Bad News on Housing: Investors Beware

We continue to believe that the Dodd/Shelby housing bill is important for financial stocks and the market as a whole.  Tuesday's 83-9 vote on cloture, the Senate process for limiting debate, seemed to signal passage.

After the market close yesterday it became apparent that there are additional hurdles, suggesting that  the bill will not pass before the July 4th Congressional recess.  One Senator, John Ensign (R-Nev) is using the full range of arcane Senate rules to block the bill.  Sen. Ensign wants to add an amendment concerning tax credit incentives for renewable energy.  The problem is that the House has already rejected this non-germane amendment.  Allowing it would also open the door for many other non-germane amendments.

The sponsors insist that the measure will eventually pass, even if brought back after the July 4th recess.  The markets are not very patient on issues like this, and the potential for a Bush veto remains.

Our own feeling is that if the bill passes,  the President will face extreme pressure to sign it.  The measure has overwhelming support in both parties.  Legislators campaigning this year will want to show that they were helping distressed homeowners.  Some of the key Republican states are those most affected by foreclosures.

Please note that we are doing market analysis here -- not an assessment of the merits of the legislation.  Many market pundits seem willing --even eager -- to see a complete cratering in housing prices with the fancy name of "price discovery."

We shall return to the merits of the legislation at a future date.  For now, we suggest that investors considering banks or other financial stocks should keep this development in mind.

And meanwhile -- note how a single Senator had the power to block legislation that had the overwhelming support of both parties.  It is a lesson in how difficult it is to pass a bill -- a subject from one of our classes in the old days.

Disclosure: None

Comments

[ironist15]

The Senate has trouble passing another bailout bill? Excellent! If we could only pay them to stay home for the next ten years, the country would prosper greatly.

[nukldrager]

Right Ironist15. And, it should be more difficult to pass a bill like this.

[rm]

[We continue to believe that the Dodd/Shelby housing bill is important for financial stocks and the market as a whole. ]

Why?

The mortgage investors could already offer principal forgiveness, but most refuse.

And while new "vulture funds" are launched on a daily basis to buy up distressed mortgages, most complain that the pricing is still not attractive.

The mechanisms to deal with these issues are already in place.

So you must mean that this housing bill is important because it bails out the lenders.

[carey_jim]

It's touching to see how much faith speculators have in the Government during a financial crisis.

Why is it assumed that the Government can solve economic problems (assuming the Government can function at all, which is a very big assumption?)

Most of the economic wisdom, from Hayek and von Mises to Milton Friedman prove the contrary.

I though Keynes was dead and the Republican Party wanted to dismantle the New Deal?

Whatever happened to Reaganomics when we need it?

[jackooo]

Ironist15
Totally in agreement. Remember, if the Democratic majority in congress has a Republican president than nothing will get done to hurt the taxpayers. Of course, we will still have to pay their wages.