Economic and Social Policy

This is a nice summary of the causes of the real estate bubble which has landed our nation in the place of economic distress. It references times and places for the salient policy decisions in the context of todays issues. He's right, that unless we can accurately assess the causes, we're going to apply incorrect solutions. As I have mentioned frequently here, this problem was caused by political decisions (by Dems), not sound economic policy.

What courses of action do you recommend to keep this problem from repeating itself?

When Economic Policy Became Social Policy
By Peter J. Wallison
Saturday, August 21, 2010

The recent Treasury Department conference is further proof we will never get out of this housing mess until we are ready to face facts.

Watching the Treasury conference on housing finance earlier this week, I was struck by the gloomy thought that we will never get out of this housing mess until we are ready to face facts. Treasury Secretary Tim Geithner’s remark that the demise of Fannie Mae and Freddie Mac was caused by their pursuit of short-term profits was not a constructive contribution to the resolution of the major issues before us. In reality, Fannie and Freddie were doomed by a badly designed government housing policy, and government efforts to disguise its responsibility with a false narrative will only make a solution more difficult.

In 1992, Congress gave Fannie and Freddie a “mission” to promote affordable housing, and directed them to study a few very new ideas to accomplish this goal: “establish a downpayment requirement for mortgagors of 5 percent or less; allow the use of cash on hand as a source of downpayments; and approve borrowers who have a credit history of delinquencies if the borrower can demonstrate a satisfactory credit history for at least the [most recent] 12-month period.”

The Department of Housing and Urban Development (HUD) took this for what it was—a direction to support affordable housing by reducing underwriting standards—and throughout the 1990s and 2000s it relentlessly raised affordable housing requirements for Fannie and Freddie, requiring them to buy increasing numbers of subprime and other risky mortgages. In 2004, as it raised goals again, HUD made its purposes clear with this statement: “Millions of Americans with less than perfect credit or who cannot meet some of the tougher underwriting requirements of the prime market … rely on subprime lenders for access to mortgage financing. If the GSEs [government-sponsored enterprises, i.e., Fannie and Freddie] reach deeper into the subprime market, more borrowers will benefit from the advantages that greater stability and standardization create.” Fannie and Freddie, with little choice in the matter, did exactly this, eventually bringing them to insolvency in 2008.

We should recognize that if the residential mortgage market of the future consists of good quality mortgages, we don’t need Fannie and Freddie.
This is important to understand because—as the Treasury conference showed—the debate over Fannie and Freddie, and whatever might succeed them, will be about two entirely different subjects. The first is what role the federal government ought to play in the financing of housing. The second is whether and to what extent the government should assist low-income borrowers to buy homes. If the two issues become intertwined, as they did in the case of Fannie and Freddie’s affordable housing “mission,” we will be back where we started—with one or more entities responsible for both, and another huge taxpayer bailout.

Geithner’s misstatement about the causes of the GSEs’ insolvency leaves open the possibility of continuing a government role for Fannie and Freddie. His implicit point is that if they are better regulated in the future they will not make the same mistakes. We should recognize, however, that if the residential mortgage market of the future consists of good quality mortgages—those with downpayments of 10 to 20 percent, from borrowers who have steady jobs and good credit—we don’t need Fannie and Freddie. They served their purpose years ago by standardizing mortgages and creating a national mortgage market. That market can now function without them, although as we work through the obstacles left by the financial crisis—in particular, a moribund securitization market—the transition from here to there will have to be slowly and carefully worked.

When in 1992 Congress dragooned Fannie and Freddie into lowering their underwriting standards, it confused the economic goal of creating a viable national mortgage market for good quality mortgages with the social policy of increasing home ownership by making mortgage credit available to low-income borrowers. The added benefit for Congress was that it could achieve the social goal without budgetary consequences; the operations of Fannie and Freddie were and still are off-budget.

Congress will be reluctant to abandon the idea of financing mortgages for low-income families off-budget.
That is not to say, of course, that achieving this social goal is illegitimate. There is much data to support the proposition that home ownership significantly benefits the housing stock, neighborhoods, and families. That was another theme in the Treasury’s conference. But we should recognize that this is a different question from whether there is a necessary government role in financing well-underwritten mortgages for people whose circumstances and creditworthiness already enable them to gain access to private mortgage credit.

There are risks in this social policy, to be sure, as shown by the enormous losses taxpayers will have to take on Fannie and Freddie. But if the American people want to keep this policy in place, there is an agency—the Federal Housing Administration (FHA)—that already has this purpose. The FHA is on-budget, so the taxpayers and their representatives in Congress can keep tabs on the costs it is running up. That is the honest way, without hiding the real costs by requiring profit-making entities like Fannie and Freddie, or insured banks, to cross-subsidize risks they would not otherwise willingly assume.

So the questions about how to structure housing finance in the future are not so hard if we keep our objectives straight. When the private securitization market revives, Fannie and Freddie can gradually be eased out of their secondary market role. This can be done by gradually reducing the size of the mortgages they are allowed to acquire. As this happens, the private market will take over financing in the areas Fannie and Freddie have left, just as the private securitization market effectively financed jumbo mortgages in the past. When Fannie and Freddie’s mortgage limit has been reduced to the level that the FHA insures, they can be liquidated or privatized, leaving a private market for well underwritten mortgages and a government insurer for those mortgages that can’t meet market tests.

Achieving this objective will not be easy. Advocates for government assistance to low-income families will deplore the loss of Fannie and Freddie’s largesse in this time of limited resources; Congress will be reluctant to abandon the idea of financing mortgages for low-income families off-budget; the housing industry will protest the loss of government backing for much of the housing finance market; and the huge government deficit will limit the appetite for expanding the FHA. These are the hard choices, to be sure, but they are practical and essential if we want to avoid repeating the costly mistakes we made with Fannie and Freddie.

I'll just have to save it for later.

Bury Keynesian Voodoo Before It Can Bury Us All
By Kevin Hassett - Aug 22, 2010 Bloomberg Opinion

Initial claims for unemployment benefits surged to 500,000 in mid-August, a level more typical of a recession than a recovery. The bad news confirmed what conservative economists have been saying for some time: The biggest Keynesian stimulus in U.S. history was a bust.

Incredibly, some Keynesians who supported Barack Obama’s $862 billion stimulus now claim it fell short of their goals not because the idea was flawed, but because the spending package was too small. Christina Romer, the departing chairman of Obama’s Council of Economic Advisers, has become a minor cult hero to the Keynesians, thanks to news reports that said her analysis in 2009 suggested the stimulus should be in the range of $1.2 trillion, or 40 percent larger than it turned out to be.

The notion that a much-larger U.S. stimulus would have been more successful isn’t backed up by evidence. Maybe there would be an argument if some countries were now booming because their stimulus packages were larger. Or if some previous U.S. administration had tried a bigger stimulus and had better luck.

The fact is, the U.S. stimulus was the largest among members of the Organization for Economic Cooperation and Development, and the biggest ever tried in the U.S.

Nor does the academic literature support what we might call these Not-Enough Keynesians.

A 2002 study by economists Richard Hemming, Selma Mahfouz and Axel Schimmelpfennig of recessions in 27 developed economies from 1971 to 1998 found that increased spending by government had, in almost all cases, a barely noticeable impact, and sometimes a negative one. Heavily indebted countries that spent more in recessions grew about 0.5 percent less, relative to trend, than countries that didn’t, the study found.

Ask Joe

Why is the left so profoundly committed to stimulus-by- spending, even though there is scant evidence that it succeeds?

Joe the Plumber knows the answer: The left has become religiously Keynesian because that is the only corner of economics consistent with its redistributive ideology.

You remember Joe. During a campaign stop in the 2008 presidential election, Samuel Joseph Wurzelbacher asked Obama whether higher taxes would punish his business. Obama answered in part, “I think when you spread the wealth around, it’s good for everybody.”

Obama’s words captured Democrats’ ideology: outside of fairy tales, only government can play Robin Hood, taking money from the rich and giving it to the poor.

The problem, of course, is that high tax rates inevitably cause economic harm. Such a link is at the core of economics. If you reduce the reward for an activity, you get less of it. Democrats and the economists who serve them deny that harm so they can spread the wealth around.

The Tax Alternative

If the economy is in deep trouble, there are two economic policy steps that one could take in order to create a positive stimulus: reduce tax rates, or spend more money. (The so-called tax cuts in the 2009 stimulus had little effect because they were primarily credits and deductions, rather than reductions in marginal rates.)

But notice the problem for the Robin Hooders: If you cut tax rates in a recession in order to stimulate the economy, then you are conceding that lower tax rates can be a good thing. And if that’s true, then higher tax rates will be harmful -- something the left has always denied.

So the Obama economic team was left to rely totally on spending in its response to the recession.

Bad Medicine

Supporters of this type of stimulus are either unfamiliar with the literature or willing to ignore it. The result is policy that is harmful to our country and inconsistent with modern economic science. If the Obama economic team were medical doctors, they would be pushing the use of medicine not approved by the Food and Drug Administration.

As the economic data again head south, it will be much harder to devise successful economic policies because of the budgetary hole that the Keynesians have dug for us.

In all likelihood, the data will soon be so convincingly bad that we’ll again debate the need for an economic stimulus. Let’s hope that when that begins, all will finally concede that the ideas of John Maynard Keynes are as dead as the man himself, and that Keynesianism is the real voodoo economics.

Your threads suck, quit bumping them with more suckage.

nice try

I'm sure you're convinced you're correct. Of course I'm sure you know there are many economists much smarter than you who have a totally opposite point of view. So keep on spouting your nonsense. It's a free country and everybody is entitled to their opinion. Forgive me if I tend to disbelieve you and obsession with an unemployed plumber.

The Communists and Socialists need economists too to explain their redistributive economic actions in ways that you cannot ever fully understand, but like the sound of.


This is their economy.


Learn, or die.
__________________
"In a time of drastic change it is the learners who inherit the future. The learned usually find themselves equipped to live in a world that no longer exists."
Eric Hoffer

What we have witnessed is the unintended consequences of the positive influence of government (von Humboldt). The Statist begins with nothing but the best of intentions and then submits all those good feelings to a government of men eschewing the deemed "outdated (classical liberal)" notion of a government of law.


And now, to add the cherry to this tragic comedy, Barney Frank has called for an end to Fannie...

(Like THAT's gonna happen as long as Viagra is on the market! )
__________________
Political Realists see the world as it is: ... In this world laws are written for the lofty aim of "the common good" and then acted out in life on the basis of common greed...; a world where we are always moral and our enemies always immoral; a world where "reconciliation" means that when one side gets the power and the other side gets reconciled to it, then we have reconciliation.... In the world as it is, the solution of each problem inevitably creates a new one.
Saul David Alinsky
Rules for Radicals

Frisco_Slug_Esq said:

What we have witnessed is the unintended consequences of the positive influence of government (von Humboldt). The Statist begins with nothing but the best of intentions and then submits all those good feelings to a government of men eschewing the deemed "outdated (classical liberal)" notion of a government of law.


And now, to add the cherry to this tragic comedy, Barney Frank has called for an end to Fannie...

(Like THAT's gonna happen as long as Viagra is on the market! )
__________________
Political Realists see the world as it is: ... In this world laws are written for the lofty aim of "the common good" and then acted out in life on the basis of common greed...; a world where we are always moral and our enemies always immoral; a world where "reconciliation" means that when one side gets the power and the other side gets reconciled to it, then we have reconciliation.... In the world as it is, the solution of each problem inevitably creates a new one.
Saul David Alinsky
Rules for Radicals

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Did you notice the poster above is from KCMo?

You probably know him. Most likely you've talked about the weather over coffee down at the grange. Bitched about the corn weevils.

It's too bad none of the liberal economic policies have worked out in the glorious way they were intended and we were promised.

They never work, have you noticed? Luke, you're so inflamed by the truth, can you coherently dispute it?

JohnnySavage said:

Did you notice the poster above is from KCMo?

You probably know him. Most likely you've talked about the weather over coffee down at the grange. Bitched about the corn weevils.

Click to expand...

I'm originally from KCK, left in early 70 for the Corps...



(That not corpse Obamanation)

Can I let you in on something hilarious going around the Internet these days? No, I’m not talking about the Double Rainbow video. I’m talking about the reaction — just as amusing, though not nearly as joyful — of a number of left-wing political bloggers and commentators to the discovery that the administration’s foreclosure-mitigation program was actually a slow-motion bailout for Fannie Mae, Freddie Mac, and the banks, and not really designed to help underwater borrowers at all. Imagine Neo’s reaction when he’s told what the Matrix is, only pretend that the Matrix was something that was obvious all along, and you’ll get why I’m laughing.

The program’s intention was clear from the outset, as the editors of National Review Online noted when it was announced 18 months ago:

So, cui bono? Put simply, this program is designed to benefit Fannie and Freddie shareholders, not the great majority of Americans struggling with their mortgages. The only loans that can be restructured are those held in Fannie/Freddie portfolios or securitized by the twins. Just in time to benefit from a refinancing boom, Fannie and Freddie plan to raise their fees to as high as 3.5 percent on April 1. (Note that date, taxpayers, and ask yourselves who is being played for the fool.) And only a tiny slice of homeowners will be eligible — those who are in relatively weak positions (house payments exceed 31 percent of gross income) but not too weak (house payments do not exceed 38 percent of gross income) and who are, despite their mortgage difficulties, still creditworthy enough to pass bank underwriting standards. Fannie and Freddie get new capital, new income, and better loans in their portfolios. Most homeowners get nothing, and taxpayers get the bill.

At the time, a lot of supporters of the administration argued that only heartless Republicans and conservatives would oppose such a well-intentioned and generous program to keep struggling borrowers in their homes. The plan was the subject of CNBC commentator Rick Santelli’s famous rant, which drew angry condemnation from liberals and kicked off the tea-party movement that continues to drive them insane.

It turns out that conservatives were right: The program was full of bad incentives for borrowers and backdoor bailouts for banks. Neil Barofsky, the special investigator in charge of overseeing TARP spending, recently blasted the Home Affordable Modification Program (HAMP): “The American people are essentially being asked to shoulder an additional $50 billion of national debt without being told . . . how many people Treasury hopes to actually help stay in their homes as a result of these expenditures,” Barofsky’s report stated. The report also noted that HAMP “has not put an appreciable dent in foreclosure filings,” because, among other reasons, “the number of trial and permanent modifications that have been cancelled substantially exceeds the number of homeowners helped through permanent modifications.”

But the real eye-opener for left-wing supporters of the program came when a handful of financial bloggers posted write-ups of their visit to the Treasury Department last week. Treasury Secretary Tim Geithner and Co. had invited these bloggers to a private briefing as part of the department’s outreach efforts leading up to its big seminar on the future of housing finance. One of the subjects the bloggers and the Treasury officials discussed was HAMP. According to blogger Steve Waldman’s write-up, Treasury officials were “surprisingly candid” about the program’s failures:

The program has gotten a lot of bad press in terms of its Kafka-esque qualification process and its limited success in generating mortgage modifications under which families become able and willing to pay their debt. Officials pointed out that what may have been an agonizing process for individuals was a useful palliative for the system as a whole. Even if most HAMP applicants ultimately default, the program prevented an outbreak of foreclosures exactly when the system could have handled it least. There were murmurs among the bloggers of “extend and pretend”, but I don’t think that’s quite right. This was extend-and-don’t-even-bother-to-pretend. The program was successful in the sense that it kept the patient alive until it had begun to heal. And the patient of this metaphor was not a struggling homeowner, but the financial system, a.k.a. the banks.

In a word, duh. It’s not like no one saw this coming. We did (see above). But here’s the funny part: Many left-wing commentators apparently trusted the administration’s good intentions to the point of being “shocked” by these revelations.

Duncan Black, who blogs as Atrios, wrote, “Conning homeowners by announcing a government program designed to help them when in fact it was designed to help the banksters is, in my world, ‘cruel.’”

Mike Konczal at Rortybomb, who attended the briefing, wrote, “The narrative seemed to change from helping homeowners to spacing out the foreclosures. I asked them to repeat it, because the idea that billions of taxpayer dollars are being spent to smooth out foreclosures for banks struck me as new narrative — it’s explicitly extend-and-pretend, and also fairly cynical.”

But my favorite was economist/blogger Brad DeLong, who summed up his blindsided take with the headline: “Department of ‘Huh?!’: HAMP Edition.”

Huh? What? Obama effectuated a “cynical” and “cruel” bailout of Fannie and Freddie under the guise of a compassionate mortgage-modification program? The mind reels! The heart aches! What else has he lied to us about?

It’s actually worse than all that. The administration’s program created an incentive for underwater borrowers who weren’t yet behind on their mortgage payments to fall behind on purpose in order to qualify for a modification under HAMP. An aide to a Republican congressman tells NRO, “People who could have made their mortgage payments end up three months behind, and they can never recover from the penalties and late fees, so they end up in worse shape than if the program had never existed from the outset.”

The aide, who works on constituent issues, says, “I’ve had at least one case where the person gets a letter saying that they qualify for HAMP, and from their point of view, it would really help them out if they were able to qualify for a lower payment, but if they had to make the payment they were making, they could have done it by cutting back on other parts of their life.

“Then at the end of the process, they’re denied the modification, and they’re three months behind on their mortgage,” he says.

Why have so many been denied modifications? According to ProPublica’s Ryan Knutson, it’s because “the Treasury Department . . . encouraged banks to start trials quickly, causing banks to make trial offers to people without fully vetting their eligibility, and ultimately letting in many homeowners who were destined to fail.”

But from the banks’ point of view, even if many of these borrowers end up in foreclosure, at least the program juiced a few trial payments out of those who had stopped making payments altogether. And it eased the crush of foreclosures for awhile, giving Fannie, Freddie, and other financial institutions room to breathe. It was designed, as Treasury officials are now candidly admitting, to help banks, not homeowners. Supporters of the program are shocked by this turn of events. They wouldn’t be, if they had listened to us.

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Stephen Spruiell
NRO

That is a very revealing article. It's more of the old democrat two-step deception.

RightField said:

That is a very revealing article. It's more of the old democrat two-step deception.

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http://forum.literotica.com/showpost.php?p=35060937&postcount=4

It's mostly economic. More so than than the US anyway, the social issues have been settled.

Social Justice drives the idea in Democrat economics, the idea that if you take the money from the top and redistribute it to the bottom, then that spending fuels an economy.

What they ignore in their class and wealth envy is that without capital, you stop producing the goods and services as well as payrolls that enable people to actually participate in fueling an economy.

(This one goes out to Dr. Wiki, PhD Spellcheck)

When you work in a modern factory, you are paid, not only for your labor, but for all the productive genius which has made that factory possible: for the work of the industrialist who built it, for the work of the investor who saved money to risk on the untried and new, for the work of the engineer who designed who designed the machines of which you are pushing the levers, for the inventor who create the product on which you spend your time making, for the work of the scientist who discovered the laws that went into the making of that product, for the work of the philosopher who taught men how to think and whom you spend your time denouncing.
...
Every man is free to rise as far as he's able or willing, but it's only to the degree that he thinks that determines the degree to which he'll rise. Physical labor as such can extend no further than the range of the moment. The man who does no more than physical labor, consumes the equivalent of the material value-equivalent of his own contribution to the process of production and leaves no further value neither for himself, nor others. ... Material products can't be shared, they belong to some ultimate consumer; it is only the values of an idea which can be shared in unlimited numbers of men making all sharer's richer at no one's sacrifice or loss, raising the productive capacity of whatever labor they perform.
...
In proportion to the mental energy he spent, the man who creates a new invention receives but a small percentage of his value in terms of material payment, no matter what fortune he makes, no matter what millions he earns. But the man who works as a janitor in the factory producing that invention receives an enormous payment in proportion to the mental effort that his job requires of him. And the same is true of all men between, on all levels of ambition and ability. The man at the top of the intellectual pyramid contributes the most to all those below him, getting nothing except his material payment, receiving no intellectual bonus from others to add to the value of his time. The man at the bottom, who left to himself, would starve in his hopeless ineptitude, contributes nothing to those above him, but receives the bonus of all their brains. Such is the nature of the 'competition' between the strong and the weak of the intellect. Such is the pattern of 'exploitation' for which you have damned the strong.

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John Galt
Atlas Shrugged
__________________
“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. ... I had been too sanguine about Fannie and Freddie.”
Barney Frank

Everyone needs reparations...

Frisco_Slug_Esq said:

Everyone needs reparations...

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The ramifications of your statement are profound.

RightField said:

The ramifications of your statement are profound.

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I know that.

You divide into groups to kill the individual with promises of group reparations that each individual believes they will cash in on with group identification...

Which has really paid off for the African-American community over the last century.

__________________

Byron In Exile said:

"Why are you here?"

"To get some money."

"What kind of money?"

"Obama money."

"Where's it coming from?

"Obama."

"And where did Obama get it?"

"I don't know... his stash, I don't know. I don't know where he got it from, but he's givin' it t'us to help us. We love him. That's why we voted for him... Obama! Obama!"

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A chicken in every pot, is a bit easier, than, everyone gets to own a home.

Obama's Misguided Approach
America Has Become Too European
A Commentary by Thomas Straubhaar, Spiegel online (Germany).

The Obama administration and the Federal Reserve want to fix the United States economy by spending more money. But while that approach might work for Europe, it is risky for the US. The nation would be better off embracing traditional American values like self-reliance and small government.

There's no question about it: The 20th century was America's era. The United States rose rapidly from virtually nothing to become the most politically powerful and economically strongest country in the world. But the financial crisis and subsequent recession have now raised doubts about its future. Are we currently witnessing the beginning of the end of the American era?

A firm belief in the individual's ability, ideas, courage, will and a reliance on one's own resources brought the US to the top. The American dream promised everyone the chance of upward mobility -- literally from rags to riches, from minimum wage to millionaire. The individual's pursuit of happiness was seen as the crucial foundation for the well-being of society, rather than the benevolent state which cares for its subjects -- and certainly not the welfare state, which provides a social safety net for its citizens.

In the American system, every man was responsible for himself -- in good times and bad. No one could count on government assistance, not even the wannabe millionaire who did not make it and ended up homeless.

For many US citizens, the financial crisis has turned the American dream into a nightmare. Millions of Americans are struggling with high levels of debt, and not only because they bought overpriced houses during the housing boom and can no longer afford their mortgages. Often families are burdened with loans they took out during better times for cars, furniture, electronic gadgets or university tuition. Uncertainty and worries about the future are keeping many families awake at night.

From 'Hire and Fire' to Just 'Fire'

The economic data reveals just how deep the misery is. After a good beginning to the year, the economic recovery in the US has slowed significantly. There are hardly any new jobs, and the official US unemployment rate remains high at 9.5 percent. The actual unemployment rate could be almost twice as high, partially because of the many Americans who are working part time against their will and also because of the millions of people locked up in the country's prisons.

Particularly troubling is the phenomenon of long-term unemployment, something which is unusual in the US. The number of people who have been without work for more than six months has skyrocketed as a result of the recession, from just over 1 million to 6.8 million. The traditional policy of "hire and fire" has become a one-way street: Now it is all firing and no hiring.

The state is also suffering as a result. Heavily indebted state, county and city governments have less money to spend. Even before the crisis, roads full of potholes were part of everyday life in some places, as were power outages and other problems with the public energy and water supply. What's new, however, is that some cities in America are deliberately choosing to cut core services, such as switching off street lighting. Last winter, Colorado Springs, which with its 400,000 inhabitants is the second largest city in the state of Colorado, turned off one-third of its street lights to save money.

Nothing is immune from the wave of budget cuts, it seems. Schools have been closed and teachers laid off. Roads have been allowed to fall into disrepair and parks left to rot.

Fear of the Double Dip

It appears that the US economy, after the worst crisis of the postwar period, is slow to recover its old dynamism, unlike in previous recessions. Some economists are warning of a double-dip recession, and putting forward radical proposals to prevent this worst-case scenario from becoming reality.

In his widely read Friday column in the New York Times, the Nobel laureate economist and Obama adviser Paul Krugman last week called for the administration to bet the farm on a new attempt to stimulate the economy. Krugman recommended that the Federal Reserve buy up government securities and corporate bonds on a massive scale, announce its intention to keep short-term interest rates low in a bid to push down long-term rates, and raise its medium-term target for inflation. The Obama administration should also use its two government-sponsored real estate lenders, Fannie Mae and Freddie Mac, to help heavily indebted homeowners refinance their mortgages, Krugman wrote.

On Friday, Federal Reserve Chairman Ben Bernanke made a speech that sounded like it had been based on Krugman's column. He announced exactly what the New York Times columnist had called for, saying that the Fed was ready to intervene and would reanimate the sluggish US economy with further cash infusions if necessary. Then on Monday, Obama said he and his economic team were "hard at work in identifying additional measures" to stimulate the US economy.


A Return to Traditional American Virtues

Both the behavior of the American government and the Federal Reserve makes one thing clear: They do not see the solution to the US's economic woes in a return to traditional American virtues. Obama is not calling for the unleashing of market forces, as Ronald Reagan once did during an equally critical period in the early 1980s. On the contrary: Obama, driven by his own convictions and advised by economists who believe in government intervention, has taken a path that leads far away from those things that catapulted America to the top of the world in the past century.

The Obama administration's current policies rely on more government rather than personal responsibility and self-determination. They are administering to the patient more, not less, of exactly those things that led to the crisis.

The crash was partially caused by a policy of cheap money. If interest rates stay as low as they are, the state will get into more and more debt. One day these debts will have to be repaid, together with interest and compound interest. This will result in tax increases, which will reduce wages, the result of individuals' hard work. In addition, low interest rates will make saving unattractive for private individuals, thereby making it harder for America to break with its addiction to credit.

Helping America's Enemies

It's not just wealthy Republicans who are now accusing Barack Obama of betraying American ideals, although the conservative zealots of the Tea Party movement go too far in their criticism. They regard the Obama's administration approach to fighting the crisis as a treacherous attack by dark powers on the freedom of the United States. For them, Barack Obama is working on behalf of America's enemies.

But the move away from policies based on the American Way, which made the US by far the world's stronger economy, is also making well-meaning observers increasingly nervous. They are asking questions like: Why should the government care about the economic status or health of individuals? Why should one person pay for the misfortunes or illnesses of others?

The highest commandment of the American worldview was always to maximize individual freedoms and minimize government influence. It was an approach that was highly successful. According to that rule, self-directed action would remain the rule and government intervention the unpopular exception. But that is no longer the case.

Loss of Faith

This raises a crucial question: Is the US economy perhaps suffering less from an economic downturn and more from a serious structural problem? It seems plausible that the American economy has lost its belief in American principles. People no longer have confidence in the self-healing forces of the private sector, and the reliance on self-help and self-regulation to solve problems no longer exists.

The opposite strategy, one that seeks to treat the American patient with more government, is risky -- because it does not fit in with America's image of itself.

In Europe, the state is the result of centuries of struggle by relatively homogeneous societies and it has always played a major role in European societies. Therefore, a broad majority of the population supports economic policies based on government intervention, especially in difficult times. And Germany's current successes in dealing with the crisis suggest that the Europeans are probably right in their approach. The German economy will probably grow more this year than the American one. In Europe, government-prescribed medicine goes down well.

But what is good for Europe and Germany does not automatically work for the US. The settlers of the New World rejected everything, which included throwing out anything with a semblance of state authority. They fled Europe to find freedom. The sole shared goal of the settlers was to obtain individual freedom and live independently, which included the freedom to say what they wanted, believe what they wanted and write what they wanted. The state was seen as a way to facilitate this goal. The state should not interfere in people's lives, aside from securing freedom, peace and security. Economic prosperity was seen as the responsibility of the individual.

End of the American Way?

If you take this belief away from Americans, you are destroying the binds which interlink America's heterogeneous society. Removing this belief could lead to conflicts between different sections of society, clashes which have long bubbled beneath the surface.

What could help would be a return to the American Way, the approach which made the US so historically powerful. The success of this model is illustrated by history. In 1820, twice as many people lived in the United Kingdom as the US, and its economic performance (measured by gross domestic product) was three times as strong and the average standard of living (measured by GDP per person) was a quarter higher. Today, there are about five times more people living in the US than the UK, America's economic performance is about seven times better than Britain's and the average American is about 50 percent better off than the average Briton.

What should be done? It would be more intelligent to repair the elevator which helped the US rise from the bottom of the heap to the top, instead of trying to transplant a European style of operating onto American soil. Either the US follows the American Way -- an approach characterized by a shared history, economic success and constant progress -- or the US will have to adjust itself to the "European" way, sparking economic and social tensions in the process.

If the US manages to revert to its former ways, there is potential for hope. If not, the American age will have really come to an end.

The political Balkanization of America is about to reach its logical absurd conclusion...

obama has no Economic Policy

RightField said:

This is a nice summary of the causes of the real estate bubble which has landed our nation in the place of economic distress. It references times and places for the salient policy decisions in the context of todays issues. He's right, that unless we can accurately assess the causes, we're going to apply incorrect solutions. As I have mentioned frequently here, this problem was caused by political decisions (by Dems), not sound economic policy.

What courses of action do you recommend to keep this problem from repeating itself?

When Economic Policy Became Social Policy
By Peter J. Wallison
Saturday, August 21, 2010

The recent Treasury Department conference is further proof we will never get out of this housing mess until we are ready to face facts.

Watching the Treasury conference on housing finance earlier this week, I was struck by the gloomy thought that we will never get out of this housing mess until we are ready to face facts. Treasury Secretary Tim Geithner’s remark that the demise of Fannie Mae and Freddie Mac was caused by their pursuit of short-term profits was not a constructive contribution to the resolution of the major issues before us. In reality, Fannie and Freddie were doomed by a badly designed government housing policy, and government efforts to disguise its responsibility with a false narrative will only make a solution more difficult.

In 1992, Congress gave Fannie and Freddie a “mission” to promote affordable housing, and directed them to study a few very new ideas to accomplish this goal: “establish a downpayment requirement for mortgagors of 5 percent or less; allow the use of cash on hand as a source of downpayments; and approve borrowers who have a credit history of delinquencies if the borrower can demonstrate a satisfactory credit history for at least the [most recent] 12-month period.”

The Department of Housing and Urban Development (HUD) took this for what it was—a direction to support affordable housing by reducing underwriting standards—and throughout the 1990s and 2000s it relentlessly raised affordable housing requirements for Fannie and Freddie, requiring them to buy increasing numbers of subprime and other risky mortgages. In 2004, as it raised goals again, HUD made its purposes clear with this statement: “Millions of Americans with less than perfect credit or who cannot meet some of the tougher underwriting requirements of the prime market … rely on subprime lenders for access to mortgage financing. If the GSEs [government-sponsored enterprises, i.e., Fannie and Freddie] reach deeper into the subprime market, more borrowers will benefit from the advantages that greater stability and standardization create.” Fannie and Freddie, with little choice in the matter, did exactly this, eventually bringing them to insolvency in 2008.

We should recognize that if the residential mortgage market of the future consists of good quality mortgages, we don’t need Fannie and Freddie.
This is important to understand because—as the Treasury conference showed—the debate over Fannie and Freddie, and whatever might succeed them, will be about two entirely different subjects. The first is what role the federal government ought to play in the financing of housing. The second is whether and to what extent the government should assist low-income borrowers to buy homes. If the two issues become intertwined, as they did in the case of Fannie and Freddie’s affordable housing “mission,” we will be back where we started—with one or more entities responsible for both, and another huge taxpayer bailout.

Geithner’s misstatement about the causes of the GSEs’ insolvency leaves open the possibility of continuing a government role for Fannie and Freddie. His implicit point is that if they are better regulated in the future they will not make the same mistakes. We should recognize, however, that if the residential mortgage market of the future consists of good quality mortgages—those with downpayments of 10 to 20 percent, from borrowers who have steady jobs and good credit—we don’t need Fannie and Freddie. They served their purpose years ago by standardizing mortgages and creating a national mortgage market. That market can now function without them, although as we work through the obstacles left by the financial crisis—in particular, a moribund securitization market—the transition from here to there will have to be slowly and carefully worked.

When in 1992 Congress dragooned Fannie and Freddie into lowering their underwriting standards, it confused the economic goal of creating a viable national mortgage market for good quality mortgages with the social policy of increasing home ownership by making mortgage credit available to low-income borrowers. The added benefit for Congress was that it could achieve the social goal without budgetary consequences; the operations of Fannie and Freddie were and still are off-budget.

Congress will be reluctant to abandon the idea of financing mortgages for low-income families off-budget.
That is not to say, of course, that achieving this social goal is illegitimate. There is much data to support the proposition that home ownership significantly benefits the housing stock, neighborhoods, and families. That was another theme in the Treasury’s conference. But we should recognize that this is a different question from whether there is a necessary government role in financing well-underwritten mortgages for people whose circumstances and creditworthiness already enable them to gain access to private mortgage credit.

There are risks in this social policy, to be sure, as shown by the enormous losses taxpayers will have to take on Fannie and Freddie. But if the American people want to keep this policy in place, there is an agency—the Federal Housing Administration (FHA)—that already has this purpose. The FHA is on-budget, so the taxpayers and their representatives in Congress can keep tabs on the costs it is running up. That is the honest way, without hiding the real costs by requiring profit-making entities like Fannie and Freddie, or insured banks, to cross-subsidize risks they would not otherwise willingly assume.

So the questions about how to structure housing finance in the future are not so hard if we keep our objectives straight. When the private securitization market revives, Fannie and Freddie can gradually be eased out of their secondary market role. This can be done by gradually reducing the size of the mortgages they are allowed to acquire. As this happens, the private market will take over financing in the areas Fannie and Freddie have left, just as the private securitization market effectively financed jumbo mortgages in the past. When Fannie and Freddie’s mortgage limit has been reduced to the level that the FHA insures, they can be liquidated or privatized, leaving a private market for well underwritten mortgages and a government insurer for those mortgages that can’t meet market tests.

Achieving this objective will not be easy. Advocates for government assistance to low-income families will deplore the loss of Fannie and Freddie’s largesse in this time of limited resources; Congress will be reluctant to abandon the idea of financing mortgages for low-income families off-budget; the housing industry will protest the loss of government backing for much of the housing finance market; and the huge government deficit will limit the appetite for expanding the FHA. These are the hard choices, to be sure, but they are practical and essential if we want to avoid repeating the costly mistakes we made with Fannie and Freddie.

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Yes he does.

Raise the debt so high that you are FORCED to redistribute the wealth to take care of the growing numbers of the displaced...

Hey RF, check out Stossel:

You own a business, maybe a restaurant. You've got a lot to worry about. You have to make sure the food is safe and tastes good, that the place is clean and appealing, that workers are friendly and paid according to a hundred Labor Department and IRS rules.

On top of that, there are rules you might have no idea about. The bathroom sinks must be a specified height. So must the doorknobs and mirrors. You must have rails. And if these things aren't right—say, if your mirror is just one inch too high—you could be sued for thousands of dollars.

And be careful. If you fail to let a customer bring a large snake, which he calls his "service animal," into your restaurant, you could be in trouble.

All of this is because of the well-intentioned Americans With Disabilities Act, which President George H.W. Bush signed 20 years ago.

The ADA was popular with Republicans and Democrats. It passed both houses of Congress with overwhelming majorities, 377 to 28 in the House and 91 to 6 in the Senate.

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http://reason.com/archives/2010/09/02/good-intentions-gone-bad

The ADA was supposed to help more disabled people find jobs. But did it?

Strangely, no. An MIT study found that employment of disabled men ages 21 to 58 declined after the ADA went into effect. Same for women ages 21 to 39.

How could employment among the disabled have declined?

Because the law turns "protected" people into potential lawsuits. Most ADA litigation occurs when an employee is fired, so the safest way to avoid those costs is not to hire the disabled in the first place.

Walter Olson, a senior fellow at the Cato Institute and author of the Overlawyered.com blog, says that the law was unnecessary. Many "hire the handicapped" programs existed before the ADA passed. Sadly, now most have been quietly discontinued, probably because of the threat of legal consequences if an employee doesn't work out.

Under the ADA, Olson notes, fairness does not mean treating disabled people the same as non-disabled people. Rather it means accommodating them. In other words, the law requires that people be treated unequally.

The law has also unleashed a landslide of lawsuits by "professional litigants" who file a hundred suits at a time. Disabled people visit businesses to look for violations, but instead of simply asking that a violation be corrected, they partner with lawyers who (legally) extort settlement money from the businesses.

Some disabled people have benefited from changes effected by the ADA, but the costs are rarely accounted for. If a small business has to lay off an employee to afford the added expense of accommodating the disabled, is that a good thing—especially if, say, customers in wheelchairs are rare? Extra-wide bathroom stalls that reduce the overall number of toilets are only some of the unaccounted-for costs of the ADA. And since ADA modification requirements are triggered by renovation, the law could actually discourage businesses from making needed renovations as a way of avoiding the expense.

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