Dr. Frankenstein Turns Against His Monster

I'm not going to talk about the president's speech.  He is intellectually bereft, and perhaps the most economically ignorant president in the nation's history.  I will give him credit for pulling off a singularly unprecedented act :  Last night was the first time a sitting president kicked off his reelection with a campaign speech delivered to both houses of congress.  Kudos to President Obama!  Even FDR never dared to be so brazen, and the utter shamelessness of it was impressive.

On to some real news...

The federal agency that oversees the mortgage giants Fannie Mae and Freddie Mac is set to file suits against more than a dozen big banks, accusing them of misrepresenting the quality of mortgage securities they assembled and sold at the height of the housing bubble.  (NY Times)

This reminds me of when the elder George Bush took down Panamanian caudillo Manuel Noriega. The left snidely (if not inaccurately) pointed out that Noriega was a monster of US design, so ex-CIA Chief Bush was just cleaning up his own mess.

Don’t get me wrong. I want to see these criminals marched off to jail, along with the ratings agencies and the AIG crooks who insured them and then got billions in federal funds when the scheme collapsed. But the feds need to go a step further and put Fannie and Freddie in the docket as well. And while we’re at it, let’s put the FHA itself on trial. How much taxpayer money have they wasted? What exactly was their role in aiding and abetting all of this financial malfeasance?

A Dirty Cop Bring Down the Perp

Do you see what's wrong with the FHA filing suit?  They were in on this criminal enterprise! This is how dictatorships operate. Look to Russia or Venezuela for examples. The crony crapitalist government gets in bed with the private sector and they throw wild multi-billion dollar orgies at taxpayer expense. It’s all good during the fat times, but when the inevitable collapse occurs, the regime puts it's official uniform back on, including the tin badge, and arrests its fellow partiers.

So by all means, go after these crooks, but don’t stop at the private sector.  Take down the government crooks as well.  They were the criminal kingpins who hosted the parties.

Government-Sponsored Ignorance

This is an absurd statement:

And as the housing market continues to be vulnerable, deep caution greets any proposal that might pass on higher borrowing costs to consumers. (WSJ – Fannie and Freddie)

God forbid that the costs be borne by the consumer! What economic idiocy. Of course the costs should be paid by the consumer. This is the fallacy of the free lunch that is perpetuated by government.

“We’re lowering borrowing costs!” venal politicians shout from the stump.

“No,” retorts anyone with a fundamental understanding of basic economics, “you’re just spreading the cost around.”

So the government forces apartment dwellers, renters, and those who own their homes outright to subsidize home buyers. This masks the true cost of buying a home and distorts the market, resulting in a bubble. Fannie and Freddie can keep lending standards low because these insurers know they will not bear the brunt in a collapse--Uncle Sam will.  Another market distortion.

We need just the opposite of what our politicians are peddling
Each consumer must bear the cost of what he or she consumes, and we must also be allowed to face the consequences, good or bad, of our decisions.  That goes for homebuyers, mortgage companies, and mortgage insurers. This will inject sanity into the marketplace.

Some cry that ordinary people will no longer be able to afford a home if the government shuts down Fannie and Freddie and stops picking everyone’s pockets for the benefit of the few.  I say balderdash! Private companies will step in and back those who can provide evidence of financial stability. Some people will no longer be able to buy a home, but those are the people who should not be buying anyway, as evidenced by events of the past five years.

And what place is it of government to say owning a home is more noble than renting?  

The Death of Freddie and Fannie?

Believe it or not, a bi-partisan consensus may be forming that will finally, once and for all, sell off the vampiric monsters known as Fannie Mae and Freddie Mac.

The signs are encouraging, but statist projects die hard...

One compromise described in drafts of the administration’s proposal would reduce the government’s role to a last line of defense for the mortgage market. A version of this idea has been advocated by David S. Scharfstein, a finance professor at Harvard who previously worked as an adviser to Mr. Geithner.

The core of Mr. Scharfstein’s proposal is to create a new government-owned corporation for the sole purpose of providing guarantees to mortgage investors. During normal times, the insurer would guarantee no more than 10 percent of mortgages, but in times of crisis, the government could raise that cap, offering guarantees to a broader range of investors so that money continues to flow into the mortgage market and credit remains available.  (NY Times - Housing)

No, No, No!  How stupid are we?  
Two quasi-government entities blow billions in taxpayer money, contributing to the housing bubble (and inevitable collapse), and the solution is to create another one?  We’re intellectually bankrupt.  Time for those who wrecked it all to get the hell out of the way and let some new thinking in.

This is a Pollyannaish dream to take the downside out of every market
Markets have downturns for distinct reasons, and they provide a necessary corrective.  Government stepping in and short-circuiting normal market signals creates bubbles, misallocates capital, wastes money and pulls down economic growth.  More insidiously, taxpayer-funded statist projects such as this allow the big bankers to keep one hand in Uncle Sam’s pocket.

A failing market needs more cash like a crackhead needs another vial
Seriously, if your brother-in-law was living riotously and careening out of control, would you loan him money?  Of course not.  You’d want him to clean up his act first.

How about a hard-working, sober brother-in-law who just fell on hard times?  You’d be more likely to lend him money.

Markets work the same way, including mortgages and lending.  Responsible people can borrow at a lower rate.  People with a record of gross irresponsibility may not be able to borrow at all.  Uncle Sam steps in where wise lenders fear to tread, and We The Taxpayers foot the bill when reckless borrowers default.

Would you invest in a foundering company?
Another example:  Which would you more likely invest in, Apple Corporation, or a man on a street corner selling steam-powered tricycles?  No contest.  You put your money where you think you will get the best return.

Markets work the same way.  Irresponsible behavior poses risks, investors see that and pull their money.  You see it in population migrations as well.  Look at Detroit. People voted with their feet and the city is shrinking.  California and New York are also bleeding out productive people and businesses.

Government “backstops” are a horrible idea, because the federal government steps in when the smart money is pulling out.  Bleeding out money (or people) is a market signal that you are doing something wrong and need to correct yourself.  Government money subsidizes failure and masks that signal, protecting the failed enterprise from the necessary pain it needs to go through to get back on firm footing.

Government money also distorts otherwise healthy markets, driving up prices.  Just look at higher education.  It has grown something like five times faster than the overall economy.

A true free market produces only what consumers can afford. Government interventions inevitably end in crashes, burst bubbles, panics, unemployment and tears.  One area where this is not true:  Higher education.  That bubble is still inflated.  Hate those increasing tuition bills?  Thank Uncle Sam.

The Federal Government: A Party to Fraud

Responsible governments bring down criminal enterprises.  In America, the government sponsors them

The Fannie and Freddie cronies, who walked away from the crash they caused with tens of millions stuffed in their pockets, are being defended against fraud charges by the federal government.

Here's a statement from a criminal if I've ever heard one:

"I understand the frustration regarding the advancement of certain legal fees associated with ongoing litigation involving Fannie Mae and certain former employees. It is my responsibility to follow applicable federal and state law. Consequently, on the advice of counsel, I have concluded that the advancement of such fees is in the best interest of the conservatorship."  (NY Times)

That isn't a Fannie or Freddie official, folks.  It's the acting director of the the FHA, a government organization!  The federal government is defending these criminals from fraud charges with your tax dollars, to the tune of over $160 million dollars.  If you're not mad as hell, you're not paying attention.

Some Slogans for the Weekend

I just love ideological slogans.  Here are some of my favorites, with a twist...

Keep your hands off of my discourse!

Celebrate Perversity

Imagine Whirled Peas

My Gun, My Choice

And my favorite (I designed it myself), a takeoff of those irritating and sanctimonious "Diversity" bumper stickers plastered on the back of Volvos, Priuses, and Subarus...

Post your own favorites in the comments section!

Will the GOP Cover Freddie's Fannie?

Today the GOP Takes control of the House of Representatives, and Harry returns a shriveled man with a shrunken majority.  

Some conservatives have already begun attacking the GOP before they even get started.  Blogger buddy Andrew 33 over at Allied Liberty News, is preparing a boiling cauldron of tar and collecting burlap bags of feathers. 

I'm keeping my powder dry and I encourage others to give them some room.  Still, there are some disturbing rumblings...

Republicans are already backing off of earlier threats to dismantle Fannie and Freddie. These pie-in-the-sky programs that encourage irresponsible financial dealings have cost us $134 billion in the last two years alone.

Republicans cheered on Jeb Hensarling, Representative from Texas, as he crafted legislation last year to kill the ghastly twins:

"Of all the dumb regulation that caused our economic crisis, none was dumber than that which created the (Fannie and Freddie) monopolies," Mr. Hensarling said in March. (WSJ - GOP Shifts on Fannie, Freddie)

Alas, government largesse dies hard, and for some GOP statists, parting is such sweet sorrow…

A hasty end to the government's support of Fannie and Freddie would mean fewer Americans could get home loans, causing home sales and prices to drop even further and pushing taxpayers' cost for rescuing the mortgage giants even higher, said Rep. Randy Neugebauer (R., Texas), a former banker and housing developer who serves on the House Financial Services Committee.

"You'd cause Freddie and Fannie to have even larger losses than they'd already have," Mr. Neugebauer said.  (WSJ - GOP Shifts on Fannie, Freddie)

A Banker and a housing developer, eh? 
Don’t suppose that would have anything to do with how Rep. Neugebauer comes down on this, do you? He concedes that home prices are still too high, but he supports keeping them artificially propped up.  Spoken like a true crony crapitalist that is afraid of the free market.

He also reveals the truth that “fewer Americans would get home loans” as a result of ending this homebuyer-corporate welfare program. How is that bad? Too many people getting home loans is what got us into this mess. Stop Digging! Representative Neugebauer, Republican from Texas, is now officially part of the problem.

Next come the homebuilders, realtors, and mortgage lenders, hat in hand, begging a bankrupt government for special treatment...

"We don't believe that the private market — right now — is willing or able to provide the liquidity that's necessary to get us out of this," said Joe Stanton, chief lobbyist for the National Association of Home Builders. "To erode that support right now would be a disaster," said Vince Malta, a real estate agent in San Francisco and a vice president of the National Association of Realtors. (WSJ - GOP Shifts on Fannie, Freddie)

... So let’s keep the bubble inflated.

They are all wrong. 
If houses were being traded at market prices right now, and if only those who could establish financial credibility could buy them, the market would be on solid footing. It would be smaller and less active, but it would be financially sound. And that’s the problem for these crony crapitalists. The bankers, builders and realtors want turnover. Who cares if people can afford it or not? These industries that suckle at mama government’s ample teats won’t get stuck when irresponsible people get forclosed. Uncle Sam will pick up the tab! And they continue making their millions in transaction fees. This crap needs to stop now.

Like anything, Fannie and Freddie can be sold in the marketplace, maybe for a loss. At this point I don’t care. We stepped in dog doo and it’s time to scrape it off our shoe. Nothing will inject sanity back into the housing market like removing taxpayer-funded subsidies.