July 25, 2014
Should we worry about a crisis in subprime auto loans? That question has been asked in the financial media lately.
My answer is yes, with caveats. While there are important differences in the auto and mortgage markets, there are similar government interventions that have the potential to fuel a bubble in car loans the same way they did for home loans.
First, the differences. So far, thankfully, there is no auto equivalent of a Fannie Mae, Freddie Mac, or other government-sponsored enterprise to inflate the car loan market. Sure, there have been lots of bailouts in the auto industry in general, but the secondary market in car loans has developed largely on its own.
And without a government backstop, it is much smaller than the mortgage market ever was. An otherwise alarmist front-page ...
July 8, 2014
Over at Rare, I have a piece on the cronyism angle of the Export-Import Bank debate. The Senate will likely vote this on month on whether or not to end the bank:
[I]f government is going to dole out corporate welfare, the most efficient way to do it is to hand out cold, hard cash. Straight subsidies don’t distort international markets or invite corruption the way export subsidies do.
But most cash gifts to corporations are political non-starters. They’re a little too obvious. So companies and allied politicians need cover stories. The Export-Import Bank fits the bill.
An official logo, sophisticated-sounding economic rhetoric, and appeals to American jobs and patriotism are designed to make...
July 2, 2014
If you wanted to encourage wastefully run colleges to ratchet up their tuition at taxpayer expense, you couldn’t come up with a better way than the Obama administration’s recent expansion of the Pay As You Earn program. That program limits borrowers' monthly debt payments to 10 percent of their discretionary income. The balance of their loans is then forgiven after 20 years—or just 10 years, if the borrower works for the government or a nonprofit.
It will cost taxpayers a bundle, while doing nothing for most student borrowers (who may experience tuition increases as a result), and it will favor imprudent borrowers over prudent borrowers.
Most students chose inexpensive colleges or otherwise borrowed modestly, meaning “the average graduate’s debt...
June 19, 2014
June 16, 2014
Defying conventional wisdom as he often does, Pulitzer prize-winning pundit George F. Will disputed the notion that in the wake of the shocking primary loss of House Majority Leader Eric Cantor (R-Va.), even less in Congress will get done.
“I’ll tell you something that may get done now because of this and that is deauthorizing – refusing to reauthorize -- the Export-Import Bank.” Will said on “Fox News Sunday” (hat tip to National Review for providing the clip.)
Will went on to state his view that “the Export-Import bank played as large a role in that election as immigration did.” Michael Barone also ...
June 16, 2014
The Kronies are back with a video about the Export-Import Bank, one of the federal government’s largest corporate welfare programs. While the video is less than subtle, it makes the rent-seeking and deal-making surrounding the Bank very clear. Fortunately, the Bank’s charter expires on September 30 of this year. Ex-Im will cease to exist unless Congress votes to reauthorize it. CEI’s Iain Murray recently weighed in on the Ex-Im fight here.
June 5, 2014Are hedge funds dangerous? Depends on who you ask -- and where you look. For most investors, they're no riskier than other assets -- just ask Eastman Kodak shareholders. But this week, the Guardian featured a brief discussion of hedge funds that shines a light on type of investor whose involvement in hedge funds is more questionable: public pension funds seeking higher returns. The first essay -- subtly titled, "Hedge funds: the mysterious power pulling strings on Wall Street" -- provides more heat than light. Author Chris Arnade describes hedge funds as shadowy entities that thrive on secrecy as a means of exaggerating performance in order to earn lavish compensation for fund managers.
The bottom line: investors, sophisticated or not, can't know in detail what...
May 15, 2014Today, after delays and much opposition from many quarters on different grounds, the Johnson-Crapo housing finance overhaul is set to be voted on by the Senate Banking Committee. If it clears, the vote will likely be narrow. The Competitive Enterprise Institute coordinated a letter opposing the legislation signed by 26 leaders of conservative and free-market groups. Here are four key reasons to why Johnson-Crapo, named for Senate Banking Chairman Tim Johnson (D-S.D.) and and...
April 29, 2014Today, in a surprise move, the Senate Banking Committee postponed the vote it had been set to mark up for Johnson-Crapo. Reports vary as to whether this bill is "dead on arrival" or coming up soon with amendments (mostly to bring around liberal Democrats). One thing is clear, though. The bill is losing momentum, and the proverbial Congressional clock is ticking. Today's delay is great news for ordinary American taxpayers and shareholders who would have been ripped off by Johnson-Crapo and its creation of the Federal Mortgage Insurance Corportation, or Feddie Mic. The Competitive Enterprise Institute (CEI) has for decades warned about the risk to taxpayers and the economy posed by the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac. In 2000, CEI founder and then-...
April 23, 2014Senior Fellow John Berlau argues that a bill from Senators Tim Johnson and Mike Crapo intended to reform Fannie Mae and Freddie Mac would only make things worse.