Perpetual debt for perpetual prosperity

Nearly three years ago, there was a brief surge of interest in 50-year mortgages. It didn’t last; the housing bubble was on the verge of bursting at that very moment.

But I have a feeling you’re going to be hearing a lot about them in the months ahead, courtesy of the White House and Congress.

I should have tumbled to this a few weeks ago, when I wrote about Niall Ferguson’s 2009 forecast in the Financial Times. Written in the form of a year-in-review at year’s end, Ferguson casually tossed off the following line: “…[T]he federal takeover of the big banks and the conversion of all private mortgage debt into new 50-year Obamabonds signalled an impressive boldness on the part of the new president.”

With growing talk of nationalizing the big banks, it seems a good time to put The Google to work hunting down other references, more recent than three years ago, to 50-year mortgage debt.

Turns out as long ago as last July, the ex-chairman at UBS was pushing on CNBC for 50-year mortgages backed by the FHA.

Of course, that was a few weeks before the renationalization of Fannie and Freddie. Might those august institutions now be up to the task? That’s what Charles Valade thinks. He’s president and CEO of Commonwealth National Bank in Worcester, Massachusetts — “a community bank with a focus on business customers,” according to the hometown paper:

“The government’s got to find a way to drive mortgage rates down to the 4 percent range,” Mr. Valade said.

One of the government-sponsored entities that supports mortgage lending then needs to come up with a program that writes 40- to 50-year mortgages, all in an effort to make sure people are in homes they can afford, Mr. Valade said.

“It may not be that they ever own it, but it’s about stability in the housing sector,” he said.

Brownie points to Mr. Valade for candor. It’s all about putting a floor under housing prices, and if it requires putting homeowners in permanent penury, so be it. As I said yesterday in a different context, banks don’t make money when you pay off your debts. They make money when you roll them over.

Of course, that’s not how the more silver-tongued types in Washington, D.C. will ever describe it. No, it’s going to be all about “ensuring the American Dream remains within reach for as many Americans as possible.”

That’s bad enough. But I can’t get past Ferguson’s choice of words — “the conversion of all private mortgage debt into new 50-year Obamabonds.”

Hey, he put it out there, not me. But whatever: There’s something really creepy about the government becoming everyone’s mortgage lender. Not appreciably creepier than a conglomeration of big banks that flip much of their portfolio to Fannie and Freddie, but at present there’s at least a patina of decentralization to the whole thing. Sheesh. And as that nationalization article I linked above points out, a nationalized bank would deliver DMV-level service. You’d surely get the same from a nationalized mortgage lender.

But hey, permanent debt and ever-bigger government are all worth it if it “gets the housing market moving again,” right? Key to the American economy and all that…

There’s a disturbing historical parallel here. The late 1940s and early 50s brought the onset of Harry Truman’s National Security State, a condition of permanent mobilization for war, what Harry Elmer Barnes (and later Gore Vidal) called “perpetual war for perpetual peace.” It is still with us.

Almost 60 years later, the stage appears to be set for something we might call “perpetual debt for perpetual prosperity.”

And like the “peace” that was promised us by the Truman Doctrine, the “prosperity” of Obamabonds will prove just as illusory.