Almost two weeks ago, when they figured no one was watching, the Republican-dominated House of Representatives, by an overwhelming 292–121 margin, voted to increase funding for the Federal Housing Administration. Just as government debt hit $15 trillion, edging closer to 100 percent of GDP, these self-proclaimed scourges of spending decided Uncle Sam should continue subsidizing mini-mansion mortgage loans — up to nearly three-quarters of a million dollars.
Given the straits that the mortgage crisis has left us in, to say nothing of the government’s central role in getting us there, one might think Republicans would be asking whether the government should be in the housing business at all. “Stop out-of-control spending and reduce the size of government” — that is what Boehner, Cantor, & Co. promised in big bold letters during the 2010 campaign. That was in the snippets of text that occasionally interrupted the gauzy photo spread they called their “Pledge to America.”
Instead, here we are a year later, careering toward the cliff. We ought to be doing everything in our power to tee up the 2012 election as a high-noon showdown between Obama’s insatiable Leviathan and a GOP vision of fiscally sane, constitutional conservatism. So how do Republicans respond to their moment? How do they propose to “stop out-of-control spending and reduce the size of government”? Why, by putting taxpayers on the hook for shaky loans on luxury homes — sure to add prodigiously to the already $142 billion (and counting) housing bailout attributable to Fannie Mae and Freddie Mac.
Not housing for the poor, mind you, nor even for the middle-class — luxury homes. The real-estate market is so depressed at the moment that the median sale price of a single-family home is less than $170,000. Even in high-cost areas like Los Angeles, the Wall Street Journal reports, it has plunged to less than $325,000. Yet the Republican House — installed by the Tea Party in a sea-change election to be the antidote to Obamanomics — decided the taxpayers should guarantee FHA loans up to $729,750. Had they not acted, the public obligation would have been reduced to “only” $625,500 per FHA loan — couldn’t have that, right?
Most every sensible person realizes the housing market will never recover until it is allowed to bottom out — meaning no more price supports, period. Yet, thanks to Republican leadership, the FHA marches on, under the Fannie/Freddie radar. As the Journal’s editors elaborate, though the agency now guarantees a whopping $1.1 trillion, its capital reserve against this astronomical liability is $2.6 billion — too small to be considered even a pittance. Leave aside that this is illegal: It’s less than an eighth of the meager 2 percent reserve federal law requires. The reserve amounts to a leverage ratio of 422:1, a metric by which, the Journal editors quip, Lehman Brothers was comparatively “risk-averse.” With GOP at the helm, the ratio is up over a thousand percent since the salad days of 2009, when it was a more Lehman-like 33:1.
In their pre-election pledge, Republicans promised to “End Government Control of Fannie Mae and Freddie Mac.” They explained that the government-backed mortgage giants had “triggered the financial meltdown by giving too many high risk loans to people who couldn’t afford them.” GOP leaders thus committed to “ending [Fannie and Freddie’s] government takeover, shrinking their portfolios, and establishing minimum capital standards,” which they projected would save $30 billion.
Sure. Let’s put aside that Fan and Fred are still open for business — and structuring executive bonuses to rise in direct proportion with taxpayer bailout tabs. The pledge studiously avoided mention of the FHA. Now, thanks to GOP leadership’s good offices, this government mortgage guarantor now sports expanding portfolios, capital reserves acknowledged only in the breach, and the potential for hundreds of billions of dollars in losses. As the Journal notes, FHA loan down-payments can be as low as 3.5 percent — at a time when market conditions have prudent lenders insisting on 20 percent.
The FHA debacle and the excellent WSJ editorial about it were hard to forget this week when the vaunted deficit “supercommittee” — another joint Obama-GOP soap opera — collapsed in failure. Unlike Journal editors and maverick senators, a number of us Hobbits alwaysthought the debt-ceiling deal from which sprang the supercommittee was pathetic: It enabled President Obama to incur staggering new debt for a nation already drowning in red ink without any meaningful reduction in spending. But the Journal’s postmortem was truly rich.
The editors dismiss as a “Beltway fable” the Democratic talking point that the supercommittee flopped because of GOP resistance to tax increases. True enough, but then they counter with a Beltway fable of their own: to wit, the real problem is that “the two parties disagree profoundly on a vision of government. Democrats don’t believe they need to do more than tinker around the edges of the entitlement state while raising taxes on the rich. Republicans think the growth of government is unsustainable and can’t be financed no matter how much taxes are raised.”
In truth, the two parties are largely in agreement: The blob must grow. Yes, Obama Democrats want to grow it by about $6 trillion over the next decade, but Republicans are nearly as bad. Writing with Reason editor Nick Gillespie, NRO Cornerite Veronique de Rugy points out that the GOP would grow it by close to $5 trillion — a 30 percent increase.
That is under the plan proposed by Rep. Paul Ryan, the Republican budget pioneer who has won glowing praise in GOP leadership circles for daring to notice that we might be running out of other people’s money. Indeed, Newt Gingich, resurgent contender for the Republican presidential nomination, nearly derailed his campaign in its first mile by referring to the Ryan plan as “right-wing social engineering” — a gaffe he has sought to explain by stressing the need to grow public consensus before proposing something so tectonic.
Was it that good for you? I didn’t feel the earth move.
Don’t get me wrong. I like Representative Ryan. I wish he had run for president. I think he’d have won going away. Of all the stars in the GOP firmament — fellow supporters of TARP, and Keynesian economic stimulus, and the prescription-drug entitlement, and the bailout of GM and Chrysler, and . . . and . . . and — Ryan is the most likely to evolve into something like Reagan: the deep thinker humble enough to see the light and attractively confident enough to convince the country of what must be done.
But whether it is Ryan or somebody else, that evolution better happen in a hurry. In 2000, the last of the Clinton years, government spending was 18.2 percent of GDP. Obama has us at a 25 percent, but it’s only by that preposterous measure that Ryan’s proposal of 20.5 percent seems tame. In reality, the GOP proposes runaway spending that will get us to the same place — ruin — only slightly slower.
If Republicans really thought the growth of government was unsustainable, they’d stop growing it. As it is, the truly profound difference on “a vision of government” is between those who believe that government “growth” is unsustainable versus those who realize that government is unsustainable as is — those who grasp that throwing untold billions at Baby Boomer palaces is not compassion; it is the grandest of larceny, robbing our children and grandchildren of the chance for prosperity our forebears laid down their lives to preserve for us.
It was only a decade ago that we were getting by on 18.2 percent of GDP, and only about half a decade ago that a $400 billion annual deficit (about a trillion less than what we’re running now) was considered unconscionable. Where are the Republicans who are going to tell us how we get back to that?
The country is on a suicide course. This is not a time to be asking how, with a snip here and there, we trim our way to another $5 trillion down the sink-hole. Every GOP presidential candidate ought to be grilled: How much more than 18 percent of GDP (nearly $3 trillion) do you claim that the government needs to take from us and spend? What departments and tasks currently performed by the government will you shut down and abandon in order to get there? What do you plan to do when interest rates rise to historical norms (or, more likely, beyond) and the cost of further borrowing and debt service ravages the budget?
Obama Democrats demagogue about the need to balance spending cuts with tax hikes. Republicans predictably respond that they were willing to compromise. When you are $15 trillion in debt, a debate over whether we should borrow another $6 trillion or another $5 trillion is not an exercise in compromise. It is an exercise in insanity.
— Andrew C. McCarthy, a senior fellow at the National Review Institute, is the author, most recently, of The Grand Jihad: How Islam and the Left Sabotage America.