Mad Men of Washington Cheat Voters on Housing Law

July 31 (Bloomberg) — Sometimes television and politics conspire to tell the country the same story. That's certainly the case this week. The new season of "Mad Men" debuted with another episode chronicling Don Draper's secret life. The ad man in the cable-TV series knows he's not supposed to have that many drinks at lunch. He knows he's living too hard when he smokes Lucky Strikes. He knows he shouldn't cheat on his wife.

But he does it all anyhow. And he keeps doing it. Why? Because it is just so easy.

In the same hours as 2.1 million people switched on "Mad Men," President George W. Bush was readying his pen to sign into law a bill he knew he shouldn't sign — the new housing act. But he did it anyhow.

Why? It was just so easy.

The entire story of the federal involvement in U.S. housing is sort of a "Mad Men" episode of its own. Laws that were passed in the name of preventing crises often encouraged crises.

Consider the starting event in modern housing history, not to mention in the lives of the "Mad Men" — military service. In 1944, the country was enduring a housing crisis of a different magnitude. Tens of thousands of families lived in Quonset huts. Chicagoans were actually buying up trolley cars for homes.

One of Franklin Roosevelt's last acts on the domestic side was to sign his own enormous housing bill for veterans. The government promised the soldiers in Europe and the Pacific there would be loans to help them buy houses when they got back. The law also protected with federal mortgage guarantees builders who constructed the homes. The idea was to enable vets to stride confidently out their own doors into postwar life.

'Rubbing Their Hands'

It all went down as smoothly as a rye old-fashioned. "The real estate boys read the bill, looked at one another in happy amazement and the dry, rasping noise they made rubbing their hands together could be heard as far as Tawi-Tawi," a writer noted.

Such federal largesse gave rise to Levittown on Long Island and a construction boom in the rest of the country. This is how wives like Betty Draper ended up all the way out there in America's Ossinings in the first place.

But there were also perverse consequences. The builders built cookie-cutter row houses that effectively downgraded the American home experience.

The new commuting pattern, along with that rye that their new salaries brought, facilitated those dual lives for family fathers. Without Betty a good hour away, Don would never have the time to spend all those hours with the downtown graphics designer in her doubtless rent-controlled pad.

Unhappy Bettys

Did you see the episode where Betty Draper lifts a gun and takes aim at her neighbor's pet birds? Westchester County so disagreed with another housewife Betty — Betty Friedan — that she launched the feminist revolution. Suburbs were great, as "Mad Men" demonstrates, but they also drove, and still drive, any number of Americans out of their minds.

Still, the trend continued. In 1980, lawmakers lifted the bank deposit-insurance ceiling to $100,000 per account from $40,000. That said to depositors and bank officials: Invest where you like, you will be bailed out. The change contributed to bad governance, poor or fraudulent investment, and the very sort of crisis the ceiling increase was meant to prevent: the savings and loan debacle of a decade later.

Future Trouble

The current housing bill likewise pulls a "Mad Men." It looks great, yet promises future trouble on as many levels as a Mies van der Rohe skyscraper. It's hard to dislike the $15 billion that the legislation contains in tax incentives —there's a tax credit of $7,500 for first-time buyers. But some of those buyers, like the subprime borrowers, simply aren't ready to own a home.

The bill gives the Federal Deposit Insurance Corp. new tools to create institutions to shore up failing savings and loans. That sends a signal to the thrifts that they can do as they did in the 1980s — invest without regard to their responsibilities.

Fannie Mae and Freddie Mac get a new regulator, with the Treasury Department having more authority over the mortgage monsters. But their very existence, which is the single greatest cause of the current crisis, continued.

There's additional material here, of course; indeed, enough for several seasons of episodes. Bear Stearns Cos.'s headquarters sits right on Madison Avenue, between 46th and 47th Streets, and it got its bailout. The biggest "MM"-style escapade of all? The new law lifts the federal debt ceiling to $10.6 trillion, a jump of $800 billion. We're all Don Drapers now.

'Moral Hazard'

Bankers have their own term for legislation like the housing law. They say it expands "moral hazard," widening incentives to do the wrong thing. The phrase has a starchy Victorian feel that makes us all recoil — too censorious and unmodern.

So maybe we should redub our behavior "MM" instead of "MH." But it's not the lexicon that matters, it's the habit. The final word on the new law is that it guarantees the U.S. not one episode but rather several seasons of trouble.

(Amity Shlaes, a senior fellow in economic history at the Council on Foreign Relations and author of "The Forgotten Man: A New History of the Great Depression," is a Bloomberg News columnist. The opinions expressed are her own.)

© Copyright 2008 Bloomberg

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To book Amity Shlaes for a speaking engagement, contact Jamie Brickhouse at the Red Brick Agency, 646.281.9041.
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