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Milton J. Madison - An American Refugee Now Living in China, Where Liberty is Ascending

Federalism, Free Markets and the Liberty To Let One's Mind Wander. I Am Very Worried About the Fate of Liberty in the USA, Where Government is Taking people's Lives ____________________________________________________________________________________________ "Extremism in defense of liberty is no vice. Tolerance in the face of tyranny is no virtue." -Barry Goldwater-

Sunday, December 16, 2012

Misery Spread Widely | ZeroHedge

The bureaucrats have consistently failed the people and with their failure so will the healthcare, energy industry and financial systems. They have failed with the post office, social security, the public schools, medicare, medicaid, energy policy and everything else they have taken charge of in a supposed attempt to serve the people!
I am always amazed how people exalt central government. As if government is the ones that are to be lauded when an economy does well, while the ________ (choose 1 or more: bankers, Jews, whites, businesses) get blamed when it does poorly.

Some folks I know act as if government is some kind of God that can achieve incredible things and not only knows what is important to achieve but how to execute it. In reality, when one considers much of the meddling in the past 50 years, the economy was the target of these interlopers and an economy has done well and does what it does DESPITE the meddling of the central government. Yes, an economy will adjust to that meddling like it did with the housing market. When faced with extraordinary tampering as we saw in this market including but not limited to:
1. Fannie Mae and Freddie Mac being forced by Congress to buy and hold extraordinary numbers of low credit quality loans that almost universally defaulted leading to a de-facto bankruptcy if these financial institutions
2. Meddling begets more meddling. The Federal Housing Administration the 100% federally controlled agency that is on track to lose another $50 billion of taxpayer money will probably lose even more than that since it is not accountable to anything real just government itself. The agency took on the jib of bailing out homeowners but will end up seizing many of these citizens houses over the coming couple of years. Additionally, it has crowded out other avenues for financing as businesses that are subject to market forces could not compete with this non-market oriented entity.....
The FHA continues to expand and crowd out the private sector. It is guaranteeing more high-risk loans than low-risk ones, has close to one million mortgages in its foreclosure pipeline, and is permitted to project its financial health using accounting rules based on rosy projections extending decades into the future, all the while ignoring that it is already insolvent and needs a bailout to the tune of tens of billions of dollars by any reasonable accounting standard.
From here.
3. The mortgage interest deduction. Interest of all kinds used to deductible from income however this was eliminated during Reagan's tax revamp back in the 80's. However, the mortgage interest deduction remained in there since it was mistakenly believed that this this paper finds....
We find that the MID only boosts homeownership attainment of higher income households in less tightly regulated housing markets. In more restrictive places – typically larger coastal cities – an adverse effect exists. The MID is an ineffective policy to promote homeownership and improve social welfare.
So, in reality it is a form over substance policy that costs the US Treasury over $100 billion a year in forgone tax revenues.
4. Forcing financial institutions to make loans to less credit worthy borrowers. Back in the 70's and 80's there was a myth that banks did something called red-lining where inner city blacks and latinos were denied credit for housing based solely in their skin color or ethnicity. As a result, the Clinton administration led by HUD Secretary Cuomo forced financial institutions to make loans to uncreditworthy customers in inner cities. The Clinton administration forced financial institutions to have a certain number of these loans as a prerequisite in order to pass justice department approval in the bank merger wave during the 1990's. As a result, expansive amounts of credit was available to uncreditworthy borrowers during this period creating a whole new market. Those financial institutions that did not have the proper number of loans to black and hispanic borrowers then went to Wall Street to buy these loans so that their balance sheets were properly designed to please the central planners in Washington. A whole new industry was born where none existed before and that was to lend to blacks and hispanics leading them to take out loans to buy houses that become ever more expensive and these loans were traded as a commodity product. 5. Subsidies for owner occupied housing drives ownership at the expense of rental investment. Furthermore, relative pricing and subsidies of owner occupied housing hurts the capital returns on investment in rental properties, thereby raising their relative prices and lowering the supply available. Owner occupied housing is tax subsidized whereas income derived from rental properties are taxed as income. Also, during times of economic dislocation, less available supply, even more subsidies to the owner occupied segment further exacerbates troubles with supply of alternative housing. Consumers are more limited in their choices and are coerced into continuing as owners whereas in a true free market, consumers on the margin may make other choices that are economically better for them and for the economy as a whole.
Effects on various rental/owner-occupied housing alternatives are discussed here in this paper.So, here we have a perfect example where a market good, housing has been influenced for 3/4s of a century and the net effect is for massive economic dislocation and social losses recently whose effects have yet to be felt completely. As people somehow believe that this government god can somehow create better outcomes, we have learned over-and-over that they not only fail to do so but in may cases makes things much worse causing economic strain in other areas as we saw in 2008. It was not the fault of the bankers, Jews, businesses and all of the other folks that were blamed for the the debacle but the economic troubles fall squarely on the American government. However, we continue to trust in the government to solve these problems. If they were so good at central planning and market interventions then these problems would never have existed to start with. But they did. And like sheep, we continue to follow the folly of previous errors and allow the same interlocutors to make the same stupid mistakes over-and-over. It will only cost us dearly, some our health and some our lives. But mostly it will cost us our freedom as sovereign people. We will lose our ability to make decisions on our own and will be dependent on government to decide for us and that will lead us all to be servants of government and paupers.

Misery Spread Widely | ZeroHedge

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