The housing 'crisis'

[Diogenes]

As usual, the only crisis is cluless politicans trying to protect idiots from the rules of economics and their own stupidity. At least McRINO isn't on this ship of fools...

McCain's Housing Restraint

By George Will

Hurling a compliment at Barack Obama in the hope of wounding him, Hillary Clinton's campaign has said that his proposals for responding to the economy's housing-related credit woes put him "to the right of the Bush administration." Her complaint is that the government spending and other market interventions that he proposes are a bit less flamboyant than hers.


Now, getting to the right of an administration that has increased federal spending twice as fast as did her husband's administration is a snap, and a virtue. But it is John McCain's policy minimalism — these things are relative — that merits compliments.


He says "it is not the duty of government to bail out and reward those who act irresponsibly, whether they are big banks or small borrowers." For now, he is with Senate Republicans in opposing the Democrats' proposal to empower judges to rewrite the terms of some mortgages, an idea that strikes at the sanctity of contracts and hence at the ethic of promise-keeping that is fundamental to social life. He opposes an additional dose of the toxin that has made the credit system sick — he favors strengthening rather than weakening down-payment requirements for loans backed by the Federal Housing Administration. And he has admirably avoided the rhetoric of victimology, such as that used when The Post editorialized that "lenders pushed tens of billions of dollars in potentially high-interest mortgage debt on people ill-equipped to handle it."


Pertinent questions were elided by The Post's formulation of the problem, a formulation in the spirit of the liberal narrative about "predatory" lenders. How much pushing of lenders was required when they were being pushed by a bipartisan political consensus that, such are the community benefits from homeownership, it should be maximized? What portion of the subprime borrowers currently in distress — 30 percent? 50? 70? — lunged for loans requiring 5 percent or less (if any) down payments and fibbed about their financial assets and capabilities?


With the command-and-control propensity of contemporary liberalism, Clinton predictably advocates a policy that has a record, running from Roman times to the present, that is unblemished by success. It is the policy of price controls: Her proposed five-year freeze on interest rates would be a control on the price of money.


Obama says that McCain's (again, relatively) noninterventionist response to credit difficulties proves that he favors a "you're on your own" society. McCain, a center-right candidate seeking to lead a center-right country, should embrace Obama's accusation as an accolade, saying:


"This is the crux of the difference between the two parties — belief in the competence, responsibility and accountability of individuals. When Obama characterizes my position as 'little more than watching this crisis happen,' he again has part of a point. The housing market must find its bottom, and no good can come from delaying the day that it does."


The market, which bewilders and annoys liberals by correcting excesses without the supervision of liberals, is doing that as housing prices fall far enough to stimulate demand. Witness this recent Financial Times headline:


"Property sales pick up as prices plummet."


The story began: "Sales of previously owned homes in the U.S. rose for the first time in seven months in February, while sale prices fell by their most in at least 40 years." By golly, the Gershwins were right: The age of miracles hasn't passed.


McCain's only solecism is his loopy idea that mortgage lenders should make a "response" that is "similar" to General Motors' policy of interest-free financing immediately after Sept. 11. Patting himself on the back, as is his wont, McCain said he is too honorable to "play election-year politics" or "allow dogma to override common sense." Then he cast this issue as he casts too many issues, as a matter of patriotism, saying of lenders: "They've been asking the government to help them out. I'm now calling on them to help their customers and their nation out."


Good grief. Where to begin? GM initiated that policy for a corporation's best reason — business rationality. The policy's purpose was to shed inventory, not make a patriotic gesture with shareholders' money or in response to political pressure.


McCain practices the politics of honor: He thinks that whatever his instincts tell him is honorable must be so and that those who think otherwise are dishonorable. This makes him difficult to deal with but does no other harm, as long as it is kept separate from governing.

[Diogenes]

Flawed Mortgage Fix
Bush cave-in to Democrats on bankers’ bailout will accelerate foreclosures.

By Lawrence A. Hunter

The last fortnight has seen President George W. Bush cave into Democratic pressure and withdraw his threatened veto of the so-called “foreclosure-prevention” bill — despite the fact that it retains a $4-billion block-grant program for states to buy up foreclosed properties. Congress promptly passed the flawed bill despite heroic efforts by South Carolina Senator Jim DeMint to slow it down and fix it.

President Bush claimed, rightly, that the program is a bailout for bankers not a hand up for homeowners in trouble. It is measure of Bush’s political impotence that he caved on this new government boondoggle, which not only will fail to solve the foreclosure crisis but actually will exacerbate it. As usual, it will be the little guy who loses big.

Banks have been refusing to sell off foreclosed properties at market-clearing prices, which means they are foreclosing on far fewer homes than the status of their loans justifies.

Instead of foreclosing, banks want to keep even non-performing loans on their books as assets at the loan-origination value, which they are allowed to do under current accounting practices. This allows mortgage lenders to keep a warm body in the house taking care of the asset while they continue using overstated balance sheets to mislead stockholders, regulators, and the public about their true financial health.

For all that’s wrong with this situation, it has had the virtue of attenuating the rate of foreclosures. Therefore, unless the government offers to buy up properties under this new program at prices considerably above market-clearing levels (i.e., above prices speculators will pay right now, which banks are refusing), it will not entice the banks to sell off any more properties than they already are.

Clearly, the president was right before he was wrong on this bill: It is a government handout for the banks, not a hand up for homeowners. But it is worse than simply a waste of taxpayers’ money; it will upset the fragile equilibrium that currently prevents a tsunami of foreclosures from washing across America and drowning millions of American homeowners who are in precarious financial condition and upside-down in their homes.

Currently, banks are allowing many delinquent homeowners to remain in their houses as long as they pay their property taxes and keep their homeowners’ insurance policies paid up. This is not ideal but it is a temporary, market-based solution that could give the housing market time to right itself if the government would get out of the way, stop meddling, and force banks to come to grips with their real financial situation in today’s economy without waiting for Uncle Sugar Daddy to bail them out.

The best situation, of course, would be if banks did with homeowners what they do with commercial borrowers all the time when they get in trouble, namely work out the loan by establishing new terms going forward that reflect changed financial/economic circumstances. Both sides take a haircut; both sides avoid a catastrophic loss. No government meddling required.

For political, legal and regulatory reasons too arcane and complex to go into here, banks are currently being prevented from working out mortgages the way rational economics would dictate. And, with the prospect of a government bailout looming, banks have had every incentive to delay and avoid taking steps they actually can take right now to work out these mortgages.

For all of the political distortion and regulatory wedges in the market currently that prevent the ideal solution from coming about, banks nevertheless are engaged in an unlovely, second-best arrangement that allows homeowners to remain in their houses. If the market were allowed to work, banks and homeowners eventually would come to terms, making the best of a bad situation, and the housing market would right itself with the minimum amount of damage possible.

Once the Democrats’ banker bailout begins, however, this self-correcting market process will be short circuited, and the situation will get worse, much worse. It is crystal clear what will happen: Banks will accelerate foreclosures in order to take advantage of the government’s handout. By intervening in the market, the government, as usual, is going to make matters a whole lot worse, not better.

Lawrence A. Hunter is former staff director of the congressional Joint Economic Committee and currently president of the Social Security Institute.



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[Diogenes]

Bush signs housing bill to provide mortgage relief

By JENNIFER LOVEN, Associated Press Writer 1 hour, 54 minutes ago

WASHINGTON - President Bush on Wednesday signed a massive housing bill intended to provide mortgage relief for 400,000 struggling homeowners and stabilize financial markets.
ADVERTISEMENT

Bush signed the bill without any fanfare or signing ceremony, affixing his signature to the measure he once threatened to veto, in the Oval Office in the early morning hours. He was surrounded by top administration officials, including Treasury Secretary Henry Paulson and Housing Secretary Steve Preston.

"We look forward to put in place new authorities to improve confidence and stability in markets," White House spokesman Tony Fratto said. He said that the Federal Housing Administration would begin right away to implement new policies "intended to keep more deserving American families in their homes."

The measure, regarded as the most significant housing legislation in decades, lets homeowners who cannot afford their payments refinance into more affordable government-backed loans rather than losing their homes.


http://news.yahoo.com/s/ap/20080730/ap_ ... using_bill" onclick="window.open(this.href);return false;

Intentions aside, what it will do is keep undeserving idiots from the consequences of their folly. Maybe we should bail out everyone who makes a bad buy on the stock market or loses their life savings in Vegas while we're at it.

And of course it will keep housing prices artificially high, punishing those who can barely afford to make ends meet in order to placate upper and middle class voters.

[Diogenes]

But it is John McCain's policy minimalism — these things are relative

Right. He was so strenuously opposed to it that he couldn't even be bothered to vote against this outrageous piece of shit.

You do know this is an election year?

At least for most of us.

[Diogenes]

Who gives a fuck?

People who actually vote.This bill is nothing but politics, voting against it would have been pointless in this case, and cutting off one's nose to spite one's face isn't very presidential.

If the vote was even close, maybe.

[Diogenes]

At least he knows there is a problem-as opposed to the guy you are de facto supporting.

McCain Talks Straight on Fan-Fred Reform
This is Big Mac at his very best.

By Larry Kudlow

There will be no more business as usual for housing lenders Fannie Mae and Freddie Mac if John McCain is elected president. That’s McCain’s clear message in a recent hard-hitting op-ed in the St. Petersburg Times and in various straight-talk media interviews.

Politically powerful Fannie and Freddie may be popping champagne corks in Washington, where a congressional bailout package provides full government backing for their outsized management pay packages, massive political-contribution and lobbying practices, and private portfolio hedge-fund activities. These government-sponsored enterprises (GSEs) got just what they wanted, and they now have the power to pay more dividends to their shareholders without any caps on compensation.

But Big Mac is gonna put an end to this if he’s elected come November.

“Americans should be outraged at the latest sweetheart deal in Washington,” writes McCain. “Congress will put U.S. taxpayers on the hook for potentially hundreds of billions of dollars to bail out Fannie Mae and Freddie Mac. It’s a tribute to what these two institutions — which most Americans have never heard of — have bought with more than $170-million worth of lobbyists in the past decade.”

Fannie and Freddie represent the worst of Washington’s bailout fever. Using government power for private profit is how Wall Street Journal editor Paul Gigot puts it. Privatizing gains while socializing losses is the complaint registered by former House majority leader Dick Armey. Government semi-socialism is how I see it.

The GSEs spread political vigorish in turn for more power and more privilege. Just this year alone their portfolio caps were raised twice while their capital reserve requirements were lowered. And now, with an explicit government guarantee, unlimited credit lines, and the possibility of federal stock purchases, they’ll be GSEs on steroids. All this in the name of helping housing, the most favored political sector in the American economy.

Budget assistance for homebuyers is already staggering. The Housing and Urban Development department spends $52 billion a year. The home mortgage interest deduction is worth about $80 billion yearly. A capital-gains exclusion is estimated at $29 billion. And the local property-tax deduction comes to roughly $14 billion. That’s a total of $175 billion in annual assistance to the housing sector. And that’s before we get to the Fannie-Freddie bailout.

Some people talk about a so-called Marshall Plan to spur American energy independence. But for years we’ve had a Marshall Plan for housing. It’s enough already. There are other economic sectors worthy of investment.

John McCain has taken a strong reform position here, and he’s totally right. This is McCain at his very best. He argues that Fannie and Freddie employees manipulated financial reports to line the pockets of senior executives. He calls the GSEs a danger to financial markets. And he says if one dime of taxpayer money ends up in those institutions “the management and the board should immediately be replaced, multimillion dollar salaries should be cut, and bonuses and other compensation should be eliminated. They should cease all lobbying activities and drop all payments to outside lobbyists.”

He also argues for strong regulation of Fan and Fred “that limits their ability to borrow, shrinks their size until they are no longer a threat to our economy, and privatizes and eliminates their links to the government.”

McCain economic advisor Steve Forbes wants to breakup Fannie and Freddie into 10 or 12 companies, completely severing their ties to the government. With these private companies competing in the mortgage market, Forbes says the entire housing sector will be revived, with taxpayers off the hook for a change.

On the other hand, Treasury Secretary Henry Paulson is putting his reform hopes on new Fannie-Freddie regulator James Lockhart, who runs the Office of Federal Housing Enterprise Oversight. Lockhart is a reformist skeptic of Fannie and Freddie. But his term would only last until year-end. After that, his successor will be subject to Senate confirmation and a public grilling from the two banking committees, all while Fan and Fred pour money into the campaign coffers of the Democrats and Republicans serving on those committees.

Does this sound like true reform? Highly doubtful. In fact, the bailout bill should be completely rewritten to stipulate the kind of privatization program outlined by Sen. McCain.

Former Reagan Treasury official Peter Wallison has warned for years that Fannie and Freddie would blow up financial markets. Well, we just witnessed the blow-up. But now we should also blow up the Fannie-Freddie bailout. It’s not real reform.

Obama won’t do it. He says there must be an essential role for Fan and Fred. And Obama advisor Franklin Raines — the former Fannie Mae CEO who was forced to resign over accounting scandals — argues for the status quo. But McCain is talking real reform. Bravo for the Arizonan. He’s the real candidate of change.


— Larry Kudlow, NRO’s Economics Editor, is host of CNBC’s Kudlow & Company and author of the daily web blog, Kudlow’s Money Politic$.

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[Goober McTuber]

Also:

Pimco's McCulley And Sustainable Home Ownership

Pimco's McCulley spills much digital ink (http://www.pimco.com/LeftNav/Featured+M ... y+2008.htm" onclick="window.open(this.href);return false;) displaying a stunning lack of reality, in a vain (and vile) attempt to justify pumping asset prices - in this case, houses.

His claim is correct - that if everyone tries to deleverage in a given asset class at once, and therefore prices for that asset fall even more, that paradoxically leverage can actually increase because the denominator (the value of the assets) can fall faster than you can disgorge the numerator (the paper you allegedly have "secured".)

The problem is the underlying premise that McCulley shows in his pugnacious and repugnant book-talking exercise, focusing on the trees and missing the forest entirely.

Let's go back to first principles - the oft-repeated proclamation by politicians and other "wonks" who assert that it is a public good for us to have a maximum attainable level of sustainable home ownership in America.

Simple premise, right?

Ok.

Now let's call houses DVD players.

You want to have the maximum number of people able to own a DVD player.

How do you this?

You find ways to make them CHEAPER.

In fact, we have nearly 100% penetration of DVD players because they cost $30 at WalMart. When they were $500, and it wasn't that long ago, not very many people owned them.

Cell phones. When they were $1,000 (not all that long ago) and service was $50/month for 100 minutes - 50 cents/minute - few people owned them. Now, with $50/month for 1,500 minutes, with free weekends, and the phone "free" (with contract), virtually everyone has one.

Houses?

Hmmmmm....

You want lots of people to experience sustainable home ownership? Is that really the goal of the politicians?

If it is, then each and every one of them should be doing everything in their power to encourage deflating home prices.

Period.

This is even true if it forces people through foreclosure. Yes, foreclosure is nasty on your credit, but think folks!

If your payment is $2,000/month now, you can't afford it and foreclose as prices deflate, you can then buy the house back at half-price - and at a lower payment! While your credit may be trashed for seven years, are you better or worse off if you own the same (or a similar) house but with half the level of indebtedness?

That's an easy question to answer, isn't it?

So why doesn't McCulley advocate this path forward?

Because he doesn't give a good damn whether or not you can afford your house. Neither do the politicians, including George W. Bush, Henry Paulson, and Ben Bernanke, along with both Houses of Congress.

These people are all trumpeting this so-called "foreclosure prevention" housing bailout bill which is intended to do exactly the opposite of that which would promote sustainable home ownership.

Whatever their true agenda might be (and they sure haven't shared it with us!) their actions are in fact intentionally damaging sustainable home ownership by attempting to hold home prices above their historical average as a percentage of income!

You want to see sustainable home ownership?

Deflate home prices.

Period.

ALL of the politicians who claim they are "for" sustainable home ownership yet who did nothing to stop the housing bailout bill are LYING.

Their actions are diametrically opposed to sustainable home ownership, and the sooner you, as Americans, wake up to this reality and do something about it, the better off we all shall be.

http://market-ticker.denninger.net/" onclick="window.open(this.href);return false;

[Goober McTuber]

And:

"BOHICA America" Weekend

The Senate has passed the housing bill.

Absent a sudden fit of sanity, George W. Bush will sign it, as he has said he will.

This, despite the fact that 80% of America (according to a couple of polls) oppose it.

Let's deal with some of the stupidity coming from Congress on this:

"Sen. Carl Levin, D-Mich., said the legislation will "help keep struggling families in their homes" and help keep "declining property values stable." "

Really Carl? Considering that I can buy ten houses in Detroit for $10,000, assuming I have cash, exactly how is this bill going to "stabilize" things? You can't go below zero, you know, and you're already there in Michigan.

There are good things in this bill, never mind that I can guarantee you that not one Senator who voted on it this morning read the whole thing. It is over 700 pages, and the "final version" was just released to them Friday.

Even more stunning, neither of the Presidential Candidates cast a vote.

This is called "Triangulation"; if it all goes to hell you can say you didn't vote for it, and if it doesn't, you can say you were too busy on your campaign to vote for something you knew would pass anyway.

Nice, right? No way to lose.

Among the "good things" in this bill are the ending of Down Payment "Assistance" from sellers via non-profits, which had all of those organizations screaming last week. This has been one gigantic scam from the get-go, serving to do only one thing - pump home prices by the amount of the "assistance", typically 3%. While 3% sounds like "just a little" it is still price inflation foisted off on the market, and has served to pump hundreds of millions of dollars into people's pockets that shouldn't have gone there. These organizations are all officially out of business, as their funding source just got cut off.

The FHA down payment requirement going to 3.5% is good, but not enough. 10% guys, 10%. Even 5%. But 3.5%, up from 3%, is at least a move in the right direction.

Abolishing OFHEO, which this bill does, replacing it with a stronger regulator for Fannie and Freddie, is good. OFHEO has been worse than useless over the last eight years; it has done much harm by allowing the leverage in the GSEs to grow radically. However, the "teeth" part is unlikely to be real, so we'll see if there's actually anything "good" there.

The "foreclosure abatement" via write-downs to 90% of the current property value likely does nothing at all. It is voluntary (which it must be) but will force instantaneous and monstrous capital losses to be taken by the banks and others that hold the first mortgage paper that will be paid down on these FHA refinances, and the lenders are likely to say "no", at least for a while. In addition it basically makes the seconds worth zero - not exactly zero, but close enough. Since the banks have all been lying about the value of this paper, this is going to be a major problem for them - if they participate then they have to take the loss (since the note will be closed out there is no longer a place to hide it) and that's not going to go over well. Furthermore it only can be used by people in their primary residence (good), requires that your housing debt service be greater than 40% of your income (good; high net worth and high income people who in fact are ok can't abuse it) and there are some other provisions intended to prevent abuse. But on net, the real problem with this part of the bill is that it will serve to drain the swamp if lenders go along with it, and they won't, Dodd and Frank's protests aside.

There is a provision in the bill to require licensing (and fingerprinting) of mortgage brokers. Good, says I. Why? Because there are plenty of felons (who are prohibited from being in this line of work) who have been doing this job anyway. The only way to prevent people from skipping from state to state to evade detection is hard identification of those in the business. I know there's a privacy concern here, but we fingerprint people who want a CCW permit to insure they're not a "prohibited person", why not here? Financial weapons are just as bad as physical ones. Never mind that areas of the securities industry already require these sorts of background checks. Mortgage lending IS part of the securities industry. To those in the business: get over it; you brought this on yourselves by refusing to police your own. The only omission? They forgot to include Realtors (and should have.)

There is a very controversial provision requiring that payment processors (think "PayPal") be required to issue 1099s to anyone who does more than $10,000 worth of business with them in a year. This generated many howls of protest over, once again, "privacy concerns." Uh, how come? If you have a bank account that pays interest, you get a 1099. I get a bunch of them every year for tiny amounts of interest. So what? Why is this in there? Its an attempt to stop the gross underreporting of income by various Internet Entrepreneurs, many of them "Powersellers" on eBAY, who have systematically run cash businesses and reported NOTHING in income and paid NO taxes. You think this isn't common? Yeah, right. I don't think this belongs in the Housing Bill but catching people who are outright tax cheats is, in my opinion, good. Then again I'm one of those guys who filed a book for my 1040 in April (since I trade actively) and wrote a big fat check to the Treasury, so there you have it.

But let's talk about the bad things, shall we?

The mother and father of them all, and really, the reason to stop this bill, is an $800 billion debt ceiling increase and a literal "blank check" up to that amount handed to Secretary Paulson to spend as he wishes on the GSEs, Fannie and Freddie.

Secretary Paulson claims that if he has "a bazooka in his pocket" that he won't have to draw it. Uh huh. Come again Hank?

If you show up to a fight with your bare fists, the other guy is likely to actually fight you. If you draw a knife, he'll stand back 30' and shoot you with a gun. And if you have a Bazooka, he'll cold-cock you from behind because he knows if you get to draw it you'll blow him to Hell.

This, in fact, is the dumbest thing that Congress could have done.

So why did they?

I'll hazard a guess, and let me point out that this is all that it is.

"Someone", perhaps Bill Gross of PIMCO or some "foreign interests", told Paulson (or Bush, or both) that if they didn't backstop their "investment" in this GSE paper that they'd dump their Treasury holdings, and screw the bond market.

But can Paulson actually backstop the GSEs?

No.

And here's why.

See, the government can never really "fix" the economy. Government, of course, gets all its money from the economy. Therefore, whenever the government does something like this it can only rearrange where the money comes from and goes to - it can't actually add to the outcome.

Let's say there is $100 in value in the economy, for the sake of argument. Government can "decide" who gets $75 of that $100, but what it can't do is make the $100 grow to $200, because the entirety of its money comes from the $100.

Some will say "but they'll just print more money!" to which I reply, "that's nice; you now have $200 but the value of each of those dollars has been cut in half!"

So in reality, Government can't backstop the GSEs, because government can't make bad paper good, nor can it create more value. It can rearrange who gets screwed, but not whether the screwing is going to happen in the first place.

There is a mass delusion foisted off on The American People that The Fed, or Government generally, can prevent recessions.

This is false; The Government, again, gets all of its money from the economy. Since it has no exogenous (outside) means of acquiring wealth to spend, it cannot change the actual outcome.

What it can (and does) do is distort the outcome. For instance, Government can (and did) stop the decline in the market after the 9/11 attacks, preventing the full realization of the .COM bubble explosion from occurring. But in doing so it blew an even bigger bubble in real estate, and now, we're out of places you can find a bigger bubble to blow!

Since Government is (like all things) inefficient, to "rescue" one popped bubble you need to be able to blow a bigger one.

There are no bigger ones available to blow.

Government, folks, causes Depressions. It does so by gimmicking what are ordinary slowdowns in the economy and turning them into catastrophes. The really bad ones tend to happen once all the people who went through the last one are dead, because those who were adults and went through the last one remember how badly it sucked, and they won't let it happen again.

We've enjoyed 80 years of relative prosperity. We took bad choices in the 1970s, and paid with a nasty recession and stagflation into the early 80s. We too bad choices in the 1990s, and paid with the 2000 tech market collapse. We took bad choices from 2003-2007, and now are starting to pay for them in 2008.

This is not over, and this bill will not "fix it". It will in fact make it much worse, because once the market realizes that despite spending $1.3 trillion dollars (the total blown thus far) that has not managed to stop the bleeding the bond and equity markets will suddenly "get it."

Don't be long equities when it happens.


Do not be in debt, period.

Do not have more than $100,000 in any bank. ANY bank.

Pray for our nation, if you're the praying sort.....

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[Goober McTuber]

McCain Talks

Who gives a fuck? What has he actually done about it? The answer is not a goddamn thing. Americans should be outraged...that he didn't vote against it.

Talk is cheap.

I believe Obama skipped the vote, as well.

[Diogenes]

Neither do the politicians, including George W. Bush, Henry Paulson, and Ben Bernanke, along with both Houses of Congress.

These people are all trumpeting this so-called "foreclosure prevention" housing bailout bill which is intended to do exactly the opposite of that which would promote sustainable home ownership.

Whatever their true agenda might be (and they sure haven't shared it with us!) their actions are in fact intentionally damaging sustainable home ownership by attempting to hold home prices above their historical average as a percentage of income!

What they are doing is obvious. The Dems are sucking up for votes, the GOP is scared shitless to oppose them.

Not only is deflation good for the general economy and prospective buyers, it's even advantageous for current homeowners. Property values decline, so do property taxes. Which leaves more money to spend, save or invest, benifiting the economy as a whole even further.

[Diogenes]

Just when you think you've considered every way this will end badly...

Bailing Out Kelo
By John Berlau
Published 7/25/2008 12:08:03 AM

Of all the unintended consequences of the housing bill that passed the House on Wednesday, the most ironic and far-reaching may be this: whatever security marginal homeowners have from foreclosures, their homes will be far less safe from being taken by bureaucrats through eminent domain.

The bill that emerged from the negotiations between House Financial Services Committee Chairman Barney Frank and Treasury Secretary Hank Paulson took the specific language protecting property rights from the housing bill that most recently passed the Senate and rendered those words almost meaningless.

Now, the billions of dollars in new grants the bill provides for "the production, preservation and rehabilitation" of housing units could stimulate a bonanza of state and local property confiscation of the type green-lighted in the Supreme Court's 5-4 decision Kelo v. New London.

That 5-4 decision in 2005 allowed states and localities to use eminent domain for the benefit of private parties, so long as the land confiscation served a "public purpose." The case generated mass outrage, and rightly so.

As the Institute for Justice, which represented the homeowners whose property was under threat in the case, has argued, the result meant that no one's home is safe. It would serve a "public purpose" to destroy almost any residence and put a retail store in its place to raise more tax revenue.


IN RESPONSE TO the decision, many states and towns have passed laws protecting property owners by barring eminent domain solely for economic development purposes. But many other municipalities have simply ignored public opinion and used the ruling to condemn land with even more abandon.

As property rights expert Don Corace puts it in his new book Government Pirates, "Despite the widespread fury from conservatives, libertarians and liberals, hundreds of cities throughout the country cheered the ruling and continued their assault."

And for the many areas that still utilize this practice, the federal government is often the source of funds for the projects that result in the use of eminent domain. Efforts to bar federal funds to be used on projects that make use of this type of eminent domain have stalled in this and the last Congress.

To their credit, the drafters of the Housing and Economic Recovery Act of 2008, which passed the Senate on July 11, at least recognized this danger of throwing billions in construction grants to state and local governments.

So they put in a clause stating, "No funds under this title may be used in conjunction with property taken by eminent domain, unless eminent domain is employed for a public use."

The clause then adds that "public use shall not be construed to include economic development that primarily benefits any private entity."


BUT THIS LANGUAGE has vanished from the House bill that passed Wednesday, replaced with phrasing that would give governments substantially more leeway to take land.

The nearly 700-page bill craftily replaces the Senate's prohibition on funds "used in conjunction with property taken by eminent domain" with a looser ban on using the funds for a "project that seeks to use the power of eminent domain."

This new language in the House bill would give property-grabbing bureaucrats an easy way around the supposed prohibition on using eminent domain. All they would have to do is take property for any reason that Kelo allows, then come up with another project for the specific use of that property.

If land were grabbed for general economic development, as Kelo permits, and then a new project were created for a city to sell this land to developers, this would likely not be a violation of the House bill. After all, the new project isn't "seeking" to use eminent domain, it is merely using land that had already been confiscated.

It is typical for governments to change the "project" or purpose of land use many times once it has been taken through eminent domain. In fact, this was the case in Kelo.

Justice Sandra Day O'Connor noted in her eloquent dissent describing the shifting justifications for the land grab in New London, Connecticut: "Parcel 4A is slated, mysteriously, for 'park support.' At oral argument, counsel for respondents conceded the vagueness of this proposed use and offered that the parcel might eventually be used for parking."

The Senate language isn't ironclad, but its broad ban on funds being used "in conjunction with" eminent domain for economic development would at least put some necessary burdens in using these new funds to help confiscate land.

All in all, if this new language is what ultimately passes, there will be virtually nothing stopping states and localities from using the federal housing grants to help themselves to confiscate housing.


HOW DID THESE property rights protections get removed? That's somewhat of a mystery.

Barney Frank may not be a friend of property rights, but then neither is Treasury Secretary Paulson, who, according to press accounts, convinced President Bush not to veto the bill. Just after Bush nominated Paulson to head Treasury, Competitive Enterprise Institute adjunct scholar Steve Milloy warned that Paulson "has demonstrated little respect for private property rights."

Milloy noted that as head of Goldman Sachs, Paulson spent shareholders' money to support environmental groups' efforts to stop forestry on a piece of land in Tierra Del Fuego, Chile. After this pressure, the Chilean landowner was forced to sell the land to -- who else? -- Goldman Sachs. For this reason and others, Milloy urged the Senate to reject Paulson's nomination, as did the Competitive Enterprise Institute.

Because of the House changes, the Senate has to pass the bill one more time before it goes to the President. This slighting of property rights from the earlier Senate bill cannot be ignored.

Otherwise, the U.S. may repeat the tragedy of '50s and '60s "urban renewal," where the "federal bulldozer" of government housing programs literally made people homeless.

If that happens, you ain't seen a meltdown yet!


John Berlau is director of the Center for Entrepreneurship at the Competitive Enterprise Institute. He blogs at OpenMarket.org.

http://www.spectator.org/dsp_article.asp?art_id=13591" onclick="window.open(this.href);return false;

[Diogenes]

What they are doing is obvious. The Dems are sucking up for votes, the GOP is scared shitless to oppose them.

And your solution is to vote for a chickenshit?

Shouldn't you be sucking your thumb in a corner somewhere?

Ohh wait, you are.

[Diogenes]

Congradulations. You're opinion is officially worth less than Phibes or Marty. At least they have being Canadian for an excuse.

BUSINESS WORLD
By HOLMAN W. JENKINS, JR.



How to Shake Off the Mortgage Mess
July 30, 2008; Page A13

Where are the hosannas for Congress's handiwork on housing? Nobody expected it to solve anything, but it's worth understanding why.


By CNBC's count, the federal government has already made roughly $1.4 trillion available to refinance mortgage debt since the housing meltdown began. That makes this week's bill, which adds another $300 billion to the pot, seem a mite anticlimactic. The key word is refinance. Even if this money helps prevent foreclosures, it's aimed at houses that people want and that would likely resell even if foreclosed. Hardly touched is the real problem of tens of thousands of houses financed during the subprime boom that are unoccupied, unwanted, falling apart, built on spec, mortgaged on spec and abandoned on spec.

Washington has practically monopolized the business of financing and refinancing home sales for willing buyers and sellers, but it does nothing about the homes going rancid on the shelf, souring the value of the nation's entire housing stock and mortgage debt.

Maybe that explains why we're finally getting some takers for a demolition strategy as the least-cost route out of the subprime mortgage aftermath. The Economist, in its July 10 edition, endorsed a "wrecking-ball response." Bill Gross, the Pimco bond king, says in an ideal world Washington would "buy one million new/unoccupied homes, blow them up, and then start all over again." Even Larry Lindsey, the former Reagan economist, concludes that a larger bailout is nearly inevitable -- though his fanciful solution is to recruit 100,000 immigrants who would agree to buy $10 million worth of housing each.

A surplus of homes is the key liability dragging down much of the collateral underlying the financial system. Any Lindsey whimsies aside, have no doubt where many of these losses ultimately will land.

Take Fannie Mae and Freddie Mac, which owned 62,000 homes in the first quarter and were acquiring houses twice as fast as they could sell them. Fannie and Freddie now are statutorily backed by taxpayers, so taxpayers now are the real owners of nearly as many foreclosed houses as the rest of the country's 8,500 banks and thrifts combined.

And that's just the beginning. In seizing IndyMac, a California lender in subprime heartburn country, the FDIC put its fingers in its ears and simply declared a moratorium on new foreclosures. Taxpayers will end up owning a lot of derelict homes through FDIC too.

None of this is reason to disregard glimmers of a bottom in housing. Housing markets are local. Even with an unprecedented 19 million empty single-family homes, apartments and condos hanging overhead, some 500,000 new houses a year continue to be built and sold -- because people want houses where they want them.

The problem is the other places.

In California's Central Valley around Stockton, one household in 25 received a foreclosure filing last quarter. In the Inland Empire, one in 32 did. In greater Las Vegas, one in 35 households received a notice. We use household advisedly since nobody lives in many of these homes or collects the mail. Close to the ground, a growing suspicion is that the numbers even understate the troubles because banks see no point in foreclosing on empty, unsellable homes. Local governments complain of not being able to find anyone to dun for upkeep because the owner has absconded and yet no bank has filed foreclosure papers.

To be sure, the disaster is not entirely confined to vast tracts of exurban no-man's lands in the Southwest. The Star Ledger of Newark, where home prices once were rising 50% a year, describes 66 Norwood Street, financed by Countrywide for a speculative buyer who rented it out while never making a payment on her $325,000 mortgage. Fannie now owns the house, which burned twice between a final order evicting the tenant and Fannie's crew arriving to board the place up.

Multiply that by entire neighborhoods of brand new, large homes, built on cheap land far from town or amenities in the subprime ground zero of California, Arizona and Nevada. Failing an improvement on God's damp squib of an earthquake in subprime country yesterday, some sort of strategy is going be priority one for the next president.

So far, Washington has put its political capital into trying to refinance salvageable homes for unsalvageable homeowners, when a relevant policy would consist of judiciously buying unsalvageable houses and demolishing them. Fannie and Freddie's strength is housing market software: They could be put to work devising a least-cost, maximum-bang strategy for demolishing unoccupied homes to preserve as much value as possible for the homeowners and mortgage creditors who remain.

Of course, right now their overriding imperative is to avoid recognizing losses rather than rushing toward them -- which is why Fannie and Freddie should be nationalized (and later privatized). One way or the other, taxpayers will end up owning thousands of unwanted houses. It's not too soon to begin limiting our costs.

http://online.wsj.com/article/SB1217374 ... columnists" onclick="window.open(this.href);return false;

[Shlomart Ben Yisrael]

HOW DARE YOU!

I am outraged, sir.

[Diogenes]

HOW DARE YOU!

I am outraged, sir.

It's a win/win then.

[Mikey]

Not only is deflation good for the general economy and prospective buyers, it's even advantageous for current homeowners. Property values decline, so do property taxes. Which leaves more money to spend, save or invest, benifiting the economy as a whole even further.

You have obviously never owned a house.

Or learned how to spell.

[Diogenes]

Not only is deflation good for the general economy and prospective buyers, it's even advantageous for current homeowners. Property values decline, so do property taxes. Which leaves more money to spend, save or invest, benifiting the economy as a whole even further.

...learned how to spell.

Rack.

Still better than any of mvscum's 'takes'.

[Cuda]

you'll have to suck harder than that if you think you're going to overtake me in the suck-off