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Why Bush Stepped Into Subprime Meltdown

After watching for weeks as the mortgage meltdown roiled the markets and squeezed homeowners, President Bush inserted himself directly into the matter today. It remain unclear how much his intervention will help investors, lenders or homeowners. But there's no mystery about why he did it.

This one-time Harvard MBA is a free-market president. He's also famously dogged in sticking to his guns. But he's not blind to political reality.

He learned from his father's unsuccessful 1992 re-election bid the danger of appearing out of touch with voters' economic pain. He learned from his disastrous experience with Hurricane Katrina two years ago the costs of appearing ill-equipped to handle a crisis affecting Americans in need. Bush isn't on the ballot next year but his beleaguered Republican Party is--with control of the White House and Congress at stake.

Moreover, the Democrats controlling Congress now return to Washington next week with a slew of proposals to ameliorate the housing crisis, from calls to raise portfolio limits on Fannie Mae and Freddie Mac to Democratic front-runner Hillary Clinton's plan for a $1-billion work-out fund.

Bush and Treasury Secretary Hank Paulson have made clear they oppose a larger role for Fannie Mae and Freddie Mac until those enterprises are reformed. Nor do they countenance any large sums in direct spending to bailout lenders or borrowers.

Yet it's not a tenable political stance to reject all forms of government help--unless a politically weakened lame duck wants to get even weaker. Democratic presidential candidate Barack Obama quickly hit the White House for a proposal that "does not go far enough." Indeed, it's not clear Bush's proposals will make an important difference. But Bush decided he needed to offer something, and that's why he acted today.

Questions? Comments? Write to politicalcapital@cnbc.com.

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