Tag Archives: Regulations

Government’s Role In The Housing Bubble And Bust

It’s the classic tribal warfare.  The Republicans wanna blame the Democrats for the boom then bust of the housing bubble.  Specifically they wanna blame Carter for the CRA, then Clinton for accelerating it and finally Barney Frank for enabling Fannie Mae and Freddie Mac.

For their part, the Democrats wanna blame the Republicans for easing regulations and over site of the financial markets.  Most especially with regards to leveraging, allowing banks to act as investment firms and the existence of the derivative market.

I have long been a believer that it was Fannie and Freddie that drove us up to and then over the cliff.  And for a long time have held the Democrats responsible.  I am learning and need to amend my position.

It was government policy that drove us up to and then over the cliff.  Policy that began with the noble intention of  providing affordable housing to more and more people.

However, when government subsidizes, we often always get poor results:

It was perhaps a worthwhile goal, but it caused the financial crisis when it was done by lowering mortgage underwriting standards. In the end, it was a colossal policy error by Congress and two presidential administrations.

Data from the article demonstrates the government’s involvement:

The affordable housing law required Fannie and Freddie to meet government quotas when they bought loans from banks and other mortgage originators.

At first, this quota was 30%; that is, of all the loans they bought, 30% had to be made to people at or below the median income in their communities. HUD, however, was given authority to administer these quotas, and between 1992 and 2007, the quotas were raised from 30% to 50% under Clinton in 2000 and to 55% under Bush in 2007.

It is certainly possible to find prime mortgages among borrowers below the median income, but when half or more of the mortgages the GSEs bought had to be made to people below that income level, it was inevitable that underwriting standards had to decline. And they did. By 2000, Fannie was offering no-downpayment loans. By 2002, Fannie and Freddie had bought well over $1 trillion of subprime and other low quality loans. Fannie and Freddie were by far the largest part of this effort, but the FHA, Federal Home Loan Banks, Veterans Administration and other agencies–all under congressional and HUD pressure–followed suit. This continued through the 1990s and 2000s until the housing bubble–created by all this government-backed spending–collapsed in 2007. As a result, in 2008, before the mortgage meltdown that triggered the crisis, there were 27 million subprime and other low quality mortgages in the US financial system. That was half of all mortgages.

In short, the government created the criteria, or the supply, and then the government created the agencies, or the demand.

Of these, over 70% (19.2 million) were on the books of government agencies like Fannie and Freddie, so there is no doubt that the government created the demand for these weak loans; less than 30% (7.8 million) were held or distributed by the banks, which profited from the opportunity created by the government.

So yes, it was the government POLICY that created this bubble.  But, back to Fan and Fred, did they have a role?

Of the 19.2 million subprime and low quality loans that were on the books of government agencies in 2008, 12 million (about 62%) were held or guaranteed by Fannie and Freddie.

Yes.  And a big one.

However, I’m forced to amend my position.  It was not the SOLE fault of Fan and Fred for the crisis, but they are certainly a major player.

To his credit, and to complete the Liberal tragedy, even Frank himself acknowledges his errors:

I hope by next year we’ll have abolished Fannie and Freddie … it was a great mistake to push lower-income people into housing they couldn’t afford and couldn’t really handle once they had it.

 

When Government Gets In Government’s Way

Let’s face it.  Government IS red tape.  Folks in government are faced with making decisions that are based on the same basic premise that the rest of us make decisions on.  Namely, incentives.  People are incented in the same manner no matter their profession or walk of life.  And in politics, the incentive is to not error.

There is no incentive to lead.  While it would be nice, it’s not required.  Really, all you have to do is not make a mistake.  Just avoid decision making and talk.  A lot.  And just.  Don’t.  Make.  Bad.  Decisions.

And that’s how we get this.

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The Interview Process

I’ve found myself in need of qualified employees working in my organization multiple times in my life.  I’ve been in need of book keepers, bartenders and technical professionals.  In each case, my primary goal was to find the very best individual for the job.  Some of those decisions required that the individual selected be able to hit the ground running.  In other cases I wanted someone who the organization could train and mentor into a high performer.  In short, I was looking for specific skills and skill levels.

Further, in each case, it was critical that I was “right”.  The cost of being wrong is very very high.

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Global Warming and Science

I was watching the debate tonight and heard the questioning surrounding the science of global warming.  Admittedly I’m biased, but it sounded to me like the moderators were laughing inside as they were questioning the candidates about global warming.

The questions were led with the fact that scientists overwhelmingly support the fact that mankind is contributing to the warming of the globe.  Now, given that fact, do you reject that science?

It’s the Left’s trick question.

The words aren’t what they’re asking.  What they are asking is:  “Do you deny catastrophic anthropomorphic global warming?”  But the questions are always phrased in such a way as to mask the true nature of the question.

For example, if I asked you this question, how would you respond?

If you were to piss in the ocean, would the level of the ocean by higher than it would have been had you not decided to piss in the ocean?

Who can deny the science?  When you add “water” to a body of water, can you argue that the volume of water actually decreased?  Certainly not.

The question should be:

If you were to piss in the ocean, would the level of he ocean be higher by any meaningful measure?

If THAT question were asked, the answers would make more sense.

And so it is with global warming.  Any reasonable person would argue that we DO contribute to the warming of the planet.  However, the degree to which we contribute is not of such significance that we need to take the actions that the far-left would ask us to take.

Stimulus And Jobs

More good news today out of California regarding Green Technology and the creation of jobs in that sector through Obama’s stimulus:

Solar company to file for bankruptcy

Knowing what we know about Obama’s business acumen the story here isn’t that he was wrong about a company and it’s ability to flourish.  While interesting, THAT aspect of the story has been told and retold.

No, the REAL story here is the fact that the company failed even though it received some money, a LOT of money:

A California-based solar company that received a $535 million loan guarantee from the Obama administration announced Wednesday that it will shut down.

The company, Solyndra Inc., said Wednesday it would suspend its manufacturing operations and lay off 1,100 employees effective immediately. The company said it intends to file a petition for Chapter 11 bankruptcy protection.

Another one bites the dust.

I’m interested though, what were the details surrounding the company’s decision to throw in the towel?

“Regulatory and policy uncertainties in recent months created significant near-term excess supply and price erosion,” Solyndra CEO Brian Harrison said in a statement. “Raising incremental capital in this environment was not possible. This was an unexpected outcome and is most unfortunate.”

Oh.  You mean that laws being passed make it difficult to predict the future?  And this inability to predict the future is creating a situation where banks don’t wanna lend you more money?

Weird.  Who woulda thought THAT?

When Does It End?

I mentioned the other day, I like going to the YMCA The Y.  I used to go because I liked to run, swim and just kinda work out.  Now, I go mostly to feel better.

In other words, I just hit the hot tub, the sauna and the steam room.

And then I leave.

But I feel REALLY good!

But this week I wasn’t able to get my full allotment of feel good.  And wanna know why?

Government.

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Regulations: Clear Cut Case Where They Kill Business

One single election.  Done.  Back in business.

One man lost.  Back in business.

One law reviewed.  Back in business.

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