Transterrestrial Musings

Defend Free Speech!

Amazon Honor System Click Here to Pay

Site designed by

Powered by
Movable Type 4.0
Biting Commentary about Infinity, and Beyond!

« Frustrated At McCain | Main | Better Late Than Never »

What We Should Really Be Angry About

I fully agree with Iain Murray:

While conservatives are angry about a number of things at the moment, they should be at least as angry that the Congressional Democrats who helped stoke the mortgage crisis are getting away with blaming everyone else for it. Today, Senator Chris Dodd, the prime recipient of GSE lobbying funds and proud holder of a sweetheart mortgage from Countrywide, is holding hearings where the witnesses will blame everyone but Dodd, Barney Frank and their cronies. Republicans asked to invite witnesses but were barred from doing so.

The notion that this mess is the fault of Republicans, and "deregulation" and the free market, is one of the biggest frauds ever perpetrated on the American people. And as a result, we could be heading toward both electoral and economic disaster.

[Update early afternoon]

Peter Schiff says don't blame capitalism:

Just as prices in a free market are set by supply and demand, financial and real estate markets are governed by the opposing tension between greed and fear. Everyone wants to make money, but everyone is also afraid of losing what he has. Although few would ascribe their desire for prosperity to greed, it is simply a rose by another name. Greed is the elemental motivation for the economic risk-taking and hard work that are essential to a vibrant economy.

But over the past generation, government has removed the necessary counterbalance of fear from the equation. Policies enacted by the Federal Reserve, the Federal Housing Administration, Fannie Mae and Freddie Mac (which were always government entities in disguise), and others created advantages for home-buying and selling and removed disincentives for lending and borrowing. The result was a credit and real estate bubble that could only grow -- until it could grow no more.

Prominent among these wrongheaded advantages are the mortgage interest tax deduction and the exemption of real estate capital gains from taxable income. These policies create unnatural demand for home purchases and a (tax-free) incentive to speculate in real estate.

Similarly, the FHA, Fannie and Freddie were created to encourage lending by allowing primary lenders to turn their long-term risk over to the government. Absent this implicit guarantee, lenders would probably have been much more conservative in approving borrowers and setting interest terms, and in requiring documentation of incomes and higher down payments. Market forces would have kept out unqualified buyers and prevented home-price appreciation from exceeding the growth in household income.

Read the whole thing.

I disagree, though that the solution is to take away the home-mortgage interest deduction and the capital gains break. It would be much better to restore the deduction for all interest (as it is for business, and was for individuals until the tax "reform" in 1986). It's not fair to have to pay tax on interest earned as income, but not be able to deduct interest paid.

Also, rather than treating houses preferentially, peg all capital gains taxes to inflation, to eliminate having to pay a tax when the actual value hadn't increased.


0 TrackBacks

Listed below are links to blogs that reference this entry: What We Should Really Be Angry About.

TrackBack URL for this entry:


Brock wrote:

I find the "Republican deregulation" accusations personally frustrating as I am an attorney who advises financial institutions on their regulatory compliance. I have very good friends who choose to believe some reporter parroting Frank/Dodd/Obama's talking points over my informed opinion on the matter. Until now I thought I had established my bona fides as a fair critic of economic/regulatory policy, but apparently anything that challenges their emotional investment in voting for Obama simply can't be listened to.

Pro Libertate wrote:

I'm a former in-house counsel with a now-defunct financial institution, and we had a lot of concerns about the potentially dire consequences of government meddling in the mortgage industry. Particularly through Fannie and Freddie. We didn't anticipate this much of a meltdown, but a comeuppance of some sort was expected by many.

So talk about deregulation causing this is not only wrong, it's exactly wrong. And from these jokers, a blatant lie. Lender and borrower malfeasance is part of the mess, too, of course, but the government established the parameters for failure.

The problem for the GOP is that while it didn't initiate this business, it certainly didn't do anything to stop it while the GOP controlled the federal government. Which is the knock on the GOP for most things. We can only hope a more 1994-like limited government GOP will rise from the ashes of the 2006 defeat (and possible 2008 defeat).

Jim Harris wrote:

The notion that this mess is the fault of Republicans

If they don't want to be blamed now, they shouldn't have taken credit for it when they thought it was working. Here is how President Bush described it a year ago:

One area that has shown particular strain is the mortgage market, especially what's known as the sub-prime sector of the mortgage market. This market has seen tremendous innovation in recent years, as new lending products make credit available to more people. For the most part, this has been a positive development, and the reason why is millions of families have taken out mortgages to buy their homes, and American homeownership is at a near all-time high.

Pro Libertate wrote:

I don't mind the Democrats blaming the Republicans; what I mind is them blaming this fictional deregulation. Gramm-Leach-Bliley and some of the other bogeymen had nada to do with this crisis. And this sickening lurch towards socialism may very well mean the end of American economic dominance in the coming decade. Neither party seems inclined to support the ideas of a free market or limited government, in any event.

Rand Simberg wrote:

Neither party seems inclined to support the ideas of a free market or limited government, in any event.

It would help if the Republican nominee wasn't economically ignorant.

Jim Harris wrote:

what I mind is them blaming this fictional deregulation.

Again, the menagerie of Republicans, conservatives, and libertarians have been has to claim that we did deregulate ---- when they thought it was working. Here is what McCain, or maybe some hack at the McCain campaign, wrote about it earlier this year:

Opening up the health insurance market to more vigorous nationwide competition, as we have done over the last decade in banking, would provide more choices of innovative products less burdened by the worst excesses of state-based regulation.

You guys are saying that McCain just doesn't know what he's talking about when he claims that we deregulated banking. Maybe, but a majority of the voters no longer trusts a conservative/libertarian movement with a heads-our-credit, tails-your-fault philosophy. If McCain and Palin were elected, then every time they looked bad, you would throw up your hands and say that they're not true conservatives.

And to address the policy point: Whatever the hell we did do to banking in the past ten years, whether you want to call it deregulation or socialism or Rastafarianism, we certainly shouldn't do it to health care.

Pro Libertate wrote:

I'm not absolving the Republicans of responsibility for this, nor do I think McCain is at all arguing for more deregulation. He and Obama are aligned on this, rhetoric aside.

However, the fact is that banking and lending are not only heavily regulated, they are also manipulated by a variety of government actions--the known actions of Fannie and Freddie, the mortgage deduction, the Fed's various actions to keep the real estate bubble alive, etc. On top of all that was the oddly conflicting pressure to make sure that every American could afford a home, while also telling lenders that they couldn't price for risk. Craziness.

I came from a major mortgage lender, and I know the business pretty well. Deregulation isn't the issue. If McCain were championing the free market on this, I'd applaud him. But he isn't. But the Democrats using this to further increase the size, scope, and power of government makes me absolutely sick. Haven't they learned anything from the past eight years? Is absolute power okay, just so long as "our guys" wield it? Bah.

Brock wrote:

No, Jim, what we're saying is that what little deregulation that has occurred has had nothing to do with the current crisis (and possibly has been the only meaningful source of alleviation, as the depository banks bought the investment banks and guaranteed their transactions). It's a red herring whose sole purpose is to justify further regulation and socialism.

It would also be impossible to "do it to health care" since banking and health care exist in separate universes as far as regulatory control is concerned. They're as different as cheese and Wednesday.

Jeff wrote:

It also made me sick last night to repeatedly hear Obama say "Haven't we learned anything over the past eight years?" He and the leftist illuminati are quick to pin all of the downtrodden economy on the Republicans without taking any responsibility at all. Should we be surprised?

Bill Maron wrote:

NOWHERE in that press statement did he take credit. Even your short quote is just noting it's a positive for more Americans to own their home. I notice you didn't bold the part where he says there is trouble brewing and this was a year ago. So to recap, the President thought people owning their home was a good thing but was concerned about the process. Your effort to twist this into something it's not defies logic and reason, as expected.

Considering Democrats like Dodd and Frank were riding shotgun for Fannie and Freddie and the whole CRA mess, more regulation would have been ineffective. Didn't you notice Dodd won't let the minority members call witnesses? He's controlling the narrative to save his own skin.

philw1776 wrote:

"Senator Chris Dodd, the prime recipient of GSE lobbying funds and proud holder of a sweetheart mortgage from Countrywide, is holding hearings where the witnesses will blame everyone but Dodd, Barney Frank and their cronies. Republicans asked to invite witnesses but were barred from doing so."

Into the Wayback machine to 2002. Remember the NYT and all the MSM writing editorials advocating 'power sharing'? The press is such a diode for the D party.

ken anthony wrote:

The thing I'm very depressed about, regardless of who wins this cycle, is that there don't seem to be any brakes on this car. The worse the economy gets the more socialism they can propose, while at the same time the democrats and media can continue to collude in blaming the free market and evil businesses. Any voice of reason can be swallowed by the noise. The worst case of course is 60 democrats and Obama, but even 51 republicans and McCain give no indication that they would be able to slow the socialist momentum. The next generation has already been brain washed. It really doesn't seem to matter that the foundation exists, what's been built on top of it has got to go, but how?

My second thought is about the fair tax. Is there any scenario where it might be implemented and would that be a good or bad thing?

Brock wrote:


I hear ya. And no, the Fair Tax has a 0% chance. Congress loves the tax code as-is. The Left uses it for social engineering (see all those Credits Obama is proposing?) and both sides know that a tax loophole is almost as good as an earmark, when it comes to doing favors for contributors.

It makes me wish Texas and Alaska would secede. I'd try one of them ...

Jim Harris wrote:

It would also be impossible to "do it to health care"

So what was McCain talking about?

They're as different as cheese and Wednesday.

Wensleydale, then.

Duncan Young wrote:

So let me get this straight. Rand et al., are enraged at Senator Dodd and Congressman Frank for failing to establish a new regulatory agency, with enhanced powers of red tape to oversee privately held companies. At a time when they were in the minority. In 2006, when the horse was fully out of barn.


Lets ask a Republican who was there at the time:
The critics have forgotten that the House passed a GSE reform bill in 2005 that could well have prevented the current crisis. All the handwringing and bedwetting is going on without remembering how the House stepped up on this. What did we get from the White House? We got a one-finger salute."
Former Rep. Oxley (emph. mine)

Sorry, Dodd+Frank=Murderers of America's Promise theory is flat out wrong. The definition of a subprime morgage is that it does not meet the legislated requirements of Freddie Mac or Fannie Mae. The housing bubble was driven by the firehose of US dollars being pumped out of Asia (in large part to maintain a strong dollar for export purposes). After the collapse of the tech boom, that money flooded into the housing market, and post 2003, nearly entirely into the privately issued morgage industry, who promply dumped it into booming exurbs and vacation condos. CRA-governed institutions maybe issued a quarter of subprime morgages, and if you look at maps of forclosures, they are actually more prevalent in GOP held congressional districts - not what one would suspect would be the trend if that the CRA, that law from History's Eviliest Man, Jimmy Carter, was responsible.

But at the end of the day, the fact this was triggured by the housing market is not really that relevent. It could have been gold, tulips or beanie babies.

When 65 terrabucks (World GDP) is the asset bases for over 500 terabucks of completely unregulated derivitates (which generally need to be paid out on perceived decline on asset prices), the collapse of any bubble is going to turn a difficult time into a financial catastrophe. Phil Gramm stopped these from getting be regulated in 1999, and Greenspan made sure it was not considered.

Leave a comment

Note: The comment system is functional, but timing out when returning a response page. If you have submitted a comment, DON'T RESUBMIT IT IF/WHEN IT HANGS UP AND GIVES YOU A "500" PAGE. Simply click your browser "Back" button to the post page, and then refresh to see your comment.

About this Entry

This page contains a single entry by Rand Simberg published on October 16, 2008 8:48 AM.

Frustrated At McCain was the previous entry in this blog.

Better Late Than Never is the next entry in this blog.

Find recent content on the main index or look in the archives to find all content.

Powered by Movable Type 4.1