July 18, 2008It is in times of national emergencies that measures infringing on privacy and civil liberties are advocated -- and sometimes rushed through without even being discussed -- even if they turn out to do little to solve the problem at hand. Then, when the emergency is over, the liberty-stealing measures remain.
The current crisis at Fannie Mae, Freddie Mac and banks is being characterized as a national emergency, and not surprisingly, political leaders are demanding that war-like financial measures be enacted. But we can't let the rationale of a financial crisis bring on unwarranted intrusion on our liberties any more than we can let the justification of national security do so.
Last Friday, despite the best efforts a bipartisan coalition including the American Civil Liberties Union and the American Conservative Union, the Senate passed...
July 14, 2008The near-collapse of Fannie Mae and Freddie Mac may have taken the markets and the financial media by surprise, but is something that CEI schlolars have been warning about for more than a decade.
In testimony in 2000 before the U.S. House of Representatives, CEI President Fred Smith issued this caution on the two government-sponsored enterprises: "Privatizing the profit side of the ledger while socializing the loss side is a sure-fire recipe for disaster. It was exactly that problem that so exacerbated the plight of the S&Ls in the '90s."
Smith warned of the "moral hazard" of Fannie and Freddie's implicit and explicit government subisidies. In words that sound prescient today, he said: "These institutions hold a much larger portfolio of housing-related financial instruments (and a more concentrated form of assets) than did any S&Ls in...
June 18, 2008In the past few days, the subprime mess has morphed into a Congressional ethics scandal. Portfolio magazine has revealed that Senate Banking Comittee Chairman Chris Dodd, D-Conn., and Sen. Kent Conrad- D-N.D., as well as former Bush administration Secretary of Housing and Urban Development Alphonso Jackson, received special "VIP" loans from embattled mortgage lender Countrywide Financial. Compared with loans for ordinary folk, these special mortgages may have allowed the "VIPs" to pocket thousands of dollars in savings. And they raise questions as to whether Countrywide was trying to influence these officials with improper and/or illegal gifts.
Given all the housing troubles, you would think this would call for an investigation. But policing itself is not what Congress has in mind when...
June 16, 2008It's almost a Washington truism that anytime Congress creates a "trust fund" for a certain policy issue, the money flowing into this "trust fund" will be diverted to something else. Government "trust funds" are set up with special taxes and fees so that they will be less subject to normal budget constraints -- but this makes them all the more desirable for future Congresses to divert their proceeds to spend on pork.
Payroll tax money in the Social Security Trust Fund, for instance, has for decades been emptied out to fund general government programs. Similarly, the Highway Trust Fund set up to build and improve roads from the federal gasoline tax has also seen raids on its purse for other priorities.
But the granddaddy of all phony government trust funds may be soon enacted in housing bailout legislation before Congress. The so-...
June 9, 2008The business media is abuzz about a speech and Financial Times op-ed today by Federal Reserve Bank of New York President Tim Geithner calling for more power for the Fed to regulate to prevent financial crises. What a news flash! A bureaucrat calls for more power for his own agency. The real man-bites-dog story would be a regulator calling for limiting his agency's power (which has, believe it or not, occasionaly happened. Civil Aerounatics Board head Alfred Kahn ushering airline deregulation under the Carter presidency is one excellent, but all-too-rare, example.)
Some background. Geithner was the Fed official most responsible for putting together the deal to sell Bear Stearns to JP Morgan Chase and bail out Bear...
May 30, 2008Last week, I discovered a bizarre requirement for a fingerprint registrty in housing legislation that had just passed the Senate Banking Committee. In an OpenMarket post last Friday, I wrote that the provison had "almost escape[d] without notice."
I am now heartened to write that the database provision has now generated plenty of notice and interest. OpenMarket has gotten over 100,000 hits on this post, and, at last count, 375 concerned readers have posted comments. The post was linked to by the Drudge Report and by Reason magazine's popular blog, "Hit & Run." Also, over at CNET News, savvy tech writer Declan McCullagh dug up some interesting new info on the fingerprint provison in his own...
May 23, 2008Author's note: See follow-up post "Are Borrowers Next?"
Fingerprints are considered to be among the most personal of information, and fingerprint databases created and proposed in the name of national security have generated much debate. Recently, "Server in the Sky" -- a proposed international database of the fingerprints of suspected criminals and terrorists to be shared among the U.S., U.K. and Canada -- has ignited a firestorm of controversy. As have cavalier comments by Homeland Security Secretary Michael Chertoff that fingerprints aren't "personal data."
Yet earlier this week...
Abrogating Peter’s Contract to Pay Paul Ã¢â‚¬â€ Mortgage Bailout’s Billion-Dollar Hit to Retirement Savings (Revised)May 7, 2008Many commentators, such as CEI's Hans Bader, have done a diligent job tracking the costs to taxpayers of the mortgage bailout scheduled to be voted on this week. The Congressional Budget Office just came out with an estimate of $2.7 billion for H.R. 5830, the so-called FHA Housing Stabilization and Homeownership Retention Act of 2008, which may be rolled into larger housing bills on the House floor.
But there could be an even greater cost from the bill to millions of middle-class investors saving for their retirement or the education of their children. The bill has the Federal Housing Administration guarantee the refinancing of a mortgage in return from a “haircut” from the owners of the loan. The bill requires...
Abrogating Peter's Contract to Pay Paul -- Mortgage Bailout's Billion-Dollar Hit to Retirement SavingsMay 5, 2008Many commentators, such as Open Market's Hans Bader, have done a diligent job tracking the costs to taxpayers of the mortgage bailout scheduled to be voted on this week. The Congressional Budget Office just came out with an estimate of $2.7 billion for H.R. 5830, the so-called FHA Houshing Stabilization and Homeownership Retention Act of 2008.
But there could be an even greater cost from the bill to millions of middle-class investors saving for their retirement or the education of their children. The bill has the Federal Housing Administration guarantee the refinancing of a mortgage in return from a "haircut" from the owners of the loan. The bill requires loans to be guranteed at no more than 90 percent of the value, meaning a 10 percent loss for investors. But this haircut will "shave" billions of dollars off from funds saved for retirement or education.
This bill not only "robs...
March 27, 2008Today is the last day to vote for the free market and against overregulation in a debate I am participating at the web site of the magazine The Economist. If Open Market readers aren't enthused about any of the candidates in this year's presidential election, here is a venue where their vote could make a difference and the principles of freedom are definitely at stake. If CEI and I and the free-market side win this debate, it could have a positive influence on the larger debate over regulation of financial markets.
I am arguing in favor of the proposition, "By intervening to regulate business and financial risks, governments have made things worse." To vote for me and for less regulation, go to the site, http://www.economist.com/debate, register (registration is free), and cast your vote as "PRO." Voting continues all through today, and will cease tomorrow at an unspecified time.