Edwards’ growing goodie bag

John Edwards, the former North Carolina senator and vice presidential nominee, has built his presidential campaign on promises of government goodie bags for the middle- and lower-middle classes. During a Friday visit to Las Vegas — his seventh trip here to build support for the state’s Jan. 19 presidential caucuses — he offered his latest treats: taxpayer-financed mortgage bailouts for homeowners at risk of foreclosure and heavy-handed market manipulation.

“President Bush says there’s no need to do anything special about what predatory lenders are doing to the American people, and about the extraordinary home foreclosure rate in America today — the fact that thousands and thousands and thousands of Americans are losing the one thing they’ve spent most of their lives trying to create, which is a home,” Mr. Edwards told an audience at Laborers International Union Local 872 office. “Well, he’s wrong.”

More than 1 million American homes were foreclosed in 2006, and millions more could be seized by lenders by the end of next year. No one profits from or celebrates such a souring of a major economic sector (opportunistic politicians excepted). Investors lose their money, lenders lay off workers or go bankrupt and, worst of all, families are forced to leave their homes.

Mr. Edwards wants to establish a Home Rescue Fund, which would cover financially stressed homeowners’ missed payments and refinancing costs. Moreover, he wants to give homeowners who are “upside down” on their mortgages — anyone who owes their lender more than a house could fetch on the resale market — free money in the form of debt forgiveness.

Let’s say you owe $250,000 on a house that’s now worth no more than $220,000. In Mr. Edwards’ world, you could make $30,000 of that debt disappear in bankruptcy court, forcing your lender to not only eat the loss like so much credit card debt, but allow you to remain in the home with new, more favorable terms. And when the housing market turns around and you suddenly have equity in the home again, well, that’s yours to keep.

Mr. Edwards’ proposals demonstrate a profound lack of understanding of the roots of the country’s mortgage meltdown. The bulk of the country’s foreclosures are not filed against people who’ve “spent most of the their lives trying to create” a home, dutifully saving for a down payment, then sacrificing month to month to make every mortgage payment. Houses are being taken primarily from two groups: risky borrowers who bought homes with no money down and deferred interest payments they couldn’t afford, and investors who thought they could get rich flipping properties.

At the root of the problem are financial institutions that abandoned their underwriting standards and handed out money, sometimes without checking borrowers’ employment and credit histories, then sold the mortgages to other banks. Already, lenders have been forced to significantly tighten their underwriting standards, even with the Federal Reserve pouring tens of billions of dollars into financial systems to stem fears of a credit crunch.

But Mr. Edwards’ ideas would make it even harder for his loyalists to achieve the American Dream. If lenders are forced to write off millions of dollars in losses and refinance their mortgage portfolios every time the housing market dips, they’ll pass those risks along to buyers in the form of higher fees and interest rates. And allowing millions of people who can’t afford their homes to keep them would artificially constrain the housing supply and keep resale prices higher. Millions of working-class families need prices to fall much further before they can afford to buy.

Populism certainly sells within most of the Democratic Party these days. Unfortunately, too many partisans don’t fully comprehend what they’re buying — or what some big ideas ultimately cost.