Bailout link dump, part 2

Did you know you can have over 100 tabs open in Firefox at once? When that happens, it's time to dump the links, topically if possible. Below you'll find links to some interesting, maybe useful perspective on the bailout and the financial crisis.

Yesterday in the mail, I had three new credit offers and an offer for a lower interest rate on an existing credit card. One of the offers was for a debt consolidation loan: The letter said I was pre-qualified for an amount twice the value of our home. Shouldn't I be seeing these credit offers drying up? I understand that there's a lag between Wall Street and Main Street, but I'd have thought the Main Street lenders would tighten up at the first sign of trouble on Wall Street, just as the gas stations boost prices as soon as the price of oil goes up, in anticipation of higher prices for wholesale gasoline.

Martin Feldstein on home prices and housing starts. Feldstein was Reagan's chief economic adviser in the mid '80s, and he was being interviewed on Sept. 30 on the Charlie Rose show.

ROSE: ...What do you believe could and what do you believe will not get us out of this?

FELDSTEIN: Well, I think I'd come back to the issue that it's being driven by the fall in house prices. That's making people poor and forcing them to think twice about spending. It's hurting the financial institutions. It's obviously stopped construction. Housing starts are down 40 percent from a year ago. So if we don't stop that rut, if we don't stop that decay, it's hard to see how this process stops.

House prices over shot in the up direction by some 60 percent. What's to stop them from falling 60 percent below a normal level? Nothing, if we don't find a way of stopping this process of default and foreclosure. So to me that is key to stopping this.

ROSE: And something that's not being done so far.

FELDSTEIN: And something that's not being done. I think that the Treasury proposal will help to take some of the bad impaired assets off the balance sheets. The Barney Frank-Chris Dodd legislation that was passed earlier will help some people with negative equity and are on the verge of defaulting. But none of that will stop this downward spiral in house prices that needs to be stopped. In addition to what has been done and what is proposed by the Treasury and the Congress, I think we need to do a third piece.

In the Wall Street Journal Feldstein offers his prescription:

We need a firewall to break the downward spiral of house prices. Here's how it might work. The federal government would offer any homeowner with a mortgage an opportunity to replace 20% of the mortgage with a low-interest loan from the government, subject to a maximum of $80,000. This would be available to new buyers as well as those with mortgages. The interest on that loan would reflect the government's cost of funds and could be as low as 2%. The loan would not be secured by the house but would be a loan with full recourse, allowing the government to take other property or income in the unlikely event that the individual does not pay. It would by law be senior to other unsecured debt and not eligible for relief in bankruptcy.

The individual could repay the loan at any time or could refinance the remaining loan on more favorable terms as long as the principal did not increase. A 30-year amortization of the government loan would make the payments low, and a life-insurance policy would protect taxpayers if the borrower dies before the loan is repaid. If the homeowner chooses to accept the loan, creditors would have to accept the 20% mortgage repayment, reducing the monthly payments of principal and interest by 20%.

It sounds a bit like an element of Dave Ramsey's plan.

But Ed Glaeser says we should let housing prices continue to fall:

First, the government has no business trying to make housing less affordable to ordinary Americans. Over the past 10 years, areas like New York and San Francisco, which had always been expensive, became completely out of reach. According to the National Association of Realtors, the median housing price in San Francisco was over $800,000 in 2007, and has declined to a mere $685,000 in the second quarter of 2008. The real problem is not the current price decline, but the previous price explosion.

There is no reason to hope that middle-class Americans should pay more for any basic commodity, whether that commodity is coffee or oil or housing. Government should be fighting to reduce supply-side barriers and make housing cheaper, not trying to inflate prices artificially.

ABC News reports that "After Bailout, AIG Execs Head to California Resort". And they're asking the Fed for more money.

In the Washington Post Sebastian Mallaby says we shouldn't blame deregulation:

The real roots of the crisis lie in a flawed response to China. Starting in the 1990s, the flood of cheap products from China kept global inflation low, allowing central banks to operate relatively loose monetary policies. But the flip side of China's export surplus was that China had a capital surplus, too. Chinese savings sloshed into asset markets 'round the world, driving up the price of everything from Florida condos to Latin American stocks.

That gave central bankers a choice: Should they carry on targeting regular consumer inflation, which Chinese exports had pushed down, or should they restrain asset inflation, which Chinese savings had pushed upward? Alan Greenspan's Fed chose to stand aside as asset prices rose; it preferred to deal with bubbles after they popped by cutting interest rates rather than by preventing those bubbles from inflating. After the dot-com bubble, this clean-up-later policy worked fine. With the real estate bubble, it has proved disastrous....

The appetite for toxic mortgages was fueled by Fannie Mae and Freddie Mac, the super-regulated housing finance companies. Calomiris calculates that Fannie and Freddie bought more than a third of the $3 trillion in junk mortgages created during the bubble and that they did so because heavy government oversight obliged them to push money toward marginal home purchasers. There's a vigorous argument about whether Calomiris's number is too high. But everyone concedes that Fannie and Freddie poured fuel on the fire to the tune of hundreds of billions of dollars.

So blaming deregulation for the financial mess is misguided. But it is dangerous, too, because one of the big challenges for the next president will be to defend markets against the inevitable backlash that follows this crisis. Even before finance went haywire, the Doha trade negotiations had collapsed; wage stagnation for middle-class Americans had raised legitimate questions about whom the market system served; and the food-price spike had driven many emerging economies to give up on global agricultural markets as a source of food security. Coming on top of all these challenges, the financial turmoil is bound to intensify skepticism about markets. Framing the mess as the product of deregulation will make the backlash nastier.

We're Not Headed for a Depression - WSJ.com

So says Gary Becker, Nobel Economics prize winner and professor at the U. of Chicago. But he says to avoid future problems we need to increase capital requirements, stop the bailouts, and sell Fannie Mae and Freddie Mac.

Perry Eidelbus says Obama's objections to McCain's mortgage plan is hypocritical:

McCain's proposal is merely an amplification, expansion, whatever you want to call it, of what the FHA is doing [as part of the big bailout plan]. If McCain's plan "won't work," then how can we expect the existing one to work when it does the same thing? Albeit on a smaller scale, and perhaps not with precisely the same details, but both have the same bottom line: Peter and Paul get to pay taxes to pay off part of Mary's mortgage, never mind that Mary alone got herself into the trouble.

The reason it won't work, the critics say, is because it will buy up or refinance homes at greater than their true value. Gee, as if the first $300 billion wasn't doing that? As if the federal government isn't already doing that with the absurd $700 billion to buy up "distressed" securities that nobody would buy at the prices the federal government is offering?

Steve Chapman :: Townhall.com :: A Rescue Plan That Didn't

You may remember that when the House of Representatives voted against the original rescue plan, it was blamed for the subsequent 778-point drop in the Dow Jones Industrial Average. This stomach-turning development was clear proof of the urgent need for the bailout.

But if a stock market's performance is the test of a policy, this one has failed. At best, the passage of the measure did no evident good. At worst, it backfired....

Instead of stimulating productive activity by removing doubt, it has impeded it by multiplying doubt. It has also encouraged lenders to hold off dealing with their bad debt in hopes of getting a better deal from the Treasury than they can dream of getting from anyone else. But postponing the banks' rendezvous with reality will not speed recovery.

Fox News: Lawmaker Accused of Fannie Mae Conflict of Interest

Unqualified home buyers were not the only ones who benefitted from Massachusetts Rep. Barney Frank's efforts to deregulate Fannie Mae throughout the 1990s.

So did Frank's partner, a Fannie Mae executive at the forefront of the agency's push to relax lending restrictions.

Now that Fannie Mae is at the epicenter of a financial meltdown that threatens the U.S. economy, some are raising new questions about Frank's relationship with Herb Moses, who was Fannie's assistant director for product initiatives. Moses worked at the government-sponsored enterprise from 1991 to 1998, while Frank was on the House Banking Committee, which had jurisdiction over Fannie....

The two lived together in a Washington home until they broke up in 1998, a few months after Moses ended his seven-year tenure at Fannie Mae, where he was the assistant director of product initiatives. According to National Mortgage News, Moses "helped develop many of Fannie Mae's affordable housing and home improvement lending programs."

Critics say such programs led to the mortgage meltdown that prompted last month's government takeover of Fannie Mae and its financial cousin, Freddie Mac. The giant firms are blamed for spreading bad mortgages throughout the private financial sector.

Although Frank now blames Republicans for the failure of Fannie and Freddie, he spent years blocking GOP lawmakers from imposing tougher regulations on the mortgage giants. In 1991, the year Moses was hired by Fannie, the Boston Globe reported that Frank pushed the agency to loosen regulations on mortgages for two- and three-family homes, even though they were defaulting at twice and five times the rate of single homes, respectively.

OpenMarket.org: Bash the Bailout: Government is Not the Answer

A link dump within a link dump. Iain Murray of the Competitive Enterprise Institute provides links to 12 articles that explain how government intervention in markets created the crisis at hand.

The dumbest people on Earth | MY Vast Right Wing Conspiracy (via Kick the Anthill's "Craptacular News of the Day")

Tom and Tina have been paying on their 100k mortgage for a couple years before having trouble. The home is still worth 100k so they have a small bit of equity. If they sold, they would make a small profit maybe depending on the realtor costs. But now enter Obama's idea. The bank is told to rewrite the load as a 75K loan for 30 more years. Now Tom and Tina turn around immediately and sell the house for that 100K and make a quick 20k plus profit all courtesy of the federal government. They can and will do that over and over. The "poor" know how to game the system and exploit every dollar. This will become the new career. Defaulting on mortgages to get equity and selling for that equity.

I'm beginning to think that the dumbest people on Earth are people like me who actually pay their bills on time. I see all that is going on and I keep thinking why should we when you can apparently just walk away and have no consequences.

Casaubon's Book: Ok, Now What?
(Via Crunchy Con: Preparing for the Worst)

We're all going to need reliable sources of food. We're all going to need some transportation. We're going to need health care, and emergency services. We're all going to need good work - even if it is only for food. We're going to need ways to keep people housed, to connect folks who need homes with those who can't keep them unless they rent some space. A lot of people are going to need warm clothes and blankets. A lot of people are going to need a meal, a helping hand, help with disabled family members and elders. And folks, when the formal economy falls away, when we cannot trust our government to act in our interests, all of us have to get acting to compensate, to keep the wolf from the door. The truth is that the bailout, on one level, was the final reminder of what Hurricane Katrina taught us, that no one is coming with a helicopter to rescue us. Fortunately, some of us have boats, and the rest of us can build life rafts, and there's a lot we can do to rescue ourselves.

KunstlerCast Transcripts

And here are some comments from area bloggers:

Tyson Wynn thinks this may be an opportune time to push for the Fair Tax.

Jeff Shaw's title says it all: The Pressure to Help Low Income and Minorities. Political Promises Gone Amok and Enhanced by Greed.

The crisis has motivated Bobby Holt to blog, and he shares with us his letters to Sullivan, Coburn, & Inhofe about the bailout.

The Bill Kumpe Blog: Bailout or Not, It's Gonna Be A Blue Christmas

Ardent Voice's mailbox looks like mine:

Yes, there were actually four credit card and/or convenience checks offers in today's mail, including one from WaMu. Most of us would be more than willing to help a recovering alcoholic get back on their feet, but we have to feel like that they are in recovery and the money we contribute won't just go for more liquor.

Mad Okie says Tulsa should have taken care of priorities when times were good:

Back when Tulsa had money and the economy was "good", those in power thought it would be a good idea to build an arena, repay BoK for a failed airline, and to move city hall to the most expensive building downtown.

Now that the economy has taken a nose-dive they want you and me to pay more in taxes to do something they should have been doing all along... fixing our roads.

Oklahoma per Square Foot reports that lenders are tightening up on credit for buying commercial real estate for investment purposes -- by a whole percentage point:

It was revealed that those lenders that are underwriting commercial deals are not lending money for properties priced below a 9% capitalization rate, except in rare circumstances. This is concerning for the market since well over half of the investment deals transacted just in Oklahoma City over the past few years were priced at capitalization rates were in the 7% to 8% range with a few deals transacting under 7%. Now, with lenders only financing deals priced over 9%, it will become increasingly difficult for owners to achieve the high sales prices that have been driving the market for the past four years.

But there's some "good news for Oklahoma's apartment markets":

For Oklahoma City, Hendricks reported increased demand for apartment units by renters, which is largely the result of the slowing in the single-family housing market. During the second quarter, the increased demand led to an overall vacancy of 7.9%, which is a record low level for the city. Furthermore, as vacancy decreased, the report also noted increases in rental rates. Overall rents grew 4.3 percent during the second quarter when compared to 2007 totals. The most significant gain came in the North submarket, which posted a rental rate increase of 5.2 percent.

Hendricks reported a sharp decrease in apartment vacancy to 8.1 percent, which is the lowest vacancy in nearly four years, according to the report. Tulsa experienced higher rent growth than Oklahoma City with a 5.4 percent increase. Two Tulsa submarkets experienced rent growth of over 6 percent in the greater downtown and Broken Arrow areas.

(Click the link to read Bailout link dump, part 1)