Last week's White House-engineered announcement on the five-year freeze on interest rates for subprime borrowers facing foreclosures may not have been the ideal solution to the current market crisis. Even President Bush, in announcing the plan, glumly stated: ‘There is no perfect solution.’
However, an argument can be made that the agreement will represent Bush's most important gift to the next Republican candidate for president. Despite its flaws and long-overdue arrival (and acknowledging the grunt work for the deal was powered by Treasury Secretary Henry Paulson, not the president), the agreement offers a deft one-two punch that shows the Bush White House still has some tricks up its proverbial sleeve.
Admittedly, Bush is very late to the table – he personally did not acknowledge there was a subprime crisis until late August, and his initial attempts at a Washington-based solution were not widely hailed as being the definitive answer to the problem.
Nonetheless, a late Bush was still miles ahead of the Democrat-controlled Congress, which has yet to produce any legislation designed to address the current situation. Reform for the government-sponsored enterprises, regulation for the mortgage brokers, and solutions to ensure affordable housing in the aftermath of subprime's collapse have yet to emerge from Congress, despite endless posturing and jawboning by the Democratic leadership. Bush, in announcing the new interest rate freeze, pointedly reminded the nation that he has yet to see any meaningful legislation from Congress on this issue.Â
Indeed, the Democratic leadership wound up on the defensive, offering a mix of rare praise for presidential leadership (including a measured cheer from Sen. Hillary Clinton) or sour after-the-fact criticism of the Bush plan without any viable solutions of their own (including grumbles from Rep. Barney Frank).
Second, and more intriguing, will be the effects of the agreement on the presidential race. Economic issues will probably be the Achilles' heel for the Republican candidate – voters rarely wish to stay the course with the incumbent ruling party when the economy sours, a lesson that the president's father learned in 1992. Indeed, the current crop of Republican candidates conspicuously avoid focusing on the housing market in their campaigning.
If the new agreement doesn't take the subprime crisis off the table completely, at least it dilutes its impact by lessening the severity of the projected foreclosure tsunami. This will allow the Republican candidates to escape some of the heat relating to the state of the economy, while the Democratic candidates will not be able to play this card with the depth and scope they initially planned.
Ironically, the new agreement expires in five years, just in time for the 2012 campaign when the next president will most likely be facing a re-election campaign. Is that a coincidence or a Bush-style joke?
– Phil Hall, editor, Secondary Marketing Executive
(Please address all comments regarding this opinion column to hallp@sme-online.com)
