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.
March 21, 2008I've been withholding comment about the Federal Reserve Bank's Bear Stearns intervention until I've had a chance to appraise the deal, including the extent of Bear's trouble at the time and what the results will be for the economy and taxpayers. I had initially been skeptical, as I am of any type of intervention, but the issues were so complex and already layered in so many knots of subsidies and regulations, that I thought maybe there was no choice.
But after having looked the deal over, and the $30 billion in loans to Morgan that taxpayers would be on the hook for, I now see even less of a rationale for the internvention. Forcing the merger of Bear with JP Morgan Chase, which is basically what the government did, and offering gurantees so...
March 5, 2008What happened in Washington state is frightening. It is further confirmation of a trend in eco-terrorism I report on in Eco-Freaks. Eco-terrorism is becoming just as sophisticated and elaborate as other forms of terrorism, with terror cells and carefully designed acts of destruction. It can no longer be dismissed as the work of a few nuts. Investigations and convictions from the recent bombings of facilities from ski resorts to research facilities have revealed a vast network that rivals that of other organized...
March 3, 2008Hans, it's also wrong to refer to this Supreme Court as anti-investor.
Two weeks ago, as I have noted, the Court unanimously ruled in favor of investors against 401(k) administrators. In a decision that I praised in a blog post and press release, the justices ruled that investors have a right to sue for breaches in individual pension plans.
But as I noted, the whole dichotomy used by the media of pro-investor or pro-consumer and anti-business is wrong. A frivolous investor suit, although it would favor a few investors or consumers and their attorneys, would harm the majority of investors by increasing costs to the...
February 20, 2008A few weeks ago, the Supreme Court's decision in Stoneridge v. Scientific-Atlanta was denounced by shareholder activists and much of the media as "anti-investor." Why? Because the 5-3 opinion had limited the rights to sue "secondary actors" in securities fraud cases.
But today, those same five justices who put together the Stoneridge opinion -- Anthony Kennedy, Clarence Thomas, Antonin Scalia, Samuel Alito and Chief Justice John Roberts -- joined in the Court's unanimous decision granting individuals in 401(k) plans the right to sue plan administrators. This case, LaRue v. DeWoolf will no doubt be hailed as "pro-investor...
February 11, 2008I can't remember a Conservative Political Action Conference (CPAC) that received more media coverage and broke more news events. As fate would have it, political speeches probably scheduled months in advance were affected by the results of the primaries, and particularly the Super Tuesday primaries just two days before the conference began.
Mitt Romney chose his CPAC speech on Thursday to announce that he was suspending his campaign. That made McCain's speech later that afternoon one of rallying conservative support for the GOP frontrunner, rather than persuading conservatives to support him over other primary candidates. There was much media attention on conservative reaction to McCain's almost-certain clinching of the GOP nomination.
But overlooked in the media was the broad policy focus of the conference. In CPAC sessions and its exhibitors' booth...
February 7, 2008
Eli, I agree with Michelle on this one. There is no justification for regulating the fares of either taxis or pick-up limousine services.
What's overlooked, I believe, in cases like this with customers supposedly "captive" to service providers, is the power of branding. Were there no fare regulation, a customer wouldn't necessarily be at the mercy of every unknown cab driver.
Rather, companies would spring up with visible slogans they would emblazon on their cab. Consumers would know -- from sources ranging from the Internet to word of mouth -- approximately what fares a particular cab company or franchisee would charge when they saw them driving by on the street. It's the same concept that fast-food restaurants and motel chains rely on for...
February 5, 2008Hans, you are certainly right that the credit rating agencies goofed in giving their highest credit rating to mortgage-backed securities before these new instruments met the test of the market. Now, there is a credit slowdown after the trading market for these securities has frozen up. There were more defaults on mortgages than anticipated, and many investors don't trust the valuation methods the securities firms or the credit rating agencies used in the selling of these securities.
But what this means for bond insurers is unclear. This is because of the nature of the problem. The primary risk the credit markets are facing are not those of massive defaults (unless the politicians -- from Hank Paulson to Hillary Clinton -- successfully persuades everyone to default with...