Borrowers who put less than 20 percent of a home’s value down for a mortgage almost always have to secure “private mortgage insurance” (PMI) to protect their lender if they default. In 2007, PMI became became tax deductible for borrowers, thus further lowering the cost of homeownership and encouraging more people with small down payments to begin buying homes.
As it stands, the PMI creates enormous perverse incentives: it encourages lenders to lend to people who put down as little…
Rigid mark-to-market accounting rules may have triggered the current financial crisis by artificially undervaluing mortgages and securities (making financial institutions appear insolvent). Even the very government officials who have advocated those rules now hint that they will disregard them in valuing the government’s own mortgages, in administering any bailout! (This inconsistency undermines arguments for the bailout).
The SEC today made federal accounting rules a bit less rigid by allowing methods other than mark-to-market accounting in appropriate conditions. Thus, when mortgages have not defaulted, financial institutions need no longer treat them as worthless,…
The People have spoken. They have picked the Market over the Government to be the chooser of winners and losers.
Here are the Market’s choices for winners:
1. Those that live in their homes, versus those that purchased houses to be flipped (third letter).
2. Homeowners that purchased a house that they could afford with a 30-year fixed, versus the over-extended with an adjustable rate.
3. Small local banks that didn’t make ARM loans with no money down, versus big ones with mortgage-backed securities.
4. Those…
There are all sorts of people today who normally talk about free markets but who have got themselves into a tizzy over the failed bailout. We need to get one thing straight - the bailout was the wrong answer to the wrong question. To begin with, the plan was merely postponing the inevitable, as a letter in the Wall Street Journal pointed out this morning:
The lesson of past financial inflection points is that we must let the markets reallocate capital from…
The stunning defeat of the Hank Paulson’s socialism-for-Wall Street bailout on Monday has just made planks of a pro-free market alternative much more viable. As Open Market has noted before, The Republican Study Comittee, a caucus of pro-market members of the GOP Congress, has presented such a plan that would be much more effective at stopping the contagion than the Paulson bailout, and many of its provisions would not cost taxpayers a dime.
The RSC plan is chock-full of measures to…
Oh, Happy Day! And it certainly is for all those who value freedom, responsibility and the true free market in which individuals are free to profit from their risks on the condition that they don’t stick the rest of us with their losses.
It’s not hyperbole to say the Republican and Democratic backbenchers who defied both parties’ leadership to defeat this $700 billion package of Wall Street socialism literally saved America. Whatever their reasons, this defeat (or rather victory for freedom),…
Unfettered greed is the suspect many point at to explain the current economic crisis. To some extent, they are right, but it isn’t irrational greed on the part of bank managers or fat cat CEOs. It is the unwieldy bank regulations that forced the entire industry to walk the proverbial plank and then blame it for drowning.
Critics have alternately claimed that over-regulation and under-regulation are the causes for the current crisis. I believe one specific regulation, the Community Reinvestment Act…
Though the bill may have been defeated for the wrong reasons—like the lack of freebies, giveaways, and handouts that many on the left had hoped for—the defeat of the bailout bill in the House has brought stocks out of their decent. The Dow Jones is now climbing.
But how can this be? How could a bill that was designed to save our economy, our country, and the world be the cause of the Dow’s drop today? Easy, the bill was introducing…
The House of Representatives just voted down the $700 billion corporate finance bailout, despite earlier urging from President Bush to push the measure through. Look for in depth analysis from our very own John Berlau and the rest of the policy team as the day progresses. Read CEI’s roundup of the continuing finance crisis (and sign up for email updates) here.
NEW: John Berlau responds (and speaks!) in reaction to today’s vote. Updated post and audio clip here.
LibertyWeek, CEI’s weekly podcast, covered the bailout and the financial meltdown on Wall Street in its last episode. “Bailouts & Ballparks” features an interview with John Berlau, Director of the Center for Entrepreneurship at the Competitive Enterprise Institute.
My guest co-host William Yeatman and I discuss with John how excess regulation, the Federal Reserve, failed housing programs, government sponsored enterprises, and corruption brought Wall Street to its knees. The three of us come away from the interview with a different conclusion…
The bailout bill has been larded up with additional welfare that will increase its cost, but the House will likely approve it today without even reading the bill, which had already expanded to more than 100 pages last night. Worse, some conservative lawmakers may vote for it based on the misleading claim that it contains no welfare for delinquent and defaulting borrowers who are now facing the consequences of years of living beyond their means.
The Associated Press, which didn’t bother to read the…
Andy McCarthy on National Review’s Corner points out,
The scheme “[a]llows the government to purchase troubled assets from pension plans, local governments, and small banks that serve low- and middle-income families.”So in addition to rewarding irresponsible lenders and borrowers, we taxpayers are now to be “protected” by buying the toxic debt of states, cities and municipalities. It’s one thing to throw a life-line to the credit industry; local governments, by contrast, have the ability to cut spending drastically or raise taxes…
Here are excerpts from my story in today’s American Spectator Online on how the $700 billion bailout could actually make things worse — in terms of resulting inflation and even a further contraction in credit due to the government purchases’ interaction with the mark-to-market accounting rules. To read the piece in its entirety, click here.
“”The government has to do something to keep markets from falling and the economy from getting worse.” How many times have you heard that mantra this…
Credit default swaps remain a large part of this financial crisis, with some analysts crediting the failures in the $58 trillion market as more important than mortgage-related ones. According to IBD, “Counterparty risk was at the heart of the problems that sent Bear Stearns, Lehman and AIG spinning helplessly down the drain. Investors not only worry about their counterparties, but their counterparties counterparties.”
In several weeks, though, CME, formed from the merger of the Chicago Board of Trade and the Chicago…
Liberal Congressional leaders have apparently reached a deal with the Bush Administration on the principal elements of a $700 billion bailout of the financial system. What this means is that the already costly bailout has now gotten even more expensive, with new tax breaks for politically-connected businesses and delinquent debtors, and limits on foreclosure that will make it harder for the taxpayers to ever get their $700 billion back. Although it is being sold as a “bipartisan” — a buzzword often used to push bad policies – Republican House members…
Washington Mutual went under this week in the nation’s biggest bank failure ever. But not before putting out a final press release touting its devotion to affirmative action and “diversity,” and the awards it received from Hispanic and gay-rights groups, such as being placed on an “annual Diversity Elite list” for its race-conscious efforts in recruiting, lending, and donations to Hispanic advocacy groups.
Maybe it would still be in business if it had paid as much attention to prudent lending practices as it paid to…
The bailout bill drafted by liberal Congressional leaders contains a massive slush fund that will benefit the fraud-ridden left-wing group ACORN, which must be removed, argues Investors Business Daily. (We earlier discussed the slush fund for ACORN and its history of voter fraud and financial fraud).
Investors Business Daily has a multipart series on how those same liberal politicians spawned the mortgage crisis by blocking reform of the mortgage giants Fannie Mae and Freddie Mac, which used their privileged status as government-sponsored enterprises to buy up “hundreds of billions of…
Here are a few treasures I found this morning:
Kathryn Jean Lopez on National Review Online points out that some of the 20% of the profits (a floor) recovered from the bailout would go to voter-fraud-ACORN!!! (See Hans’s post below and here and here and here on ACORN.) (A commenter notes that if most purchases lose money but one makes money, the taxpayers eat the losses while the slush fund gets the profits.)
John Paulson, not to be confused with the former Goldman CEO, suggests in…
The $700 billion bailout of the financial system just got worse, thanks to a rewrite by Senate banking committee chairman Chris Dodd. If the government loses money on all the “bad debt” it’s buying, the taxpayers will pick up 100% of the tab. But if markets rebound, or the government makes money on any of its individual purchases, taxpayers won’t keep the money. Instead, at least 20 percent of it will go into a housing slush fund that will benefit the left-wing group…
The glee in European capitals at the woes of “Anglo-Saxon” capitalism is tangible. Sarkozy and the German finance minister pile on, with Sarkozy saying, “Self-regulation as a way of solving all problems is finished. Laissez-faire is finished. The all-powerful market that always knows best is finished.” Peer Steinbruck, meanwhile, claims that this would have all been avoided if Washington hadn’t laughed at German proposals for stricter regulation…
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