Like a subprime mortgage, Congress may soon put taxpayers on a risky hook for mortgages gone bad. A federal rescue effort may stem a financial market meltdown. No longer should federal support for owning a home be based on the false premise that housing prices will always go up or that taxpayers are the final backstop for mortgage holders.
Congress should also determine if the proposed federal purchases of bad mortgages will come at fire-sale prices. The plan calls for the Treasury Department to pay for mortgages that American-owned financial institutions have been unable to sell. Congress should make sure that Treasury is not allowed to blink and pay too much to recoup a taxpayer investment.
Lawmakers could, of course, decide that there are other ways than buying up mortgages to unclog credit in financial markets. They could simply offer loans to troubled companies. But for now, with the financial system at risk and last week’s stock-market gyrations, the crisis calls for swift action.
First, taxpayers need to know if deterrents are coming to avoid another mortgage crisis and prevent another tapping of their money.
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