The Washington Post tells us that Representative Barney Frank, the head of the House Financial Services Committee, wants at least $40 billion of an any additional TARP funds to "help distressed homeowners." This is how Mr. Frank describes his agenda, but the proposes that he has supported would send checks to banks, not homeowners. Mr. Frank has endorsed the idea of paying banks considerably more than the market value for bad mortgages in order to allow homeowners to stay in homes in which they will have zero equity. If a bank gets $20k, 30k, or even more, and the homeowner ends up with nothing except a new mortgage that is equal to value of her home, it is difficult to see how this outcome is aiding the homeowner. It is easy to design measures that would help homeowners without giving taxpayer dollars to banks. For example, the government could temporarily change the rules on foreclosure to require that homeowners facing foreclosure be given the opportunity to rent their home at the market rent for a substantial period of time. Mr. Frank has shown zero interest in such measures.
--Dean Baker
