New column: How’s the Dodd-Frank housing bill? Compared to what?

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My new column is in the issue of TIME with Nelson Mandela on the cover and online here. It begins:

Barney Frank is on the line. I ask the Massachusetts Democrat, who chairs the House Financial Services Committee, if he thinks the housing bill that he and Senator Chris Dodd are on the verge of pushing through Congress will really do much good. Frank first trots out a joke from the late comedian Henny Youngman: “How’s your wife?” Answer: “Compared to what?” Then he gets a bit more serious. “Do I think it’s gonna have a great impact?” he says. “It’s gonna have an impact. I think it will be helpful.”

It’s not the most rousing endorsement. But it’s probably a fair assessment, at least for the centerpiece of the sprawling legislation–a plan to use the insurance guarantees of the Federal Housing Administration (FHA) to entice lenders to renegotiate up to $300 billion in troubled home loans. It might do some good, and the fact that Frank can’t bring himself to say more may have less to do with the legislation itself than with the immensity of the problem Congress is trying to address.

The problem is that, from 2003 through 2006, mortgage lenders extended trillions of dollars in loans that they never should have made, driving house prices to unsustainable levels in many areas. Now millions of borrowers can’t make their payments, prices are plunging, and the global financial system is finding out how dependent it had become on dodgy U.S. mortgages.

This correction process–in which both homeowners and lenders eat losses on their investments–can’t be stopped entirely. It shouldn’t be stopped, and going forward, a major priority for regulators will be averting such lending binges–as new, tougher mortgage rules from the Federal Reserve aim to do. But at the same time, many on Wall Street and in Washington fear that the correction could careen into an economic cataclysm. That’s why the Fed has intervened at the top of the financial food chain by cutting interest rates and bankrolling a shotgun takeover of the investment bank Bear Stearns. And it’s why there’s been lots of talk in Washington about doing something–anything–to slow the tide of mortgage foreclosures. Read more.