Editor's note: Jeffrey A. Miron is senior lecturer in economics at Harvard University
Jeffrey A. Miron
Later this week, the Obama administration will announce the details of its Homeowner Affordability and Stability Plan, an attempt to rescue homeowners from the housing meltdown that precipitated the financial crisis.
The plan uses $275 billion in taxpayer funds to help homeowners refinance at lower interest rates and to subsidize payments from borrowers to lenders. The plan also contains new capital injections for Fannie Mae and Freddie Mac, and it gives bankruptcy judges power to reduce mortgage payments from borrowers to lenders.
This plan is exactly the wrong medicine for the economy. Here's why.
The plan's primary aim is to reduce foreclosures so that delinquent or near-delinquent borrowers can stay in their homes. This might sound like a worthy goal, but it ignores a fundamental reality: Government cannot produce the funds out of thin air; it must raise them from taxpayers.
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