A Stimulus Plan That Doesn’t Need to Pass Congress

The recovery is increasingly looking like it’s in jeopardy, which is terrifying since there’s no way more stimulus can get through Congress. But even though Congress is totally worthless right now, there is more that the President can do unilaterally to fix the housing market and boost demand. Brad Delong has a plan:

Private mortgage financing in the U.S. right now is broken. The U.S. government owns Fannie and Freddie–the Treasury Secretary votes the shares.

Announce that the U.S. government is increasing its ownership of Fannie and Freddie from 79.9% to 100%, is consolidating them with the general government balance sheet. Announce that the Federal Reserve stands ready to support the price of Fannie and Freddie’s bonds. Announce that the Treasury now regards Fannie and Freddie’s obligations are now full faith and credit obligations of the U.S. government. Announce that Fannie and Freddie will buy up all mortgages at 95% of face value. Announce that Fannie and Freddie will then refinance any past mortgages they hold at 4.0% plus a shared-equity kicker.

That would be a substantial macroeconomic stimulus program. That might be expensive for the Treasury in the long run. (But it might well not: it would depend on whether the equity kickers balanced out the foreclosure costs, and on what happens to the government’s cost of funds.)

As best as I can see, the benefits of such a program would be that it does not require congressional action–merely the cooperation of the Treasury and the Federal Reserve Board.

And the entire housing, real estate, construction, and homeowner lobby would get behind such a plan in a big, big way.