquoork” money being included in the bill, McHugh said he adamantly opposed that idea.

Posted: Oct 4, 2008 02:12 PM CDT

Bailout Update

The emergency financial rescue package I am supporting today, while far from perfect, contains noticeable improvements on the Paulson Plan we considered on Monday.

This package is much more balanced in favor of helping everyday people, middle-class families, and small businesses. The bailout package we considered on Monday was simply too geared toward Wall Street and the corporations whose irresponsible practices helped create this crisis in the first place.

This new financial rescue package raises the cap on FDIC-insured bank accounts from $100,000 to $250,000, which will assist families and small businesses while restoring Americans’ confidence that their savings are secure.

The new package provides tax relief for middle-class families and tax incentives designed to create new jobs and economic opportunities in Hawaii, where people have been hit hard by the economic downturn that preceded this financial crisis.

The majority of the tax relief, tax credits, and tax extenders added to the package will provide direct relief and economic assistance to middle-class families and working people—such as the Alternative Minimum Tax (AMT) relief provision and tax credits to speed research, development, and use of renewable energy sources like wind and solar.

The AMT fix, for example, will prevent some 40,000 constituents in my second district of Hawaii from having to pay higher taxes that were originally intended only to affect wealthy taxpayers.

The renewable energy tax credits are critical to encourage investment in the alternative energy projects Hawaii needs to reduce our dependence on foreign oil.

In addition, the bill reauthorizes for two years the Qualified Zone Academy Bonds (QZA program, which helps school districts with low-income populations save on interest costs associated with financing school renovations and repairs. Hawaii received about $1.3 million in QZAB allocations in 2005, 2006 and 2007.

Another significant provision of this bill requires insurance mental health parity legislation that advocates in Congress have been trying to pass for the past ten years. I am an original cosponsor of this legislation. These provisions, included in the financial rescue package, will make sure that families struggling with mental illness do not have that challenge compounded by inadequate coverage of mental health care costs.

I have voted for these energy, business, and middle-class tax relief measures earlier in the House. These provisions will help 30 million homeowners, create 500,000 American green jobs, and provide tax relief for well over 25 million middle-class families. Including those tax relief proposals as part of the financial rescue package has made the overall proposal more balanced, and more likely to help everyday people get through these difficult economic times.

The economic downturn we are facing, resulting in loss of jobs, foreclosures, and families having difficulty paying for life’s necessities, will not be fixed by this relief bill. The economic provisions added to the bill will help. But we need a broader economic stimulus package to get our economy going in the right direction again.

I am disappointed that it appears the Senate is not taking up the economic stimulus package (H.R. 7110) recently passed in the House, which will create jobs, extend unemployment benefits, help states with Medicaid reimbursements, and support our Food Stamp program. This bill represented some $222 million for Hawaii.

I did talk to Senator Obama about his perspective and my concerns about this bill. We both know that much more work remains to be done to address the underlying economic and regulatory problems that won’t be fixed with this bill. We agree that new federal investments are needed in transportation and clean water infrastructure as well as in education to enhance our nation’s competitiveness and to put people to work.

Senator Obama also shares my concern that the cost of this rescue plan will not ultimately fall on the taxpayers, and he reassured me of his commitment to impose financial service fees to make taxpayers whole. With the right leadership in the White House, I am confident that we can make the changes needed in future legislation to protect homeowners and taxpayers and to reform our financial markets.

Though they don’t always see eye to eye on many issues, the three area members of Congress were united in their opposition to the financial bailout that failed to pass the U.S. House of Representatives on Monday.

Democrat Dennis Kucinich and Republican Steve LaTourette both believe the financial services firms that made the risky loans and created the derivative securities that have become radioactive should pay for their own mistakes.

Rep. Betty Sutton, a Democrat whose 13th District cuts through parts of Cuyahoga, Lorain, Medina and Summit counties, was most concerned that the thwarted bill “did not provide the necessary protections for taxpayers and help for struggling American families.”

For Rep. Kucinich, it was a matter of extreme corporate greed.

“The same corporate interests that profited from the closing of U.S. factories, the movement of millions of jobs out of America, the off-shoring of profits, the out-sourcing of workers, the crushing of pension funds, the knocking down of wages, the cancellation of health care benefits, the sub-prime lending are now rushing to Washington to get money to protect themselves,” he said in a statement.

“The double standard is stunning: their profits are their profits, but their losses are our losses,” said Rep. Kucinich, whose 10th District spans the West Side of Cleveland and the western Cuyahoga County suburbs.

Rep. LaTourette shared some of Rep. Kucinich’s outrage, but he also expressed more nuanced concerns about the so-far unsuccessful effort to craft a bill that will shore up the financial markets.

“I’d rather have rich guys in three-piece suits buy up this bad mortgage debt and get a tax break for doing so than have taxpayers foot the bill,” he said in a statement.

Rep. LaTourette said he believes any bailout bill should allow U.S. companies doing business overseas to bring assets back into the United States. He said that provision would provide capital to bolster the market for mortgage-backed securities.

The congressman also wanted to double to $200,000 the federal insurance on bank deposits.

Rep. LaTourette’s 14th District runs from the eastern suburbs of Cuyahoga County through Ashtabula, Lake and Geauga counties.

Rep. Sutton tied her rejection of the bill to President Bush’s threat to veto an economic stimulus package stalled in Congress.

“The stimulus bill would provide critical funding for infrastructure, renewable energy development and other initiatives to spur job and economic growth in our country,” she said in a statement. “The plan would help American families and cost less than a tenth of the price tag for the bailout Bush is seeking for Wall Street.”

Because of the death of Rep. Stephanie Tubbs Jones, the 11th District that covers the East Side of Cleveland and many of the eastern suburbs in Cuyahoga County currently is without representation in Congress.