Five years ago, President George W. Bush was looking for someone to sell his tax cut to the American people. He selected John Snow for the job, and installed him at Treasury.

It was unfair to cast Snow, a former chief executive of CSX Corp., in that role. But Bush needed someone to sell his plan, and Paul O’Neill wasn’t interested. (Willy Loman was unavailable.)

Hank Paulson is putting Snow to shame. The current Treasury secretary is the ad man to Snow’s salesman. Paulson comes up with a new marketing gimmick every month to promote the government-led, private-sector plan to help homeowners hang onto the homes they couldn’t afford. All that’s missing is a catchy jingle.

In the beginning, there was MLEC, for Master Liquidity Enhancement Conduit. The Wall Street humor factory was quick to provide its own acronym: More Losses Expected to Come.

MLEC was really a super-SIV, or structured investment vehicle, designed to purchase the assets of SIVs after their source of funding—the asset-backed commercial paper market—dried up.

Citigroup Inc., Bank of America Corp. and JPMorgan Chase & Co. agreed, with some gentle coaxing, to start a proposed $80-billion fund to purchase SIV assets to avoid a fire-sale liquidation.

Weeks passed. Banks failed to line up to sign up. First the size of the proposed fund shrank. Then its raison d’etre evaporated, as banks absorbed their SIVs onto their balance sheets. MLEC MAUD (met an untimely death).

More than hope

Next, Paulson came up with Hope Now (Despair Later?), an alliance to help a select group of subprime borrowers (those who were current on their mortgage payments) keep their homes by freezing mortgage rates or helping borrowers refinance.

The private-sector initiative, coordinated by the public sector (the Treasury), was a formalized process for getting borrowers and lenders to renegotiate the terms of the loan.

Admittedly, the process is more complicated when the lender has nothing on the line, having bundled and sold the loan before the ink was dry. Securitization seemed to free mortgage originators from the burden of performing due diligence. Why bother to document employment, income or assets for a loan applicant if you collect a fee and aren’t on the hook if he defaults?

Whether it was improper incentives, lax regulation or misplaced faith that house prices could only go up, lots of people and institutions are now on the hook, which is why the government has to give the appearance of “doing something,” even if it’s largely cosmetic.

Help from Hope

There are plenty of nonprofit groups that provide counseling to strapped homeowners. For example, the Homeownership Preservation Foundation, which joined the Hope Now Alliance in October and mans the phone hot line, has been in business since 2002. It was created specifically by GMAC/ResCap to provide foreclosure-prevention counseling to its clients. (Someone was prescient about the mortgage mess!)

Borrowers who took out loans they didn’t understand to buy houses they couldn’t afford are not surprisingly reluctant to contact their mortgage servicer. To the extent the government’s public-information campaign is encouraging homeowners to seek counseling to assess possible mortgage-workout options, these initiatives are good. Fewer foreclosures mean fewer homes added to the already bloated inventory.

Previously, “beginning foreclosure was the only way to get their attention,” said Michael Carliner, an independent housing economist who was previously with the National Association of Homebuilders.

Translating hope

A total of 869,000 prime and subprime borrowers were helped in the second half of 2007, including 217,000 loan modifications, according to Hope Now. Modifications rose 125 percent in the fourth quarter compared with the third, according to its web site.

Paulson announced the initiative in October, by which time the mortgage industry was already on the hope bandwagon. The industry modified an estimated 54,000 loans and established repayment plans for another 183,000 borrowers in the third quarter, according to the Mortgage Bankers Association’s loan modification survey.

“It’s not clear that there was any additional effort beyond what the market would have dictated,” Carliner said. “As the market got weaker, there was less incentive to foreclose” and more to find an alternate solution.

Evolution of hope

The latest entry in the government’s ad effort is Project Lifeline, which sounds a lot more tangible than hope. This week Paulson and six large mortgage servicers, including Countrywide Financial Corp. and Citigroup, agreed to a 30-day freeze on the foreclosure process for homeowners 90 days delinquent on their payments. That includes those with subprime, Alt-A or prime loans.

“The Hope Now alliance is an evolving effort,” Paulson said at a February 12 press conference.

The question is, would it have evolved in the same way without government gimmicks? Reckless or fraudulent lending is not a behavior the government should appear to be rewarding.

The last thing the government wants is to create a moral hazard, or encourage risky behavior by providing a safety net. Rather, it ostensibly wants to help those who did nothing reckless or wrong but are being swept out to sea with the tide of bad loans.

“Operation Hope Springs Eternal,” anyone?

GOVERNMENT has no business going into business—much less remaining in it. In this era of globalization and economic liberalization, there seems to be little argument about that proposition.

The man struggled with his conscience and his conscience won. “Nakonsyensya siya.”

That’s the long and short of why Rodolfo Noel “Jun” Lozada Jr. finally told the truth he had tried so hard to avoid having to tell.

Sitting in heavy traffic in Manila recently, I read a front-page newspaper item about the Philippine economy. The headline: “Fastest growth in 31 years.”

Sway: The cigarette trade

It is a wonder how the Philippines can easily file suit against Thailand at the World Trade Organization (WTO) over cigarette exports. While the Philippines may be in the right legally as it claims that Thailand is violating WTO rules by effectively closing the doors on Philippine-made cigarettes, there is also this matter of moral ascendancy, which it seems to be lacking in this particular case.

Market Files: Bangko Sentral on Bankwise

Bangko Sentral ng Pilipinas (BSP) is eerily quiet on how much in “money lifeline” it has extended to Bankwise before it decided to close down the thrift bank which is said to have P1.3 billion in deposit liabilities.

Caroline Baum: Bush finally found a good ‘Ad Man’ in Paulson

Five years ago, President George W. Bush was looking for someone to sell his tax cut to the American people. He selected John Snow for the job, and installed him at Treasury.