Congress Funding a Future Catastrophe?

Are new mortgage guarantees destined to create a future financial catastrophe?

Congress loves programs that deliver financial benefits today with the inevitable catastrophes put off into the future. These programs are even better when lawmakers themselves can tell their constituents—and may even believe—that this is merely a federal backstop to a private system.

Those two sentences capture essential aspects of disastrous federal programs: 1) Benefits claimed to help today don't take into account future consequences that will be faced by the next generation (and many times there aren't even any benefits today, just pork to win constituents' votes); 2) The worst programs claim they're just helping along the private economy, which has caught a cold and needs a little boost from a concerned, caring Federal Government. 

This new program seems likely to create just the right conditions as Fannie Mae and Freddie Mac guarantees did in the recent real estate bubble. Now all we need is for Wall Street to concoct new "can't miss/can't fail" products that somehow package this new breed of guaranteed mortgage, leverage it up, and sell it like crazy to banks and anyone who's looking for a higher return on their money than you can get with "normal" instruments like treasuries and money market funds...and there will be no dearth of customers desperate for income who'll be happy to oblige.

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