Obama’s Accounting Gimmick to Protect Lenders

The key plank of Obama’s housing plan announced yesterday is to subsidize mortgage payments, reducing effective interest costs in order to put a floor under asset prices so banks and homeowners don’t have to declare bankruptcy... If Bush’s strategy for dealing with the banking and housing crises was to bury his head in the sand, Obama’s strategy has been to bury his head even deeper.

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Naturally banks love the Obama plan. By subsidizing monthly payments, and not forcing banks to write down principal by more than a token amount of $1000 per year for 5 years, the plan will keep homedebtors tethered to vastly overpriced mortgages. Who does this really benefit? Not the homedebtor, who has little chance of ever building equity in the home. He’s effectively paying over-priced rent to a bank. No, the banks are the real beneficiaries.