Housing Crisis

Obama’s State of the Union proposals would cost $40 billion

Barack Obama

The proposals outlined in President Barack Obama’s 2014 State of the Union address would cost taxpayers at least $40 billion, according to an analysis by the National Taxpayers Union Foundation.

““Even though the President largely reiterated or reframed issues that have long been on his party’s current agenda, the proposals for new federal expenditures he outlined last night would still add up to a hefty price tag,” said Demian Brady, Director of Research at the National Taxpayers Union Foundation. ”Moreover, his push for new mandates, regulation, and tax hikes, particularly on energy, will give taxpayers and business owners plenty to be wary of.”

Of the 29 proposals outlined in the speech by President Obama, only one would reduce spending, according to the analysis, while 12 would increase spending. The costs of 16 proposals couldn’t be quantified.

The most costly proposal outlined by President Obama was the Senate version of immigration reform — the Border Security, Economic Opportunity, and Immigration Modernization Act — which would cost $20.2 billion each year. Extention of federal unemployment benefits was the second-most costly item, at $12.8 billion.

President Obama’s universal pre-K proposal is would cost $3.5 billion each year, making it the third-most costly item in his State of the Union address.

The only proposal that would cut spending is the FHA Solvency Act, a measure that President Obama supports. This bill, which would protect taxpayers from bearing the cost of another housing crisis, would reduce federal outlays by $103 million, according to the National Taxpayers Union Foundation.

‘London Whale’ upsets J.P. Morgan

As many of you may already know, insvestment banking firm J.P Morgan recently lost nearly $2.3 billion dollars on some very, very, bad bets.

Sources in the MSM accordingly, show a trader only dignified by the sobriquet ‘London Whale’ was able to hedge together larger shares of Morgan company money and place them on malevolent trade returns. They did not pay off.

Some circles call it business as usual. Other circles call this collusion, or extended risk. Yet others would call this, hedging- or: placing large assets on wide-open targets, at just the right time and place. I don’t need to mention the implications of this; we’re back to 2007, when the Recession we are currently in, evolved- by these means.

Now, clearly- you could claim- the company knew what it’s employees were aiming at with their stoked assets. They didn’t. This story is just emerging, but it seems clear that this is a perfect example of those who don’t know what they are doing, laksadaising large amounts of money; and wielding power so great, there could be serious repercussions.

Gladly, at least so far, there have been few.

Nevertheless, what this shows is not only nefariousness on the part of some, but also the evident close ties in finance between Europe and the United States. We may think this country is just pulling from a recession, when in reality we’re right back to 2007, or earlier.

Entire Markets and nations are tanking in Europe: acidic debt scouring away at the health of entire economies. The European Union ready to dissect into multiple breakaway-province nationalities. National furor is high, while economic support has hit all-time lows.

At first sight, the entire investments-gone-wrong scenario would yearn for more oversight- but beware of what you ask for! Oversight by whom? I don’t think market regulation is a particularly good example of solving fiscal ‘problems’ by any stretch of the economic imagination.

BOOK REVIEW: John Allison dives into the real causes of the Great Recession

The Financial Crisis and the Free Market CureSince the 2008 financial crisis, many analysts and policy wonks have been trying to come up with their best guesses as to what led to what we now call the “Great Recession.” Most lay blame on Wall Street, the beneficiary of taxpayer-funded bailouts, and never think of discussing the affects of policies pursued by the government in the years leading up to the recession.

Wall Street is, of course, an easy target, especially at a time when populism and class warfare are so common. But in his new book, The Financial Crisis and the Free Market Cure: How Destructive Banking Reform is Killing the Economy (McGraw-Hill, 320 pages), John Allison, retired Chairman and CEO of BB&T, explains that government policies, cronyism, and politics led to the worst economic troubles in decades and presents a compelling case for the free market.

Allison, who at the beginning of this month became CEO and President of the Cato Institute, has long been an advocate of free market economic policies. Allison explains that his principles helped guide BB&T to weather the economic storm before the financial crisis.

In his book, Allison outlines what he sees as the six factors that led the recession and this very tumultuous economic “recovery” in which we currently find ourselves:

One of Many Ways the SEC Contributed to the Financial Crisis

Securities and Exchange Commission

Written by Mark A. Calabria, Director of Financial Regulation Studies at the Cato Institute. Posted with permission from Cato @ Liberty.

I was recently reminded that in its infinite wisdom, the Securities and Exchange Commission (SEC) actually sued banks as the housing bubble was building for putting aside too much money to coverage potential loan losses.  It seems that while many banks were worried that bubble lending could turn out bad, the SEC felt that recent history did not offer banks enough justification for setting aside such funding (after all housing prices were going up).  The most significant example was the SEC suit against SunTrust.  In November 2004 the SEC actually pushed SunTrust to fire its Chief Risk Officer for setting aside too much to cover bad loans, while also pushing SunTrust to reduce its loan loss reserves.

Nothing will get better without personal responsibility

We all have a vision of how to get this nation out of this funk we’ve been in for a while now.  It’s clear that despite various ideological paths, many of us believe that the current path is wrong.  As a libertarian, I’m a firm believer that the correct path is pretty clear.  However, nothing will improve until we start making personal responsibility a key factor in the lives of Americans.

With the housing crisis, we all heard horror stories about people who were losing their homes.  We were told that these people were the victims of predatory lending practices, which may or may not be true.  What got missed was that these people still bought homes they couldn’t afford and took on loans with adjustable rate mortgages, not knowing what they were in store for.

The truth of the matter is that many of these people were simply refusing to accept responsibility for their own mistakes.  They weren’t alone either.

TARP was all about bailing out bankers who didn’t want to accept their part in giving loans to people who couldn’t actually pay them back.  They danced around the issue and begged for government money to cover their mistakes.

The truth of the matter is that fewer and fewer people are being made to accept resonsibility for their own actions.  A police officer once said to a friend who’s business partner was murdered in a hold up that he needed to keep in mind the man coming from an disadvantaged upbringing.  The officer didn’t seem to grasp that Oprah Winfrey did too.  One of them isn’t knocking over bars in their spare time.

The reality is that the lack of people being held accountable for all of their actions is a key reason this nation is in the state it’s in today.  Maybe if we can change that, we can actually make this nation what it once was, only better.

Liberty Links: Morning Reads for Monday, January 17th

Below is a collection of several links that we didn’t get around to writing about, but still wanted to post for readers to examine. The stories typically range from news about prominent figures in the liberty movement, national politics, the nanny state, foreign policy and free markets.

Recovery Summer: Home sales drop by 27%

There was bad news on the housing front yesterday as existing home sales dropped by almost 30%, this in an economy that we are constantly told is improving:

Sales of previously owned U.S. homes took a record plunge in July to their slowest pace in 15 years, underlining the housing market’s struggle to find its footing without government aid.

Tuesday’s report from the National Association of Realtors, which was much worse than market expectations, was the latest data that indicated economic activity continued to slacken into the third quarter.
“It is becoming abundantly clear that the housing market is undermining the already faltering wider economic recovery. With the increasingly inevitable double-dip in prices yet to come, things could yet get a lot worse,” said Paul Dales, a U.S. economist at Capital Economics in Toronto.

Existing home sales dropped a record 27.2 percent from June to an annual rate of 3.83 million units. June sales were revised down to a 5.26 million-unit pace from a previously reported 5.37 million.

Financial markets had expected sales to fall only 12 percent to a 4.70 million-unit rate last month. The end of a popular home-buyer tax credit, which had supported sales and home-building activity, continues to haunt the troubled housing market.

Another bad idea to prop up the housing industry

On Friday, I wrote about the latest vote buying scheme from the Obama Administration, which is to forgive a portion of homeowners’ debt in the hands of Fannie Mae and Freddie Mac.

Over at The Atlantic, Megan McArdle writes about another bad idea to prop up the housing industry, which is 100% financing schemes for new homebuyers:

[C]ommentators left and right can agree that this is not a good idea.  No matter how stable said low-income homeowners are, they shouldn’t be buying houses with no equity, because if they suddenly have to sell said houses, they’re going to have trouble coming up with 6% to pay the broker, closing costs, etc.

So why is the government doing this, even though I can think of no policy analyst who doesn’t actually work for the National Association of Realtors who would say that this is a good idea?  Because politicians want to help poor people with capital formation, and homeownership is the way that the American middle class has traditionally gone about capital formation.

Obama may bring an election year bailout for homeowners

Imagine you’re the president. You’ve had a tough year, your approval rating is at 41%, with voters disapproving of your handling of foreign policy and the economy. Your “stimulus” bill has been a failure. And your party is expected to have a rough go of it in the mid-term elections, just three months away.

So, how do you get voters back on your side? Have government-backed lenders forgive a portion of debt owed by homeowners:

Main Street may be about to get its own gigantic bailout. Rumors are running wild from Washington to Wall Street that the Obama administration is about to order government-controlled lenders Fannie Mae and Freddie Mac to forgive a portion of the mortgage debt of millions of Americans who owe more than what their homes are worth. An estimated 15 million U.S. mortgages – one in five – are underwater with negative equity of some $800 billion. Recall that on Christmas Eve 2009, the Treasury Department waived a $400 billion limit on financial assistance to Fannie and Freddie, pledging unlimited help. The actual vehicle for the bailout could be the Bush-era Home Affordable Refinance Program, or HARP, a sister program to Obama’s loan modification effort. HARP was just extended through June 30, 2011.

The move, if it happens, would be a stunning political and economic bombshell less than 100 days before a midterm election in which Democrats are currently expected to suffer massive, if not historic losses. The key date to watch is August 17 when the Treasury Department holds a much-hyped meeting on the future of Fannie and Freddie.

Cost of bailouts now at $3.7 trillion

The cost of keeping our economy “afloat” (or “[bringing] us back from the brink,” as Barack Obama would say) has increased in the last year:

Increased housing commitments swelled U.S. taxpayers’ total support for the financial system by $700 billion in the past year to around $3.7 trillion, a government watchdog said on Wednesday.

The Special Inspector General for the Troubled Asset Relief Program said the increase was due largely to the government’s pledges to supply capital to Fannie Mae and Freddie Mac and to guarantee more mortgages to the support the housing market.

Increased guarantees for loans backed by the Federal Housing Administration, the Government National Mortgage Association and the Veterans administration increased the government’s commitments by $512.4 billion alone in the year to June 30, according to the report.

“Indeed, the current outstanding balance of overall Federal support for the nation’s financial system…has actually increased more than 23% over the past year, from approximately $3.0 trillion to $3.7 trillion — the equivalent of a fully deployed TARP program — largely without congressional action, even as the banking crisis has, by most measures, abated from its most acute phases,” the TARP inspector general, Neil Barofsky, wrote in the report.


The total includes Federal Reserve programs and a myriad of asset guarantees, including Federal Deposit Insurance Corp. protection for bank deposits.

While this news isn’t good for taxpayers, even worse news is coming as the housing market is getting worse:

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