Katie Allison Granju Wants to Start the Next Subprime Crisis Now.

Katie Allison Granju blogs for the Knoxville News Sentinel and is, I’m sure, a very nice person. She has those sincere glasses. But she's a total ditz. Someone who feels for the poor and downtrodden and is willing to set the fuse for the next subprime crisis before we know how much damage this one will eventually do. So far Granju’s love for her fellow man has blown up in our faces and we can’t begin to count the cost because the damage assessment is not over.

Let’s count the casualties this far. It has cost us AIG (the largest insurance company in the world), Fannie Mae and Freddie Mac (the government sponsored mortgage bundlers), Bear Stearns, Washington Mutual, Lehman Brothers, IndyMac and quite a number of smaller banks. It has driven Merrill Lynch into the arms of Bank of America, is leading to a run on Wachovia. Dominoes are toppling so fast that each day brings fresh superlatives as the bankruptcies multiply. Up to now, Lehman Brothers sets a record for size, making the Enron fiasco a minor footnote in history. Wait for bigger and better records.

It has led to the world’s oldest money market fund to “break the buck” and is threatening to freeze the world’s financial arteries as all lending stops. As financial companies reduce their balance sheets and struggle to remain solvent, calling in loans and refusing to extend new ones, Granju wants a do-over.

One of most infuriating things about people like Granju is their apparent belief that they understand how the world works and wishing can make it so.

The lesson she takes away from this catastrophe is not the fear that her desires will lead to a repeat, but that there was some minor little flaw with the concept of home ownership for the impoverished. She wants them to own houses so a way must be found, dammit.

Here’s her suggestion:

How about a new government-backed lending program that works more like Habitat for Humanity or the Peace Corps. Instead of investing taxpayer dollars into mortgages on suburban subdivision-after-subdivision of brick and vinyl McMansions, why not encourage buyers to move back into the more modest houses that already exist in our center cities. Require a commitment that they will stay in their house for a certain number of years or risk significant penalties, thus discouraging speculators from using FHA loans as virtually free venture capital. Find a way to reward sweat equity in crafting loan programs.

When she talks about a “new” government backed lending program it’s obvious that she does not understand the old program. She may not understand that Fannie and Freddie did not extend mortgages. She may not understand that it was banks and thrifts that made these mortgages which is why, Katie, it’s not the government that declared bankruptcy but private companies that owned and insured these mortgages.

She also appears to believe that if you create no-money-down-adjustable rate-3% first-year-interest-only mortgages you can limit them to people of your choice. You (downtrodden-unemployed-homeless- cash-only-day-laborer) gets one of these but YOU (speculative-flipper) do not. Can we say illegal discrimination? I thought so.

And like all good social engineers who stand ready to lend the their J-school expertise to financial markets, she has something against people who want to move out of center cities and into suburbs; places where kids can play in the back yard and where schools may not be war zones. The use of the pejorative “McMansions” tells us lots about Katie. That and her blog entries tell us more than we want to know.