Barney Frank's Opposition: It's Not Hank Paulson

Paul Krugman blogged the mortgage-freeze plan on Friday; today he has a column on the subject in the NYT. What's interesting to me is that the column is so much more partisan than the blog entry was.

Krugman's take on the economics of the plan is characteristically spot-on: he's quite right that it will be only of limited help. But I part with Krugman when, in the newspaper, he insists on viewing that fact through a very political lens:

The Paulson plan is probably an attempt to take the wind out of Barney Frank’s sails. Mr. Frank, the Democratic chairman of the House Financial Services Committee, has sponsored legislation that would give judges in bankruptcy cases the ability to rewrite mortgage loan terms. But “Bankers Hope Bush Subprime Plan Will Scuttle House Bill,” as a headline in CongressDaily put it...
Mr. Paulson’s plan — or, to use its official name, the Hope Now Alliance plan — is entirely focused on reducing investor losses. Any minor relief it might provide to troubled borrowers is clearly incidental...
You might say that the Paulson plan is better than nothing. But the relevant alternative isn’t nothing; it’s a plan that — like Barney Frank’s proposal — would actually help working families. And that’s what the administration is trying to avoid.

Krugman knows full well that the magnitude of the mortgage crisis is a function of the amount that house prices rose during the housing bubble, and the amount that house prices are likely to fall as they come back down to earth. With the value of America's residential housing stock somewhere in the region of $21 trillion, there's really nothing that anybody on either side of the aisle can do beyond tinkering at the edges and trying to dull some of the most excruciating pain. Barney Frank's proposal "would actually help working families"? One or two, maybe – but only those families who filed for bankruptcy.

And I think that Krugman's wrong when he says that the Paulson plan was deliberately designed to be a more bank-friendly alternative to the Frank plan. Here's what President Bush said when he announced the plan:

These measures will help many struggling homeowners -- and the United States Congress has the potential to help even more. Yet in the three months since I made my proposals, the Congress has not sent me a single bill to help homeowners. If members are serious about responding to the challenges in the housing market, they can start with the following steps.
First, Congress needs to pass legislation to modernize the FHA... Last year, the House passed the bill with more than 400 votes -- and this year, the House passed it again. Yet the Senate has not acted...
Second, Congress needs to temporarily reform the tax code to help homeowners refinance during this time of housing market stress... The House agrees, and recently passed this relief with bipartisan support. Yet the Senate has not responded...
Third, Congress needs to pass funding to support mortgage counseling...
Fourth, Congress needs to pass legislation to reform Government Sponsored Enterprises like Freddie Mac and Fannie Mae... The GSE reform bill passed by the House earlier this year is a good start. But the Senate has not acted.

Notice a pattern here? Bush lauds the measures passed by the House – ie, Barney Frank. And he's complaining that Frank's helpfulness is being held up in the Senate, where Chris Dodd is too busy running for president to actually pass these bills. If you read Damian Paletta's piece on Frank in the WSJ today, you'll find no hint of opposition from the White House. If Krugman were to be fair about the reason Frank's initiatives aren't making it into law, he point more fingers at Dodd than at Paulson.

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