What, no thread on the banks?

[Big Wheel]

Here's a speech Ron Paul gave on the floor of the US Congress July 16, 2002, six years ago, warning about the housing bubble, taxpayers bailing out investors and government interference in the marketplace.

http://www.house.gov/paul/congrec/congrec2002/cr071602.htm

Congressman Ron Paul

U.S. House of Representatives

July 16, 2002

Mr. Speaker, I rise to introduce the Free Housing Market Enhancement Act. This legislation restores a free market in housing by repealing special privileges for housing-related government sponsored enterprises (GSEs). These entities are the Federal National Mortgage Association (Fannie), the Federal Home Loan Mortgage Corporation (Freddie), and the National Home Loan Bank Board (HLBB). According to the Congressional Budget Office, the housing-related GSEs received $13.6 billion worth of indirect federal subsidies in fiscal year 2000 alone.

One of the major government privileges granted these GSEs is a line of credit to the United States Treasury. According to some estimates, the line of credit may be worth over $2 billion. This explicit promise by the Treasury to bail out these GSEs in times of economic difficulty helps them attract investors who are willing to settle for lower yields than they would demand in the absence of the subsidy. Thus, the line of credit distorts the allocation of capital. More importantly, the line of credit is a promise on behalf of the government to engage in a massive unconstitutional and immoral income transfer from working Americans to holders of GSE debt.

The Free Housing Market Enhancement Act also repeals the explicit grant of legal authority given to the Federal Reserve to purchase the debt of housing-related GSEs. GSEs are the only institutions besides the United States Treasury granted explicit statutory authority to monetize their debt through the Federal Reserve. This provision gives the GSEs a source of liquidity unavailable to their competitors.

Ironically, by transferring the risk of a widespread mortgage default, the government increases the likelihood of a painful crash in the housing market. This is because the special privileges of Fannie, Freddie, and HLBB have distorted the housing market by allowing them to attract capital they could not attract under pure market conditions. As a result, capital is diverted from its most productive use into housing. This reduces the efficacy of the entire market and thus reduces the standard of living of all Americans.

However, despite the long-term damage to the economy inflicted by the government’s interference in the housing market, the government’s policies of diverting capital to other uses creates a short-term boom in housing. Like all artificially-created bubbles, the boom in housing prices cannot last forever. When housing prices fall, homeowners will experience difficulty as their equity is wiped out. Furthermore, the holders of the mortgage debt will also have a loss. These losses will be greater than they would have otherwise been had government policy not actively encouraged over-investment in housing.

Perhaps the Federal Reserve can stave off the day of reckoning by purchasing GSE debt and pumping liquidity into the housing postponing the necessary market, but this cannot hold off the inevitable drop in the housing market forever. In fact, but painful market corrections will only deepen the inevitable fall. The more people invested in the market, the greater the effects across the economy when the bubble bursts.

No less an authority than Federal Reserve Chairman Alan Greenspan has expressed concern that government subsidies provided to the GSEs make investors underestimate the risk of investing in Fannie Mae and Freddie Mac.

Mr. Speaker, it is time for Congress to act to remove taxpayer support from the housing GSEs before the bubble bursts and taxpayers are once again forced to bail out investors misled by foolish government interference in the market. I therefore hope my colleagues will stand up for American taxpayers and investors by cosponsoring the Free Housing Market Enhancement Act.

.....and if you want to read someone who 1) is a pragmatist, not a zealot and 2) actually knows what he is talking about, try Bob Kuttner.

[Jim Alfredson]

The argument that the government pressured mortgage companies into giving low-income people home loans is bullshit. Did anyone here actually buy a home recently? We did, in 2005 and our mortgage broker was trying to convince us that we could afford a $200,000 loan when we were making $40,000 a year. His solution? A sub-prime ARM of course!!! We said, "You're crazy, there is no way we can afford that." "Oh no! You can! Look at these numbers!" "What happens in five years?" "Well, the rate will adjust." "Won't rates increase?" "Not likely!"

Sham.

Thank God we smelled it.

We came looking for a reasonable loan of $80,000 and he tried to convince us we could afford almost three times that. I don't think the government was telling him he had to do that. Oh, and our mortgage was sold three times in the first year we had it to various companies, all without our consent of course.

Fuck them all, I say.

[catesta]

Here's a speech Ron Paul gave on the floor of the US Congress July 16, 2002, six years ago, warning about the housing bubble, taxpayers bailing out investors and government interference in the marketplace.

http://www.house.gov/paul/congrec/congrec2002/cr071602.htm

Congressman Ron Paul

U.S. House of Representatives

July 16, 2002

Mr. Speaker, I rise to introduce the Free Housing Market Enhancement Act. This legislation restores a free market in housing by repealing special privileges for housing-related government sponsored enterprises (GSEs). These entities are the Federal National Mortgage Association (Fannie), the Federal Home Loan Mortgage Corporation (Freddie), and the National Home Loan Bank Board (HLBB). According to the Congressional Budget Office, the housing-related GSEs received $13.6 billion worth of indirect federal subsidies in fiscal year 2000 alone.

One of the major government privileges granted these GSEs is a line of credit to the United States Treasury. According to some estimates, the line of credit may be worth over $2 billion. This explicit promise by the Treasury to bail out these GSEs in times of economic difficulty helps them attract investors who are willing to settle for lower yields than they would demand in the absence of the subsidy. Thus, the line of credit distorts the allocation of capital. More importantly, the line of credit is a promise on behalf of the government to engage in a massive unconstitutional and immoral income transfer from working Americans to holders of GSE debt.

The Free Housing Market Enhancement Act also repeals the explicit grant of legal authority given to the Federal Reserve to purchase the debt of housing-related GSEs. GSEs are the only institutions besides the United States Treasury granted explicit statutory authority to monetize their debt through the Federal Reserve. This provision gives the GSEs a source of liquidity unavailable to their competitors.

Ironically, by transferring the risk of a widespread mortgage default, the government increases the likelihood of a painful crash in the housing market. This is because the special privileges of Fannie, Freddie, and HLBB have distorted the housing market by allowing them to attract capital they could not attract under pure market conditions. As a result, capital is diverted from its most productive use into housing. This reduces the efficacy of the entire market and thus reduces the standard of living of all Americans.

However, despite the long-term damage to the economy inflicted by the government’s interference in the housing market, the government’s policies of diverting capital to other uses creates a short-term boom in housing. Like all artificially-created bubbles, the boom in housing prices cannot last forever. When housing prices fall, homeowners will experience difficulty as their equity is wiped out. Furthermore, the holders of the mortgage debt will also have a loss. These losses will be greater than they would have otherwise been had government policy not actively encouraged over-investment in housing.

Perhaps the Federal Reserve can stave off the day of reckoning by purchasing GSE debt and pumping liquidity into the housing postponing the necessary market, but this cannot hold off the inevitable drop in the housing market forever. In fact, but painful market corrections will only deepen the inevitable fall. The more people invested in the market, the greater the effects across the economy when the bubble bursts.

No less an authority than Federal Reserve Chairman Alan Greenspan has expressed concern that government subsidies provided to the GSEs make investors underestimate the risk of investing in Fannie Mae and Freddie Mac.

Mr. Speaker, it is time for Congress to act to remove taxpayer support from the housing GSEs before the bubble bursts and taxpayers are once again forced to bail out investors misled by foolish government interference in the market. I therefore hope my colleagues will stand up for American taxpayers and investors by cosponsoring the Free Housing Market Enhancement Act.

.....and if you want to read someone who 1) is a pragmatist, not a zealot and 2) actually knows what he is talking about, try Bob Kuttner.

I noticed Kuttner leaves out Robert Rubin's (Obama financial advisor) role in 1999.

[Larry Kart]

Interesting (to me) post that suggests that the GOP may be in the process of losing a good portion of the votes of what the poster calls "the investor class":

http://www.anonymousliberal.com/

[catesta]

Interesting (to me) post that suggests that the GOP may be in the process of losing a good portion of the votes of what the poster calls "the investor class":

http://www.anonymousliberal.com/

If "investor class" means rich, I'd say there is not much to this opinion.

A person loses a shit load of money from investments gone bad and he's now going to want to pay more in taxes?

I think the opposite would be true, as they would want to hang on to even more of what they're making.

[Larry Kart]

Interesting (to me) post that suggests that the GOP may be in the process of losing a good portion of the votes of what the poster calls "the investor class":

http://www.anonymousliberal.com/

If "investor class" means rich, I'd say there is not much to this opinion.

A person loses a shit load of money from investments gone bad and he's now going to want to pay more in taxes?

I think the opposite would be true, as they would want to hang on to even more of what they're making.

To explain (quoting from the post linked to above):

"While there are a lot of different components to the modern Republican coalition, one major component is the so-called country club Republican. This is the kind of person (I know many of them) who doesn't particularly care about social issues or neoconservative adventurism, but votes Republican primarily because he doesn't want to pay any more taxes than absolutely necessary. Many of these people have also rationalized their continued support for the Republican party by convincing themselves that the Republicans are better stewards of the economy, at least the part of the economy they care the most about: our capital markets.

"But no amount of GOP spin is going to put money back in their brokerage accounts. If the market doesn't turn around soon, it's going to force many of them to question their assumptions. An email posted on CNN tonight summed it up pretty well:

'Republicans lowered my taxes, and will keep them low. But the value of my home has dropped 20%, my health insurance costs have doubled, gas costs $4 a gallon, and my investments are in the tank. Please, tax me.'

"Now, I'm not sure how typical that response is, but at the very least, there have to be a lot of typically Republican voters out there right now who are questioning the Republican party's knee-jerk aversion to the kinds of sensible regulation that could have averted this economic meltdown. And at some point, some of these folks may question how much tax cuts are really worth to them if their investments aren't growing at all and the government is sliding into an ever more precarious financial state."

[Big Wheel]

The argument that the government pressured mortgage companies into giving low-income people home loans is bullshit. Did anyone here actually buy a home recently? We did, in 2005 and our mortgage broker was trying to convince us that we could afford a $200,000 loan when we were making $40,000 a year. His solution? A sub-prime ARM of course!!! We said, "You're crazy, there is no way we can afford that." "Oh no! You can! Look at these numbers!" "What happens in five years?" "Well, the rate will adjust." "Won't rates increase?" "Not likely!"

Sham.

Thank God we smelled it.

We came looking for a reasonable loan of $80,000 and he tried to convince us we could afford almost three times that. I don't think the government was telling him he had to do that. Oh, and our mortgage was sold three times in the first year we had it to various companies, all without our consent of course.

Fuck them all, I say.

Well duh Jim, you aren't black! Didn't you read GARussell's post?

[Jazzmoose]

Interesting (to me) post that suggests that the GOP may be in the process of losing a good portion of the votes of what the poster calls "the investor class":

http://www.anonymousliberal.com/

If "investor class" means rich, I'd say there is not much to this opinion.

A person loses a shit load of money from investments gone bad and he's now going to want to pay more in taxes?

I think the opposite would be true, as they would want to hang on to even more of what they're making.

The smart investor knows to look at the bottom line and treat taxes as just another expense rather than the ONLY expense. When the economy has been mismanaged to the point that there is no income (and hence, no taxes) that's not really such a good thing...

[Jazzmoose]

Well duh Jim, you aren't black! Didn't you read GARussell's post?

Jim's obviously making this up; those loans were only for poor (read black) people...

[Tom Storer]

The Libertarians believe that if the market is allowed to do what it thinks is best, of course mistakes ("malinvestments") will be made. But without govt intervention, they will be soon corrected, and the cycle will be mild.

Argh. I have enough trouble wrapping my head around all this finance stuff. Language like "if the market is allowed to do what it thinks is best" doesn't help! A market does not think or have opinions. It's an aggregate of millions of individual actions. I think what that phrase means is "if the market is allowed to function without regulation."

I know I'm splitting hairs, but the term "the market" is often used imprecisely. Whenever it's anthropomorphized into a thoughtful individual I just get more confused (even though I can understand the temptation to sum it up that way). It's kind of like when people talk about evolution as if it has clever intentions ("this species evolved this way to solve the problem of...").

Thank you for listening.

[Jazzmoose]

It's kind of like when people talk about evolution as if it has clever intentions ("this species evolved this way to solve the problem of...").

Oooooh...that's the one that drives me up a wall! At least it's obvious that "the market" is not a person (I think), but this one really misleads people and screws up their thinking. Don't know why; it's just as obvious, but there it is.

[papsrus]

Interesting (to me) post that suggests that the GOP may be in the process of losing a good portion of the votes of what the poster calls "the investor class":

http://www.anonymousliberal.com/

If "investor class" means rich, I'd say there is not much to this opinion.

A person loses a shit load of money from investments gone bad and he's now going to want to pay more in taxes?

I think the opposite would be true, as they would want to hang on to even more of what they're making.

To explain (quoting from the post linked to above):

"While there are a lot of different components to the modern Republican coalition, one major component is the so-called country club Republican. This is the kind of person (I know many of them) who doesn't particularly care about social issues or neoconservative adventurism, but votes Republican primarily because he doesn't want to pay any more taxes than absolutely necessary. Many of these people have also rationalized their continued support for the Republican party by convincing themselves that the Republicans are better stewards of the economy, at least the part of the economy they care the most about: our capital markets.

"But no amount of GOP spin is going to put money back in their brokerage accounts. If the market doesn't turn around soon, it's going to force many of them to question their assumptions. An email posted on CNN tonight summed it up pretty well:

'Republicans lowered my taxes, and will keep them low. But the value of my home has dropped 20%, my health insurance costs have doubled, gas costs $4 a gallon, and my investments are in the tank. Please, tax me.'

"Now, I'm not sure how typical that response is, but at the very least, there have to be a lot of typically Republican voters out there right now who are questioning the Republican party's knee-jerk aversion to the kinds of sensible regulation that could have averted this economic meltdown. And at some point, some of these folks may question how much tax cuts are really worth to them if their investments aren't growing at all and the government is sliding into an ever more precarious financial state."

Thank you. ... This obsession with tax rates is a joke. Tax rates cannot be judged in a vacuum. Lower taxes for everyone all the time is not a policy position, it's a bribe.

[JSngry]

It's kind of like when people talk about evolution as if it has clever intentions ("this species evolved this way to solve the problem of...").

Oooooh...that's the one that drives me up a wall! At least it's obvious that "the market" is not a person (I think), but this one really misleads people and screws up their thinking. Don't know why; it's just as obvious, but there it is.

Well see, the assumption is that "the market" will act in perpetual self-interest, because "the market" is composed of free-willed individuals who would be crazy to engage in self-destructive business practices. But if they do, they will fail, a vacuum for "good" businesses will be created and, of course, filled.

The fatal fallacy to that premise is the assumption that "the market" will equate "self-interest" with "sustainability". Well, hey, human history shows that when humans are left completely to their own devices for too long, with no external guidance, regulation, and/or "morality" imposed on them to some degree, "competition" inevitably devolves into "cannibalism".

That all may be "natural", but there's a helluva lot of things that are "natural" that we've proven ourselves to be capable of evolving beyond - if only we accept the notion of the self as part of a larger, at least equally important, whole. Shit, the mafia has by and large figured out that when you have "enough", it's best to not get greedier, but to just keep the sustainability going on and on and on. There is enough to go around, dig, and if some get more than others, tough shit. It's when somebody gots nothing (so to speak) and somebody else still wants more from them that shit turns sour.

Libertarianism is the Communism of the 21st century - sounds great on paper, appeals to all the right chords emotionally, but requires a perfected species in order to function as planned.

Ain't gonna happen, and although I don't blame people for trying, I do blame them for believing.

Edited September 18, 2008 by JSngry

[BruceH]

The argument that the government pressured mortgage companies into giving low-income people home loans is bullshit.

Amen.

[JSngry]

I have it on good anecdotal evidence that at least one mortgage company's branch offices were set up to run like high pressure auto dealerships - if you walked in and walked out without signing something, somebody didn't do their job.

Ain't no government pressure there...

[Big Al]

The argument that the government pressured mortgage companies into giving low-income people home loans is bullshit. Did anyone here actually buy a home recently? We did, in 2005 and our mortgage broker was trying to convince us that we could afford a $200,000 loan when we were making $40,000 a year. His solution? A sub-prime ARM of course!!! We said, "You're crazy, there is no way we can afford that." "Oh no! You can! Look at these numbers!" "What happens in five years?" "Well, the rate will adjust." "Won't rates increase?" "Not likely!"

Sham.

Thank God we smelled it.

We came looking for a reasonable loan of $80,000 and he tried to convince us we could afford almost three times that. I don't think the government was telling him he had to do that. Oh, and our mortgage was sold three times in the first year we had it to various companies, all without our consent of course.

Fuck them all, I say.

You're not alone in this. Some friends of ours have been trying to sell their house for the last few months with no takers. They found a house they liked and they "qualified" for the mortgage. The quote marks are there because even our friends were surprised they qualified! If I'm not mistaken, they even got a decent interest rate.

So now, they have two mortgages: the one on the old house and now the new house. Obviously I'm not privy to their income status, but carrying two mortgages like that for any kind of middle-class family is a potential back-breaker. It leaves me & my wife to wonder what happens if/when they can't make one of the mortgage payments? I guess the answer is, based on the events of this week, don't worry about it.

Think I'll go looking for a house now....

[Big Al]

Actually, if you want to blame ANYONE in this whole fiasco, blame the goddamned so-called "flippers." You know: investors who buy a house dirt-cheap, fix it up a little, and then sell it at a profit back to a realtor, who sees the opportunity for more commission and sells the house to someone with no/horrible credit history at a low-interest rate mortgage, who then defaults on the mortgage.

The house next to us is a case in point. In this case, the owners were involved in a nasty divorce. They both moved out, the husband was trying to sell it and finally sold out to an investment firm who thought they would have an easy sell. Well, the house is now listed at $3,000 below market value. Additionally, I have to call the realtor to call the owners to get them to mow the lawn, which looks like a jungle. These investment assholes got us into this mess, and now my neighborhood is having to suffer.

[Big Al]

Or you could blame that "Rich Dad" guy. In his first book "Rich Dad, Poor Dad" he proudly explains how he would "flip" houses to build his wealth. IIRC, he was unconcerned about who owned the house he'd sold, as long as he got his funding, that was all he was concerned with. That attitude is running epidemic in the real estate market right now.

[catesta]

Yeah, everybody and their mom became "real estate investors". They even had/have TV shows glamorizing that shit.

[Quincy]

Or you could blame that "Rich Dad" guy. In his first book "Rich Dad, Poor Dad"

UGH! A couple of years ago a friend of mine asked me to look over "this great investment book" to see what I thought. I could barely read it as it was just so effin' stupid. I found it hard to believe the author wasn't a 10 year old used car salesman intern who had been whacked in the head with a shovel a few times. I was shocked (though I shouldn't have been in the least) at how popular the book was. Some of the idiotic insights included "make friends with business owners to gain insider information of their stock." If I recall right he may have even said something along the lines of "the only good friends are wealthy ones who can do things for you." I could be wrong about that though, as just skimming through the book made my head hurt.

This same friend is one of the great contrarian indicators as he dove heavily into the tech stocks before the bubble. He became a real estate agent last spring. After stating how I thought the housing market was crazy and people are acting like houses can go up 20% a year for the next 10 years he replied "I think they can." He's no longer an agent (never sold a house - he thought they sold themselves.) Not sure what investment idea he thinks is great now, but if I find out I'll see if I can short it!

Edited September 19, 2008 by Quincy

[Guy Berger]

The argument that the government pressured mortgage companies into giving low-income people home loans is bullshit.

Amen.

No, it's not BS. The government definitely did. I just don't think that it played a significant role in what was ultimately, for a while, an extremely profitable industry.

Guy

[Jazzmoose]

UGH! A couple of years ago a friend of mine asked me to look over "this great investment book" to see what I thought... If I recall right he may have even said something along the lines of "the only good friends are wealthy ones who can do things for you."

So, Quincy, what'd ya do for him?

[Jazzmoose]

Actually, if you want to blame ANYONE in this whole fiasco, blame the goddamned so-called "flippers."

Yeah, those assholes gave television dolphins a bad name...

[Big Al]

Actually, if you want to blame ANYONE in this whole fiasco, blame the goddamned so-called "flippers."

Yeah, those assholes gave television dolphins a bad name...

I saw one of those dolphins trying to sell real estate on the local cable access channel. Talk about living up to your name....

[Big Al]

Oh yeah, and he was making so much money (according to him) he was just swimming in it. Sad thing is, he did so much better than the human investors.