Steven Pearlstein gets it badly wrong in discussing the Frank bill that would have the FHA bailout banks by guaranteeing hundreds of billions of dollars in new mortgages. Pearlstein complains that the Bush administration complains that the program will both cost billions of dollars and not help many homeowners. According to Pearlstein, this is impossible. Either the bill will not help many homeowners or it will not cost much, both cannot be true. WRONG!!!!!! If the bill guarantees new mortgages at what are still bubble-inflated prices, then many of the "beneficiaries" of this program will find themselves still paying too much on mortgages which will again go underwater as prices fall further. This will lead to high default rates, which will push up costs, and relatively few people left as secure homeowners. Frank could limit the problem of excessive guarantee prices by tying the price to rents, but he has chosen not to do so. Therefore, it is entirely reasonable to complain that the bill will be both costly and help relatively few homeowners.
--Dean Baker
