Internet Radio, Mark-to-Market Accounting and Private Mortgage Insurance
The Senate approves a bill to regulate royalties for web-based radio services.
The Security and Exchanges Commission relaxes accounting rules that may have worsened current mortgage and Wall Street uncertainty.
Potential home buyers face a harder time securing home loans.
More headlines: listen to the LibertyWeek podcast.
The Competitive Enterprise Institute Daily Update
Wednesday, October 1, 2008
Issues in the News
1. TECHNOLOGY
The Senate approves a bill to regulate royalties for web-based radio services.
CEI Expert Available to Comment: Vice President for Policy Wayne Crews on how Internet radio fits into an increasingly competitive entertainment market:
“Even without tomorrow’s inevitable competing satellite ventures, competitors threaten: broadcast radio, digital radio, streaming Internet radio, music on upper-tier cable channels, loaded mp3 players (supplemented by a dashboard input jack in most new vehicles), video programming and devices of every sort.”
2. FINANCE
The Security and Exchanges Commission relaxes accounting rules that may have worsened current mortgage and Wall Street uncertainty.
CEI Expert Available to Comment: Special Projects Counsel Hans Baderaffect a company’s bottom line: on how the SEC rules
“Rigid application of mark-to-market accounting rules may have spawned the current financial crisis by artificially undervaluing mortgages and securities (making financial institutions appear insolvent). And even the very government officials who advocate those rules have hinted that they will disregard them in valuing the government’s own mortgages, in administering any bailout! The SEC today made federal accounting rules less rigid by allowing methods other than mark-to-market accounting in appropriate conditions. Thus, when there has been no default on mortgages, financial institutions need no longer treat them as worthless, even when no active market exists for the security based on those mortgages.”
3. CONSUMER
Potential home buyers face a harder time securing home loans.
CEI Expert Available to Comment: Senior Fellow Eli Lehrer on how mortgage insurance figures into the equation:
“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 as 3 percent of the value of the home. Since it is a rare product that brings no benefit to the ‘consumers’ who buy it (it protects only lenders), PMI encourages borrowers to do anything they can to avoid having mortgage insurance and, understandably, shop on price alone.”
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