For whatever reason, I never got the complete American High School education experience. Among other things, I missed the day where they taught that there are some problems that are just too big and too complex for me to figure them out. I *have* found some problems that were beyond me \u2013 but my default position is that if bright people have figured something out in the past \u2013 I ought to be able to get a solid grasp on it.<\/p>\n\n\n\n
There\u2019s a lot of talk about government budgets right now \u2013 what should be cut \u2013 what should be kept. A lot of people seem content to go with their sports loyalty driven \u201cblue team\u201d vs. \u201cred team\u201d understanding. That seems to work out to, \u201cObama says this is good, so yes,\u201d as opposed to \u201cObama says this is good, so hell no.\u201d My fear is that this model will lead to a lot of baby getting thrown out with the bathwater.<\/p>\n\n\n\n
Let\u2019s dig into a specific example.<\/p>\n\n\n\n
Fannie Mae<\/a> and Freddie Mac<\/a> are the government sponsored corporations that implement government support of home mortgages. They\u2019re a special kind of corporation, created by congress, to do a specific thing in the economy. The way it works is pretty straightforward:<\/p>\n\n\n\n * The FM\u2019s define the sorts of mortgages that they support, and guarantee that they\u2019ll buy mortgages that conform to their rules. Of course, we all know what happened: The rules about issuing mortgages were either too loose or were not followed closely enough. This was a combination of old fashioned greed and poor regulation. Lots of loans were issued that the borrowers could never pay back. Greedy salesmen took signatures from greedy buyers and backed it up with cash from banks who were too busy cashing their profits to bother checking the math. Vast amount of bad debt was created and stuffed into all corners of the economy. Shit went south, and now we\u2019re gonna change everything to make sure It Never Happens Again.<\/p>\n\n\n\n So, what happens if we simply abolish the FM\u2019s?<\/p>\n\n\n\n 1.1) Banks will now have to negotiate with each other and \/ or hold on to their own damn mortgages. Taken together, this means that:<\/p>\n\n\n\n 2) Mortgages (and most loans) become harder to get. It\u2019ll be harder to qualify for a loan and the interest rates will be higher. You\u2019ll wind up giving a blood sample for your mortgage \u2013 and you\u2019ll pay a higher interest rates and upfront fees.<\/p>\n\n\n\n However:<\/p>\n\n\n\n 3) People will still have to sell their houses.<\/p>\n\n\n\n Whether it\u2019s divorce, death, relocation, or whatever \u2013 there is a constant flux in the real estate market. Some people simply don\u2019t have an option about selling \u2013 and so they\u2019ll take what they can get. The buyers will be having a harder time raising money, so two things will happen:<\/p>\n\n\n\n 4.1) The housing market will \u201ccool off.\u201d Houses will take longer to sell. Note that none of this is inherently good or bad thing. It\u2019s just one option out of many.<\/p>\n\n\n\n So when you say \u201cget government out of the mortgage market,\u201d you\u2019re supporting dropping housing prices, cooling the housing market, and renting rather than owning. That will *feel* like large money losses, particularly for those of us who hold mortgages right now. However, you\u2019re also going to reduce the perception of the housing market as a money maker \u2013 which I think is a good thing.<\/p>\n\n\n\n I think that there are some things that are too important to society to have them serve as engines of profit. I include the basics: housing, medical care, basic food provision for the masses, basic education, and so on. Note that this doesn\u2019t mean \u201clet\u2019s make them into pure social programs.\u201d I\u2019m a big believer in market forces. It\u2019s just that if housing is important enough to regulate \u2013 then don\u2019t regulate it for the benefit \/ profit of the wealthy \u2026 regulate it for the the benefit of the majority.<\/p>\n\n\n\n There\u2019s a social engineering aspect here as well. America \u201csupports home ownership.\u201d That\u2019s partly because people who own a house tend to take better care of it and to give more of a damn about their neighborhood than renters. So, we\u2019ve supported home ownership because we like communities of home owners. I\u2019m a fan of that. The other social engineering aspect is that we keep trying to trick our citizenry into saving enough money for retirement. I think that as long as we encourage home ownership \u2013 that takes care of itself. You don\u2019t tend to sell your house for retirement, you tend to live in it.<\/p>\n","protected":false},"excerpt":{"rendered":" For whatever reason, I never got the complete American High School education experience. Among other things, I missed the day where they taught that there are some problems that are just too big and too complex for me to figure them out. I *have* found…<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[45],"tags":[],"class_list":["post-1472","post","type-post","status-publish","format-standard","hentry","category-politics-blog"],"_links":{"self":[{"href":"https:\/\/dwan.org\/index.php\/wp-json\/wp\/v2\/posts\/1472","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/dwan.org\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/dwan.org\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/dwan.org\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/dwan.org\/index.php\/wp-json\/wp\/v2\/comments?post=1472"}],"version-history":[{"count":1,"href":"https:\/\/dwan.org\/index.php\/wp-json\/wp\/v2\/posts\/1472\/revisions"}],"predecessor-version":[{"id":1473,"href":"https:\/\/dwan.org\/index.php\/wp-json\/wp\/v2\/posts\/1472\/revisions\/1473"}],"wp:attachment":[{"href":"https:\/\/dwan.org\/index.php\/wp-json\/wp\/v2\/media?parent=1472"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/dwan.org\/index.php\/wp-json\/wp\/v2\/categories?post=1472"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/dwan.org\/index.php\/wp-json\/wp\/v2\/tags?post=1472"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
* Banks go out and issue mortgages under those rules (\u201cconforming\u201d mortgages)
* Banks swap those mortgages around with great confidence, knowing that should they need to unload the mortgages, the government has their back.<\/p>\n\n\n\n
1.2) There will be no central clearing house of rules for loans.<\/p>\n\n\n\n
4.2) Housing values will drop. The same house will consistently bring less money. The same person will buy the same house, but they\u2019ll only qualify for a smaller mortgage \u2013 and eventually the seller will take what\u2019s offered.
4.3) Until housing values finish dropping, more people will rent than own.<\/p>\n\n\n\n