And, in what is perhaps the biggest assault on the free market, the plan may allocate up to $100 billion to stem foreclosures. Although the Obama administration has not indicated what this will entail, there is talk of capping borrowers’ monthly payments at 31 percent of their gross income and the government sharing losses with lenders in the event the debtor defaults and the lender has to write down the loan. In this “new era of responsibility,” the government takes responsibility for everyone’s poor decisions.
This new plan represents Washington’s latest effort to use the root causes of an economic crisis to fix that very same economic crisis. The government is prodding the financial industry to start the credit machine again, despite the reluctance of banks to make loans to potentially unqualified borrowers. Rather than allowing the market to establish the value of certain assets and which parties are adequately solvent, the government is trying to convince America that there is a shortcut known as the printing press.
Among the public, there seems to exist a growing sentiment that (a) the economic situation is outrageous, (b) nobody in Washington really knows what they are doing or how to fix the problem, and (c) the government is spending a lot of money bailing out irresponsible parties.
Republicans should stand firm and now and give Barack Obama ownership of this culture of bailouts and spending. They should explain how the government’s nearly $10 trillion in guarantees for which the taxpayer is responsible is far more likely to prolong and exacerbate this crisis, not end it. And they can make great strides in severing the cord with the George Bush Era of government growth and return to being the Party of responsibility and frugality. It is somewhat remarkable that Barack Obama has even given them this chance. Now they need to take it.