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Add to NewsvineIn the new TAC, Allan Carlson ponders what George Bailey of "It's A Wonderful Life" would do to resolve the home mortgage crisis. Excerpt:
First of all, I think he would want to examine the sociology of the crisis. How many of the imperiled homebuyers are actually young families with children? These he would want to help. How many are singletons who used this speculative opportunity to jump onto the housing escalator? How many are empty-nesters who rode the bubble to move into a McMansion? How many are would-be investors looking for quick turnarounds in a rising market? There would be little sympathy for these latter cases, I suspect.To help threatened families with children, George Bailey would support private and public efforts that put them first in line for access to renegotiated and publicly guaranteed mortgages. “Households with dependent children” would serve as the defining criterion. He would also probably agree with guidelines recently offered by the Heritage Foundation, including:
All government-assisted refinancing should go only to homeowners who use that home as their primary residence.No help should be given to investors, speculators, owners of vacation homes, homebuilders, realtors, mortgage brokers, or bankers.
Help should also be denied to anyone who lied or made misrepresentations on their original mortgage applications.
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Rod, do the editors at TAC profess the same disdain for economists as GOP Victory Chair Carly Fiorina? This is a sloppy article on several fronts, well intentioned, but mean-spirited none the less. The policy changes ascribed to Government malfeasance are all aimed left-of-center (when in reality, the right wing love Keynesian central banking equally well):
WRONG, contravenes rule of thumb #1. sales price inflation is not a function of demand, its a function of excess fungible money. Banks in the US operate on the fractional reserve principle, they DO NOT HAVE the money they lend: they only have a small amount of deposits from savers and investors, on which they pay the low interest rate set by the Fed. They make money by creating credit, known as commercial money, out of thin air, and charging a higher interest for it. Some banks operate at 30% reserve (ie they have thirty of your dollars in savings and the Fed prints $7 for them to lend to others) as defined by fiduciary guarantees underwritten by taxpayers, some like the investment banks self regulate and your guess is as good as mine as to how leveraged they are... but its your risk not mine as taxpayer since no law mandates their fiscal fantasies being underwritten by the Government. Neither feminists nor stay at home mothers have anything to do with the flood of cheap money that corrupted America after WWII.
VOODOO! contravenes rule of thumb #2. Economic loss or gain is a function of internal human action, motivated by personal intent driven by subjective values, not an objective external impersonal science driven by laws of "scale" or other inhumane utility. The economic fallacy among so many in the chattering classes is assuming a SOLID bottom line. Because we have a ROCK SOLID currency, right? Wrong - instead imagine this:
http://www.olala.com/imagif/pool.gif
editing your EXCEL spreadsheets as if the your eyes can't focus on the integers in the cells -- the data are being updated realtime as the interest rate is manipulated back and forth by the Fed and its client bankers for their private gain not yours... We are trying to build our homes on fiscal quicksand and maintain our economic households with a leak in the basement, but no one wants to call in the plumber to drain the swamp, because that would mean fessing up to the stench we've been living in for years...
see "The Mirage of the Mortgage Fix" at mises.org/story/2811
see "The Subprime Mortgage 'Crisis' Will Fix Itself" at mises.org/story/2600
and I've linked to this before, but here it is again "The Political Economy of Moral Hazard" at mises.org/story/2811
Posted by: Clare Krishan | May 12, 2008 8:42 PM
that should read "prints $70"
The horror is that the investment banks now have access to the Fed's lending window with NO FIDUCIARY TRUST OBLIGATION ON THEIR PARTS TO MAINTAIN ANY RESERVES TO BACK UP THEIR WAGER --- enjoy russian roulette anyone? Forget Vegas or Atlantic city, the Treasury is gambling on Main Street in every town and city up and down the nation...
Posted by: Clare Krishan | May 12, 2008 8:47 PM
Here's a better take on the mess we're in that ties into your education hoax meme:
http://www.takimag.com/blogs/article/the_great_education_bubble/
Posted by: Clare Krishan | May 13, 2008 7:37 AM
Or The Atlantic's Ross Douthat take on an Ivy League higher education "$40 billion tax-free hedge fund with a very large marketing and PR arm called Harvard University."
http://rossdouthat.theatlantic.com/archives/2008/05/harvardiana.php
Posted by: Clare Krishan | May 13, 2008 8:56 AM
@DavidTC:
You are almost exactly right. I came on here to make the very same point -- I would add only that mortgage brokers are often the source of falsehoods on loan applications.
This semester I worked at a legal aid clinic doing mortgage foreclosures, and we have several clients who discovered that the broker had written down that they had a second job on the loan application -- typically indicating that they owned a home cleaning business. We did some investigation, and discovered that brokers had used to put down that applicants ran a pet kennel, but banks started checking that so they've changed their stories.
There is a lot of mendacity in this foreclosure mess, but denying help to anyone whose application contains a falsehood gets it exactly wrong. The practice seems to be widespread, especially among the subprimes, and seems to be driven by parties other than the mortgagor (i.e., realtor and mortgage broker, both of whom stand to benefit from closing the deal.)
Posted by: Adam | May 13, 2008 10:07 AM
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