Categories
ideological culture national politics & policies too much government

Warren’s No Socialist

Senator Elizabeth Warren knows that when people trade, both sides gain. She made that clear last year, in a fascinating interview in The Atlantic. But then she went blithely on, saying that she could fix markets by creating a “level playing field.”

Markets create value, but Mrs. Warren asserts that “when the markets are not level playing fields, all that wealth is scraped in one direction.” 

How? People are still trading, even in bumpy playing fields. 

She turns to the crisis of 2008, when many people discovered that they had entered into unsustainable mortgages. She explains how her shiny new regulatory program leveled that playing field.

But her scheme did not even out the bumps in the mortgage industry that existed before the crash:

  • the moral hazard of Fannie Mae and Freddie Mac, 
  • the previous congressional “fix” that pushed banks to accept poor people as good loan risks when they were not (in the name of racial justice, of course), 
  • the regulatory rule that created ratings agencies sans competitive market incentives, and
  • the Federal Reserve policies that fed the whole housing bubble mania.

She just added another burdensome layer of government.

Politicans sure love to pile on.

Now she offers a new scheme, a child-​care program that Reihan Salam, this week again in The Atlantic, says “risks increasing the federal deficit, driving up the cost of child care, and squeezing stay-​at-​home parents.” 

And Mr. Salam says that last risk is one Warren should understand particularly well, since she had “made her reputation as a public intellectual by warning against it.”

Warren’s no socialist — she wants to “save capitalism”! Yet by only adding to government kludge, she might as well be one.

This is Common Sense. I’m Paul Jacob.


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Categories
folly free trade & free markets moral hazard nannyism national politics & policies responsibility

Auto Destruct

Just when you thought it safe to go back into the loan market.…

Yes, you guessed it: a bubble may be about to pop.

There are actually several, but here’s one you might not expect: the automobile loan market.

Though less regulated and tampered with than the housing market, auto loans aren’t immune to “moral hazard” and other government-​induced dangers. The Fed’s low interest rates are almost certainly stimulating the new car market. “Subprime” car loans are way up and so are delinquencies. Do the bankers making these decreasingly solvent loans expect a bailout?

As Eric Peters notes at his immensely fascinating automobile website, the average car loan is now $32,000, “a record high.” And then there’s the “ever-​increasing duration of new cars loans. They are now on average six years long — and seven year loans are becoming pretty common.”

Why? “In order to spread out payments (now averaging almost $500 a month) that have become simply too much to manage for most people.”

But then of course car prices are rising. And not just because of simple inflation. It’s the result of government regulations, mandates, and … general craziness. Many buyers now finance used car purchases, too, as Mr. Peters explains. That used to be fairly uncommon. The used-​car market has been unduly affected by government insanity as well. Remember Cash for Clunkers? Politicians boasted about their managed destruction of millions of used autos.

What they really achieved was a tighter-​than-​ever supply of usable older cars.

Cruising toward the auto-​destruct of the auto-​loan markets.

This is Common Sense. I’m Paul Jacob.


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Categories
free trade & free markets too much government

The Housing Boom’s Inflated “Wisdom”

Watch how the received wisdom gets worded: “A sustained rebound in home prices is considered critical to getting the economy back on track.”

That’s from a Washington Post business report on falling home prices. Its passive voice construction covers up who holds the opinion. 

The sentence could have been written differently: “Many politicians, policy wonks, and industry shills believe that only a sustained rebound in housing prices can put the economy get back on track.” But that would have helped the reader see the special interests behind the statement. 

We need housing prices high and rising again … to fulfill the plans of the very people who set up the house of cards that just came down.

Harvard economist Jeffrey Miron’s reaction is worth quoting in full: “No, no, a thousand times no!

Housing prices are falling because they soared to ridiculous levels during the bubble. Any policy that attempts to keep prices high — or, equivalently, that attempts to prevent foreclosures or juice housing construction — is fighting a crucial market adjustment to past distortions.

The housing boom mania — fed by multiple government subsidies and massive financial intervention coupled with cheap money from the Federal Reserve — served some people at the expense of the public at large. Progress doesn’t depend on it. Real progress depends on rejecting such nonsense.

By the way, other things equal, inexpensive housing is good for us. The whole “rising prices” mania defeats the alleged rationale for mortgage subsidies in the first place.

This is Common Sense. I’m Paul Jacob.

Categories
Accountability free trade & free markets too much government

Barney’s Bubble Babbling

To hear Congressman Barney Frank tell it, he was a lone voices of fiscal reason when the surge of ill-​considered mortgage debt fueled the now-​popped housing bubble.

Unfortunately for Frank, this is the age of the Internet. Bloggers have proved more than willing to collate inconvenient evidence.

Thanks to Ed Morrissey on HotAir​.com, then, we have two testimonies of Frank-​ish speechifying. Here’s Frank in 2009:

People haven’t fully understood. One of the causes of the terrible crisis we had over the last few years … it came from people being pushed into buying houses, taking out loans that they couldn’t afford. Part of that was a conservative view that rental housing was a bad thing.… People were pushing home ownership [for] people who shouldn’t have been there.

“People in power” pushed this, eh? Which people? The irresponsible conservatives. But here’s this same sir, Barney Frank, in a clip from 2005:

We have, I think, an excessive degree of concern right now about home ownership and its role in the economy.… This is not the dot-​com situation.… [Y]ou’re not going to see the collapse that you see when people talk about a bubble. And so, those of us on our committee in particular, will continue to push for home ownership.

Oh dear. Barney, just be honest already and admit you helped destroy the economy, okay?

This is Common Sense. I’m Paul Jacob.