Bush plan seen as "Band-Aid" for consumers

By Ben Klayman

CHICAGO (Reuters) - President George W. Bush's proposals to help homeowners burdened with subprime mortgages they can't afford are a "Band-Aid" that will offer U.S. consumers little aid, investors and analysts said on Friday.

From the White House on Friday morning, the president discussed the need for legislation and changes in the U.S. tax code to help subprime mortgage borrowers avoid losing their homes.

However, analysts and investors said subprime borrowers who are not speculators made up such a small portion of the troubled market that any proposals would bring little change.

"This is more messaging," said Richard Steinberg, president of Steinberg Global Asset Management in Boca Raton, Florida. "It's more pomp."

For that reason, analysts said investors in such sectors as housing, retail and finance -- some of which saw a bump up in value on the news -- shouldn't expect a big boost from Bush's plans over the longer term.

Many analysts have warned that a spreading credit crisis could drag the U.S. economy into recession, while Bush administration officials have repeatedly said fundamentals remained healthy and global growth was robust.

Bush's proposals include plans to give the Federal Housing Administration more flexibility by allowing lower down-payment requirements and enabling homeowners to refinance into FHA-insured mortgages. He also called for changes in the tax code to eliminate penalties for refinancing mortgages, and better disclosure from mortgage brokers on rates and fees.

Peter Morici, a professor at the University of Maryland School of Business, said the plans were not enough.

"There's the immediate problem of the people who are stuck, and then there's the longer-term problem of fixing this market so it doesn't happen again," said Morici, a former chief economist at the U.S. International Trade Commission. "You always have to start with that second thing and then say, 'How do we bridge these people into that new market?'

"In terms of the immediate problem, all you really can do is put some Band-Aids on until you come up with some mortgage products that these people can afford," he added.

NO BAILOUT

Investors, while sensitive to helping those borrowers in trouble, don't want the government to simply bail them out.

"Speculators should suffer," said Tim Ghriskey, chief investment officer with Solaris Asset Management in New York. "Investing is fraught with risk, and if you bail them out, it just encourages more speculators."

Bush agreed: "It's not the government's job to bail out speculators or those who made the decision to buy a home they knew they could never afford."

Earlier on Friday, Federal Reserve Chairman Ben Bernanke assured the markets the Fed will act as necessary to limit the damage to the U.S. economy, but there will be no bailouts.