RAG Perspective: An American Pro-Liberty Conservative: Miscellany: 4/30/13

Tuesday, April 30, 2013

Miscellany: 4/30/13

Quote of the Day
Fortune does not change men,
it unmasks them.
Suzanne Necker

CAGW Porker of the Month

I saw a movie on cable over the weekend where the protagonist has very bad short-term memory and repeatedly falls in love with the same woman whom he doesn't quite remember after prior encounters. You would think after politicizing the mortgage credit process by threatening to sue banks whom did not lend to politically favored but credit-risky applicants with little or no skin in the game (e.g., a traditional 20% down payment) which exacerbated the housing bubble, with the GSE's guaranteeing a significant proportion of these loans, socializing the costs of mortgage write-offs to taxpayers, Democrats would be properly chastened. But instead:

Commissioner Galante’s FHA has, according to the Post, been “urging the Justice Department to provide assurance to banks … that they will not face legal or financial recriminations if they make loans to riskier borrowers who meet government standards but later default,” while encouraging the same banks to utilize home loan programs that insure banks against losses. In the event of default, taxpayers would be on the hook.

Remember this news item from last November?

An independent audit set for release Friday estimates that the mortgage insurer, which has more than $1 trillion worth of loans in its portfolio, has burned through its capital reserves because of bad mortgages. The $16.3 billion shortfall is more than expected.

“While the loans made during this administration remain the strongest in the agency’s history, we take the findings of the independent actuary very seriously," said Carol Galante, the FHA's acting commissioner.

Yeah, right, Ms. Galanta.

And, on a related but different story, before you get swept up in the hopes of a new housing bubble on Fed-manipulated interest rates, you might consider what Doug French of LFB terms "zombie homes":

According to RealtyTrac, there are 300,000 vacant homes currently in the foreclosure pipeline. Daren Blomquist, vice president at RealtyTrac, tells American Banker, “We call them zombie foreclosures.” That seems appropriate. The biggest mortgage owners and servicers are zombies — Fannie Mae, Freddie Mac, FHA, Bank of America, and JPMorgan Chase.

The problem, of course, is that the municipalities and homeowners associations will be filing judgments against homeowners who thought they had lost their houses and are trying to move on with their lives. As Ms. Berry writes, “If a servicer has not taken title to the property, cities instead end up tracking down the former homeowner to pay for liens, upkeep, and taxes. These former homeowners could also be on the hook for overdue homeowner association fees, past-due insurance, and the mortgage debt.”

This way, some banks can manage the amount of “other real estate owned,” or OREO, on their balance sheets by not taking title. Also, if banks hustle to get these homes on the market, they will nip the housing recovery in the bud.

“I have long been convinced that the current run-up in home prices is a false high,” senior staff attorney at the Empire Justice Center Ruhi Maker, a New York nonprofit, tells American Banker. “Once all these foreclosures are through the system, we could see another decline in prices.”

Got that? By not completing the foreclosures, the banks don't have to drain their cash flows by paying back taxes, maintaining property, etc., the obligations of which still fall on the back of the original homeowner, whom by walking away thought that he was in the clear. They could still pass along obligations to the new owner by foreclosing and selling but they would then have to take the loss plus there is so much inventory, dumping the inventory too quickly could counter-productively push down home prices, exacerbating their balance sheet woes. I see the banks trying to muddle through, playing for time to deleverage, and deferring the day of reckoning.

Reason's Nanny of the Month

Surprised that a NYC suburb would ban casual dining establishments? Yet another elitist restriction on consumer choice....

Anti-Competitive Dentistry

The next thing you know, instructional demonstrations at hardware stores will be targeted by tradesmen...

Property Rights Erosion: A Seawall Against the Government Tsunami?

It's the Spending, Stupid!

From Ron Hart last November:

In the Democratic vernacular, taxes have changed to "revenues." Long ago they replaced the word "spending" with "investments," especially when wasting money on Solyndra and the like. They think we are stupid.
When Bill Clinton so famously "balanced the budget" with the Internet boom and all the taxes from those stock sales, the GOP and Newt Gingrich passed a budget (yes, Congress used to do that) of $1.7 trillion in expenditures. Adjusted for inflation, our federal government would be spending $2.3 trillion today and collecting $2.5 trillion in "revenues," resulting in a $200 billion surplus.
Democrats, who believe we have a "revenue" problem instead of a "spending" problem, must also think they have a bartender problem, not a drinking problem.

Depending on the issue progressive ideologues do seem to understand the national debt but apply the issues in a very arbitrary fashion: for example, published estimates of nation building in Iraq and Afghanistan made the dubious assumption that spending is at the margin, and the high-end estimates include debt service. In reality, Defense (and I myself have disagreed with nation building) spending accounts for less than 25% of total spending and is not a driver of future spending; in fact, Obama has repeatedly wanted to use declining expenditures in nation building as "spending cuts": by this smoke-and-mirrors accounting, the winding down of any federal project (say, completing the Hoover dam) is a "spending cut" to be offset by empire building the federal bureaucracy.

Many conservatives thought that if you starved the beast, progressives would have to scale back their statist ambitions. In fact, with the Federal Reserve buying the equivalent of a large portion of new Federal debt and manipulating interest rates, which lowers the budgetary implications of higher cumulative debt, this is not working; the Democrats have sought to scapegoat Bush for their spending frenzy since taking over control of one or both chambers of Congress from 2007, a period over which federal spending has expanded by over a trillion dollars a year. And those massive deficits don't include adequate funding for entitlements; by accounting standards, we are understating our deficits.