Written by Daniel J. Mitchell, a senior fellow at the Cato Institute. Posted with permission from Cato @ Liberty.
Writing for the New York Times, Paul Krugman has a new column promoting more government spending and additional government regulation. That’s a dog-bites-man revelation and hardly noteworthy, of course, but in this case he takes a swipe at the Cato Institute.
The financial crisis of 2008 and its painful aftermath…were a huge slap in the face for free-market fundamentalists. …analysts at right-wing think tanks like…the Cato Institute…insisted that deregulated financial markets were doing just fine, and dismissed warnings about a housing bubble as liberal whining. Then the nonexistent bubble burst, and the financial system proved dangerously fragile; only huge government bailouts prevented a total collapse.
Upon reading this, my first reaction was a perverse form of admiration. After all, Krugman explicitly advocated for a housing bubble back in 2002, so it takes a lot of chutzpah to attack other people for the consequences of that bubble.
But let’s set that aside and examine the accusation that folks at Cato had a Pollyanna view of monetary and regulatory policy. In other words, did Cato think that “deregulated markets were doing just fine”?
Rep. Mel Watt (D-NC) , who was recently nominated by President Barack to run the Federal Housing Finance Agency (FHFA), may run into some problems during his Senate confirmation due to racially insensitive comments he made in 2005:
During an Oct. 14, 2005 hearing held by the National Commission on the Voting Rights Act, Watt reportedly said that a “substantial majority of white voters” would not vote for a black candidate under any circumstances.
He acknowledged “some” white people would support a black candidate, but said voters who refuse should be “factored out.”
“I’ve got no use for them in the democratic process,” he reportedly said.
Watt also claimed that black voters — unlike white voters — don’t have “an absolute commitment” to voting for a candidate based on race.
Three years later, Barack Obama would become the first black president, capturing 43 percent of the vote among white voters. That does not constitute a majority, but by comparison, 4 percent of black voters supported Sen. John McCain.
This isn’t the first instance prejudice from Watt. During a 2004 meeting with the Congressional Black Caucus, the 20-year Congressman called Ralph Nader, who is about a Leftist as they come, an “arrogant white man.”
“You’re just another arrogant white man – telling us what we can do,” Watt told Nader, who was running for president as an Independent at the time. “it’s all about your ego – another [expletive] arrogant white man.”
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.
While President Barack Obama recently announced the expansion of HARP — a mortgage relief program established in 2009, one of the frequent points of critics is that the impact of the move is limited to a small number of homeowners. Bob Barr, a former Congressman from Georgia, explained this point over at The Daily Caller last week:
The program itself suffers from significant limitations. Most notably, it applies only to mortgages backed by Fannie Mae and Freddie Mac. According to Mark Calabria of the Cato Institute, the program “is available only to those who have already had a mortgage for over two years, are current on their mortgage, and have missed no more than one payment per year.” Calabria equates the program to “helping only those that do not need any help.”
James Pethokoukis, an economist at the American Enterprise Institute, explains that the idea behind HARP is full of holes, and that similar tricks in the past have not aided our sluggish economy. He notes, for example, that Obama promised that some 4 million homeowners would benefit with the creation of HARP in 2009. However, only about 20% took advantage of the program. Pethokoukis also concludes that the high-end estimate that 1 million homeowners will take advantage of HARP represents only a fraction of the 11 million property owners who are underwater in their mortgages.
But the point that this program does nothing really to lift the economy is further emphasized by the news that the housing market, which has yet to hit rock bottom, is heading for yet another dip:
Dr. Jeffrey Miron, a professor of economics at Harvard University, explains three common myths about capitalism in a video from Learn Liberty. Miron explains that being pro-business and for capitalism are not the same thing, contrary to what many conservatives believe. And he also explains that capitalism was not responsible for the the financial crisis.
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.
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.
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.
[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.
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:
An article in the Sunday, March 15 edition of The Birmingham News, entitled “Lots crumble and mud flows”, discusses some of the complications resulting from the plethora of unfinished housing projects that have been put on hold in the current economic crisis. The problems include excessive runoff and mud flows, crumbling roads without a final seal coat, empty houses in various stages of construction, construction debris posing safety hazards, and other various forms of pollution. Curiously, nowhere in the article does its author acknowledge that most of these housing construction projects are the result of a housing bubble.