Voted YES on regulating the sub-prime mortgage industry.
(Nov 2007)
"H.R. 3915 is a bill that, in an attempt to improve conditions in the housing market, will end up making it more difficult and more expensive for hard-working Americans to obtain a mortgage."
-Ron Paul
When Rep. Lowey looks at the disaster that is the housing market, she quickly blames its failures on the free market and private banks. But what Nita fails to understand is that the entire housing bubble and its collapse is the cause of government manipulation of the housing market. It is not the free market that needs to be regulated but the actions of the government and the Federal Reserve.
THE HOUSING CRISES:
After the tech bubble burst and the attack on September 11th, the Fed Chairman Allan Greenspan set interest rates at an all time low of 1% to artificially stimulate a weakened economy. In order to do this the Federal Reserve printed money out of thin air so that banks could have a large reserve of cash to lend out at a low interest rate.
SIDE NOTE:
When banks loan money out at an extremely low interest rate, this encourages people to take out loans for a longer period of time and invest in things that are extremely expensive and/or take time to build...like houses. On the other hand, if interest rates were high it would encourage the borrower to pay back the loan quickly and not invest in long term projects.
As a result of the interest rates being artificially lowered and all of this new money in the economy, the demand for housing increased which in turn caused housing prices to increase. Between 1998 and 2006 home prices appreciated dramatically. But the amount of new money was so great that banks, who were in charge of it, started to look for new and innovative ways to lend that money out. As a result they came up with sub-prime mortgages, which is pretty much just a fancy term for a loan to a borrower with a bad credit score. Before interest rates were set to an historical low, it was actual extremely difficult to obtain a sub-prime mortgage.
The banks started cautiously by charging a higher interest rate to sub-prime borrowers, but as the economy continued to artificially expand these sub-prime loans were defaulting at an extremely low rate. With the extra profits, as a result of these higher interest rate mortgages, reckless investors were encouraged to enter the market to offer more of these sub-prime loans. Lenders began to make even riskier loans, now offering adjustable rate mortgages and no money down loans, which the government and now Fed Chairman Ben Bernanke fully endorsed as a safe investment. In fact, the government passed legislation that made it possible for people who could not afford down payments on houses to receive assistance from the federal government, or even to pay no down payment at all, courtesy of the taxpayers. People began buying homes that they could not afford and also began to use their house as if it were a credit card confident that the price of houses would continue to rise and that they could easily refinance their home if they faced economic trouble down the road. This reckless attitude eventually caught up with us, because the money was created out of thin air and was not a result of actual personal savings, people began to default on payments, sending the housing market into a tailspin.
But the question you should ask is: If the risk was on private banks, how did the housing collapse infect the world economy?
The true "risk" was not on the banks but on the Government Sponsored Enterprises (GSEs), like Fannie Mae and Freddie Mac who bought these loans from the banks. When a homeowner takes out a loan from a bank, that bank turns around and sells that mortgage on a secondary mortgage market to companies like Fannie and Freddie. By 2008 they had a hand in about half of the country's mortgages and nearly 3/4 of all new mortgages. Fannie and Freddie, in turn, would bundle these mortgages together and sell them as mortgage securities to investors. As a result, banks had money to make new loans and Fannie and Freddie became responsible for bearing the risk and reward of the current loans.
Some people will argue that Fannie and Freddie are private companies because their stock is traded publicly but they actually enjoy tax and regulatory privileges that their competitors do not. They have billions of dollars worth of credit with the US Treasury which guaranteed them a bailout in 2008 when the housing market collapsed. Since the US Treasury gets its money from the taxpayer, it is the taxpayer who actually bore the risk of these sub-prime mortgages, and Fannie and Freddie who reaped the rewards. Why be cautious when there is a guaranteed government bailout right around the corner?
But government manipulation does not stop there. When Freddie and Fannie sold these mortgage securities to investors, the investors looked to rating agencies who gave most of these toxic assets a triple A score. Moody's, Fitch, and Standard and Poor are examples of bond rating agencies, who are suppose to tell us when something is a bad investment and there is a smell of fraud in the air...but they didn't. The free market was unable to weed out these bad rating agencies because they are wholly owned subsidiaries of the US government. If you try to start a ratings agency you can't because there are government imposed restrictions on entry, thus making these rating agencies part of the government apparatus and not part of the free market. Not only does the government limit entry, but when people see that the agency is backed by government approval, they are manipulated into thinking that the corporation is safe, which leads the investor to let their guard down and unknowingly partake in bad investments.
The root of the crisis, as with other financial and economic crises, is a direct result from government intervention into the monetary policy and housing market. HR 3915 will only lead our country into further economic turmoil.
H.R. 3915
This bill restricts entrance into the mortgage market through a licensing system, and makes it mandatory for loan originators to be fingerprinted and have a background check. Not only is this an affront to a free and open labor market, but just by introducing a mortgage licensing system, like they did with the rating agencies, mortgage fraud can not and will not be eliminated. All it will do is restrict the number of people able to work in the mortgage industry. And according to the laws of economics, when the supply of mortgage providers decreases, the cost of retaining those services increases. This will be detrimental to the poor community.
H.R. 3915 also makes restrictions on the types of mortgages which can be offered, utilizing language which is vague enough that its definition will likely be finally determined in time-consuming expensive federal court cases. By restricting the number of people licensed to work in the mortgage industry and the types of mortgages that can be offered, the availability of mortgages would decrease and the cost would increase. H.R. 3915, which has as its purported aim the protection of American home-buyers, would have the perverse effect of keeping more Americans from being able to purchase homes.
If we really want to improve the conditions of the American economy, we should only promote investment when there is actually money to be lent out. This comes only from the savings of the American people and not by money created by the Federal Reserve. New money only destroys the value of the dollar and manipulates the free market. No matter how many laws and regulations the government will pass, there will always be people getting around those laws. The best possible way we can protect people from fraud is with harsh penalties and jail time for anyone that commits it, not constant government bailouts to those who are guilty of it. We need to get the government and the Federal Reserve out of the business of manipulating the market, and that has to start with getting Nita Lowey out of Congress.
Showing posts with label Budget and Economy. Show all posts
Showing posts with label Budget and Economy. Show all posts
Sunday, May 23, 2010
Saturday, February 20, 2010
NITA LOWEY LOVES BREAKING WINDOWS
Voted YES on $2 billion more for Cash for Clunkers program.
(Jul 2009)
Total cost: $3 billion
Edmunds.com, the premier resource for online automotive information, has determined that Cash for Clunkers cost taxpayers $24,000 per vehicle sold.
There is a clever anecdote called the Broken Window Fallacy that gives insight into the evils behind the Cash for Clunkers Program. The parable describes a shopkeeper whose window is broken by his young son, and who then has to pay for a glass maker to fix it. To the casual onlooker this is perceived to stimulate the economy because there is a boom to the glazier's business. However, the onlooker ignores the cost to the shopkeeper.
Since the shopkeeper was forced to spend his money on a new window, he could no longer spend it on something else, such as bread or shoes. The boy's actions may have benefited the glazier, but at the expense not only of the shopkeeper, but the baker and the cobbler. As a result, the child, in fact, made the town poorer by at least the value of one window, if not more.
But now suppose it was discovered that the little boy was actually hired by the glazier, and paid for every window he broke. Here in lies the truth behind the Cash for Clunkers Program.
By voting for this bill, Nita Lowey is wreaking havoc on the free market system, all in the name of stimulating the auto industry and combating global warming. When in fact it does nothing but weaken the American economy and take away the personal liberties of its citizens.
Here are the actual effects of this stimulus plan:
We have to understand that by tampering with the free market system with incentives like this we are only creating an artificial boom period. In the long run, this is not helping the auto industry but only setting them up for a bigger fall. Let us not forget that this $3 billion dollars is only the tip of the iceberg. We have been continually bailing out the auto industry for the last 30 years at the consumer's expense.
In all, this program was little more than a political redistribution of wealth from the people of America to the Nita Lowey’s power base which includes unions, environmentalists, and social justice bulldogs. But we really shouldn't expect anything else from her.
Further Reading:
Nita Lowey Loves John Maynard Keynes
(Jul 2009)
Total cost: $3 billion
Edmunds.com, the premier resource for online automotive information, has determined that Cash for Clunkers cost taxpayers $24,000 per vehicle sold.
There is a clever anecdote called the Broken Window Fallacy that gives insight into the evils behind the Cash for Clunkers Program. The parable describes a shopkeeper whose window is broken by his young son, and who then has to pay for a glass maker to fix it. To the casual onlooker this is perceived to stimulate the economy because there is a boom to the glazier's business. However, the onlooker ignores the cost to the shopkeeper.
Since the shopkeeper was forced to spend his money on a new window, he could no longer spend it on something else, such as bread or shoes. The boy's actions may have benefited the glazier, but at the expense not only of the shopkeeper, but the baker and the cobbler. As a result, the child, in fact, made the town poorer by at least the value of one window, if not more.
But now suppose it was discovered that the little boy was actually hired by the glazier, and paid for every window he broke. Here in lies the truth behind the Cash for Clunkers Program.
By voting for this bill, Nita Lowey is wreaking havoc on the free market system, all in the name of stimulating the auto industry and combating global warming. When in fact it does nothing but weaken the American economy and take away the personal liberties of its citizens.
Here are the actual effects of this stimulus plan:
- More Debt. Americans who cannot afford to buy a new car are heavily persuaded by the large rebates to stretch their budget even further and go into even more debt to take advantage of this deal. This is the housing bubble all over again, but now with automobiles.
- Destruction of Charity. Charitable donations of "clunkers" fall dramatically since the dealers were required to disable the cars, leaving the poor and the truly impoverished without any means of transportation.
- Increased prices of used cars. Prices are decided by supply and demand, and as the supply of available used autos shrinks, low-priced vehicles become more costly to purchase. Auto parts face the same price increase making it more costly for the poor to keep their cars running.
- Increased Driving. By subsidizing fuel-efficient vehicles more driving is encouraged which causes total fuel consumption to decrease less than expected.
- MPG. New federal data analyzed by The Associated Press finds that the single most common swap, at an occurrence rate of more than 8,200 times, involved Ford F-150 pickup owners. The fuel economy for the new trucks ranges from 15 to 17 miles per gallon, which equates to a mere 1 to 3 mpg improvement over the clunkers.
- Loss of Freedom. The government directed the allocation of funds upfront by selecting the industry that would receive the subsidies, and the administration in power set the rules for allowable purchases under strict guidelines that induced the consumer to purchase smaller, more “green friendly” automobiles that conform to its long-term, environmental ambitions.
- Waste of Capital and Resources. Used cars are destroyed depleting valuable resources and capital that could have been reused or repurposed.
- Redistribution of Wealth. Money that would have been spent elsewhere is now reallocated to the well-connected unionized auto industry causing many other businesses to lose profits.
We have to understand that by tampering with the free market system with incentives like this we are only creating an artificial boom period. In the long run, this is not helping the auto industry but only setting them up for a bigger fall. Let us not forget that this $3 billion dollars is only the tip of the iceberg. We have been continually bailing out the auto industry for the last 30 years at the consumer's expense.
In all, this program was little more than a political redistribution of wealth from the people of America to the Nita Lowey’s power base which includes unions, environmentalists, and social justice bulldogs. But we really shouldn't expect anything else from her.
Further Reading:
Nita Lowey Loves John Maynard Keynes
Friday, January 29, 2010
NITA LOWEY LOVES JOHN MAYNARD KEYNES
Voted YES on the Economic Stimulus Act of 2008
(Jan 2008)
Total cost: $152 billion
This law provides for tax rebates to low- and middle-income U.S. taxpayers, tax incentives to stimulate business investment, and an increase in the limits imposed on mortgages eligible for purchase by government-sponsored enterprises (e.g., Fannie Mae and Freddie Mac). For this article, I will be focusing on the effect of the tax rebate on the economy.
The justification for this bill and in fact, all government spending, relies on the principles of the Keynesian Economic Theory. It states that government stimulation and control of the economy is necessary for its general health. In this bill's case, by increasing the money supply and sending everybody a check, people will be encouraged to buy things and, as a result, stimulate the economy. Sounds good, right? But it is this injection of new money into the market system, even when directly sent to lower income individuals, that creates artificial bubbles of prosperity resulting in a greater depression.
When people decide to spend a stimulus check in the market, they create a demand for items that they would not have usually purchased. As a result of this increase in sales and profits, entrepreneurs begin to reinvest the new money into their own store in an expectation to meet future demand. By this time, however, all of the stimulus money has been spent and the store owners are left with an overstock of items that people are no longer willing to buy. Entrepreneurs have now wasted precious capital and resources, and must sell their products at a loss only to eventually go bankrupt. That is, unless another stimulus bill is passed, which inevitably happens.
Nita Lowey's unwavering support of stimulus packages, like this one, leads to a constant injection of new money into the market. This not only destroys businesses, but also destroys the value of the dollar. She does not understand that real growth in an economy comes from savings. An increase in savings, increases the supply of lending capital and lowers interest rates naturally. It is at this time that businesses should be investing in new technology and products.
It is time that Nita Lowey is replaced by someone that understands the importance of a free market system and that will allow our economy to actually grow.
(Jan 2008)
Total cost: $152 billion
This law provides for tax rebates to low- and middle-income U.S. taxpayers, tax incentives to stimulate business investment, and an increase in the limits imposed on mortgages eligible for purchase by government-sponsored enterprises (e.g., Fannie Mae and Freddie Mac). For this article, I will be focusing on the effect of the tax rebate on the economy.
The justification for this bill and in fact, all government spending, relies on the principles of the Keynesian Economic Theory. It states that government stimulation and control of the economy is necessary for its general health. In this bill's case, by increasing the money supply and sending everybody a check, people will be encouraged to buy things and, as a result, stimulate the economy. Sounds good, right? But it is this injection of new money into the market system, even when directly sent to lower income individuals, that creates artificial bubbles of prosperity resulting in a greater depression.
When people decide to spend a stimulus check in the market, they create a demand for items that they would not have usually purchased. As a result of this increase in sales and profits, entrepreneurs begin to reinvest the new money into their own store in an expectation to meet future demand. By this time, however, all of the stimulus money has been spent and the store owners are left with an overstock of items that people are no longer willing to buy. Entrepreneurs have now wasted precious capital and resources, and must sell their products at a loss only to eventually go bankrupt. That is, unless another stimulus bill is passed, which inevitably happens.
Nita Lowey's unwavering support of stimulus packages, like this one, leads to a constant injection of new money into the market. This not only destroys businesses, but also destroys the value of the dollar. She does not understand that real growth in an economy comes from savings. An increase in savings, increases the supply of lending capital and lowers interest rates naturally. It is at this time that businesses should be investing in new technology and products.
It is time that Nita Lowey is replaced by someone that understands the importance of a free market system and that will allow our economy to actually grow.
Subscribe to:
Posts (Atom)