Red Bull, Anyone?

The bill passed Thursday night by Congress will do little to stimulate the economy. American consumers will play it smart this time. According to a survey by financial firm UBS, three in four will use their rebate checks either to reduce debt or to increase savings. Only one in four will "pass it on" by spending. Put away the radar guns; that cash is screeching to a halt.

Never mind, the real reason for the warp-speed congressional action was something else. Home values are spiraling downward, threatening a whole pyramid of lenders and investors--not to mention the borrowers who now have negative equity in their houses (i.e. outstanding mortgage balances that exceed current market values). The "stimulus" bill seeks to stabilize values by expanding the reach of the federally chartered mortgage companies known as Fannie Mae and Freddie Mac. Loan limits will be ratcheted up from $417,000 to as high as $729,750.

But wait a minute. The GSEs are designed to "expand affordable housing," according to the mission statement posted at the Fannie Mae website. So how is that mission served by enabling Fannie and Freddie to scoop up jumbo mortgages on properties built and priced during a speculative bubble in the real estate market? It isn't, says James Lockhart III, head of the Office of Federal Housing Enterprise Oversight, who tried to explain to the Senate Banking Committee on Thursday that taking on jumbo mortgages could actually divert money away from less expensive housing. After all, Lockhart pointed out, funding one $600,000 mortgage takes as much capital as three $200,000 mortgages. Alas, that logic was dismissed.

Taxpayers, who ultimately guarantee GSE loans, are being enlisted to re-liquefy a seized market. The cynics among us might suggest that this is crony capitalism at work: gains are privatized, losses socialized. It works for Wall Street insiders. Heads they win, tails we lose.