September 30, 2008Borrowers 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. The system set many people up for a fall by encouraging lenders to take risks with borrowers who look very bad on paper. It was also...
September 15, 2008Unfortunately, Congress needs to renew the National Flood Insurance Program sometime in the next few weeks. Right now, the program provides the only flood coverage that most people can buy. Although I have written about how the program probably wasn't needed in the first place, and could be privatized and would be hurt if wind insurance were added. It's not reasonable to think that Congress would or could abolish it right away.
On balance, the legislation before Congress takes steps in the right direction. It reduces subsidies on some properties that probably shouldn't have been included in the program in the first place. It also tightens eligibility criteria and will likely result in some modest rate increases across the board.
The real threat, however,...
September 2, 2008P. Diddy, one of my heroes, has announced that he wants to bring down gas prices so he can fly coast to coast on his private jet rather than having to suffer the indignities of commercial travel. (First class, of course.) Awwwww. . . .
July 15, 2008For all the talk of a "rescue plan" for Fannie Mae and Freddie Mac, I think that there's a much better solution: let them go broke. Congress should end debate on the rescue plans and, if it does not, President Bush should veto any plan he gets. The massive decline in Freddie and Fannie's stocks today shows that the rescue plans probably won't reassure the market anyway. If Freddie and Fannie really are private companies--which their \executives have always claimed in public--it follows that their stockholders should assume the great bulk of the risk.
That said, there will be real pain if Congress doesn't rescue Fannie and Freddie. Without Fannie and Freddie around, banks would have to hold non-Jumbo mortgages on their own balance sheets. As a result, anyone with a credit score below about 800...
June 23, 2008Wired, reports that a credit card company has come under fire and FTC investigation for "behavioral scoring": reducing credit limits for people who use a variety of services. These services included, "Direct marketing merchants [like, one assumes, Amway and Nutrilife], marriage counselors, personal counselors, automobile tire retreading and repair shops, bars and night clubs, pool and billiard establishments, pawn shops, and massage parlors."
I'd doubt that there's any firm social science that shows that pool players are bad credit risks but it's pretty certain that getting divorced, going out drinking every night, buying a boatload of Amway products, pawning your possessions and the like all correlate with financial distress. ("Massages," furthermore, would correlate with financial distress when they are,...
June 9, 2008My former employer, the United States Senate, will--at long last--turn over its dinning facilities to a private contractor. Anyone who has ever had to eat the swill served at Senate dinning facilities will realize this represents an enormous step forward. On the House side of the U.S. Capitol, the cafeterias are clean, profitable, and serve good food. On the Senate side, they're dirty, subsidized by the taxpayers, and serve lousy food.
The Senate Democrats are going to fight about it, pull out their hair, and probably make a few compromises. But they're going to do it. Over the next few years, this will taxpayers a few million dollars and make life better for Senate staff. A few workers will lose their jobs and new hires will no longer get the rather plush federal benefits...
June 4, 2008Via our friends at The Heartland Institute we find a selection of letters that a sixth grade class sent to Heartland decrying its stance on global warming. (Actual plaintexts are here.) I think the letters speak for themselves. Some selected, unedited passages:
“I think your fools for denying G.W. you know it could kill us all & you're just adding to it. I want you to help stop G.W. not increase it.”
“We are going to tell you about global warming. I don't care if you don't want to read, but I'm making you read it you horrible people.”
“We feel that it is wrong what you are doing. We know that you know that global warming is NOT we repeat NOT a myth, And we think it is selfish that you would take money over yours...
June 1, 2008Via fark.com, there's a Daily Mail story about how more than 100 homeless people live permanently in London's Heathrow airport. There's no clear source for this statistic in the article. Is it the reporter herself, BAA (the company that runs Heathrow), or the charity that works there?
Yes, Heathrow is obviously cleaner and safer than the streets. And, yes, unlike New York and Chicago, London doesn't have a 24 hour subway system where somebody can sleep in a reasonably warm place all night. A few things, however, bother me about this story:
1) In two days of living at the airport herself, the reporter got ONE person to tell her story and provide a full name. She collects one more first-hand story. If the charity or BAA has ANY evidence of close to 111 people, this...
May 2, 2008By now, of course, everyone has heard the story of Elisabeth Fritzl and the seven siblings/children she gave birth to while her father Joseph imprisoned her in the family's basement. This is the third such case revealed in Austria in the past three years. In all, at least eight younger Austrians have spent long stretches of time imprisoned in home basements.
Plenty of thoughtful commentary--like this piece from Spiked Online's Brendan O'Neill dismisses the idea that there's any kind of trend going on. Overall, I agree with O'Neill: "there are not Josef Fritzls lurking everywhere." For the world, he's right.
But, ultimately, I do think that the case says something--I don't know what...
May 2, 2008Iain,
I believe you that congestion pricing has not worked in reducing traffic during London's rush hour. Here's my question: how can Virginia's just-started project to build High Occupancy Toll Lanes on the beltway work where London's has failed? I'm skeptical, personally, of many "private" infrastructure proposals because, in more cases than not, the private party gets the upside but taxpayers get stuck with the bill if the project fails.
Here's one problem I see: the price needed to achieve the optimal reduction in congestion--every car can drive at the speed limit for the entire length of a given area--may be different than the price needed to achieve the greatest return on investment. One could just argue that the optimal level of congestion, by...