There are, to be sure, lots of villains to blame for America’s financial crisis: regulators, Wall Street executives, credit ratings agencies, Alan Greenspan.
But the one baddie Washington doesn’t want to touch is, well, Washington. Its crime: pushing federal policies that favored ever-increasing home ownership, particularly from the mid-1990s on, and thus helping spawn the housing bubble at the center of the devastating meltdown.
The sheer scope of the bipartisan, federal pro-housing undertaking is mind-boggling.
As Jeffrey Miron, a Harvard University economist, noted in testimony this week to the House Financial Services Committee, a list of past and ongoing efforts would include the Federal Housing Administration, Federal Home Loan Banks, Fannie Mae, Freddie Mac, the Community Reinvestment Act, the deductibility of mortgage interest, the tax-favored treatment of capital gains on housing, the HOPE for Homeowners Act and the $8000 homebuyer tax credit.
Then, of course, there are the Federal Reserve’s efforts to bring down mortgage rates.
The federal tax subsidy alone amounts to some $200 billion a year, according to the Tax Policy Center. Put it all together and it’s clear that Uncle Sam created immense incentives for home ownership, from which Wall Street eventually found a way to coin huge profits. Well, at least for a while. Even former Federal Reserve chairman Paul Volcker conceded this week to the same committee that government housing efforts, in the form of Fannie and Freddie, were a “factor” in the crisis.
But while Washington is creating financial regulations and regulators, going after banker pay and questioning the role of the ratings firms, it seems intent on leaving its pro-housing policy bias intact.
That may be necessary for a while, until the housing market finds it legs. But then it’s time for Uncle Sam to gradually get out of the housing business. Breaking up and privatizing Fannie and Freddie would be a good start to an exit strategy, as would phasing out the mortgage interest deduction.
The risk of maintaining the status quo isn’t so much that we’ll have another housing bubble. Rather, it is the continuing opportunity cost of devoting so much precious capital toward housing.
Finding a better use for $200 billion a year in a country with a crumbling infrastructure, a yawning budget deficit and an uncompetitive tax system shouldn’t be hard.
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It’s not so much that Washington needs to quit the housing business, it’s just that they need to live up to the ideals set forth by those housing initiatives, instead of having the housing programs used to garner political influence and power at the expense of the citizens the programs were supposedly set forth to help.
But Wall Street can hardly be considered a better alternative to Washington. The housing mess became a mess simply because both the criminals and the “cops” were cooperating. One through commission and the other by permission.
The problem is not the system. The problem is our own individual egos working “together” in disharmony. We need to cooperate in order to survive. But we constantly bring pain on ourselves because we do everything we can to prosper at the expense of other people when ever we can. We care only for our selves and no one else.
Those with the means to change the situation would do well to consider the suffering they bring to others by their unwillingness to do so.
Those suffering the results of this mess would do well to wake up to just how valuable they are, and just how wrong it is that a child of God should live as a common animal. Wake up. Valuing material crap over human life leads to death and pain.
- Posted by Benny AcostaThat is absolute nonsense! The housing debacle was caused by cheap money introduced after 9/11. Then the Fed increased rates from 1% to over 5% in about 12 months, starting in 2004, busting the ARMs. With the stock market suffering from the “dot com” bust in 2000, capital found its way into real estate. And of course, human greed, uninformed buyers, pure speculation, and the crooks, managed to contribute to the problem. The same is true with energy, gold, etc. Waves of stupidity that will always repeat themselves for eternity. Yesterday was housing; tomorrow could be water!
- Posted by Carlos Alexandre[...] Washington needs to quit housing business – Reuters [...]
- Posted by Monday Morning « the news links