Government Controlled Life Stimulus: The American Recovery and Reinvestment Act (ARRA) of 2009 significantly grew the size and scope of government, doubling the size of federal agencies—including Education and Energy—and moving America toward a government-mandated health care system, all while placing future generations further in debt. SCHIP: The State Children’s Health Insurance Program was recently expanded to include wealthy adults in a government health care program designed for low income children. The expansion is funded by a tobacco tax paid for predominantly by the poor and dependent on future smokers. …
Via Greg Mankiw, Bentley University professor Scott Sumner writes on efficient-markets hypothesis (EMH): So the anti-EMH argument for regulation must be based on the following: bankers are irrational and make lots of foolish loans. Regulators are rational and can see that these loans are too risky, and can protect bankers from hurting themselves. At a theoretical level this doesn’t even pass the laugh test. But what happened in practice? What position did the “regulators” take in this crisis? First we need to define “regulators,” who are much more than just …
7th Circuit U.S. Court of Appeals judge Richard Posner and Nobel Laureate Gary Becker weigh in on President Barack Obama’s mortgage bailout plan on their Becker-Posner blog. First up, Posner: The four measures, taken as a whole, are likely to be administratively complicated, costly, and slow, and so have very limited effect in arresting (let alone reversing) the decline of housing prices by reducing the glut of houses for sale as a result of widespread foreclosures. [Cram down in bankruptcy] fails on both grounds; bankruptcy is a complicated proceeding and …
“Helping Families Save Their Homes Act”? Or Neighborhood Destabilization Act: Allows bankruptcy judges to reduce the principal owed on a mortgage, a practice often referred to as a “cramdown.” Judges would be able to reduce interest rates or lengthen the term of the mortgage. H.R. 1106: It actually achieves opposite results by putting millions of homeowners or potential buyers at greater risk of an unstable credit and housing market and creating high interest rates in the future. Temporary? No. Weak? Yes: The simple rule on Capitol Hill when a bill …
University of Chicago school of business professor Luigi Zingales has a plan to address the housing crisis that doesn’t involve bankruptcy judge cram downs or a federal government bailout. Before he gets to his plan, Zingales outlines what any government intervention in the marketplace must prove before it should be enacted: 1. the market imperfection that is being addressed must be clearly defined and explained; 2. the government cure must prove that it is not worse than the market disease. The current stimulus bill, the TARP bailouts, and all of …
Congress is lining up the list of suspects to assign blame for the financial crisis. However, all of the obvious suspects — the Fed, Fannie and Freddie, mortgage companies, banks and borrowers — have been players in the mortgage market game for years. Why is there a crisis now? Perhaps it was because they were playing by a new set of rules. To make sense of real world events, economists commonly study the interactions between people or groups through the lens of game theory. Many may be familiar with game …
The $700 billion financial rescue that the House will vote on today is a significant improvement over the drafts released last Friday, and the Friday before that. According to the Congressional Budget Office, the plan will eventually cost “substantially less” than the oft-quoted amount of $700 billion, and it even has the chance of making taxpayers money. Taxpayers will receive warrants from the firms that sell distressed assets to the government and, if after five years the plan has lost money, a fee will be assessed upon financial institutions to …
Democrats on Capitol Hill are claiming they have reached a deal with President Bush on a plan to cleanse the financial system of bad housing-related assets. So far, it doesn’t seem as though any conservatives have signed on. As lawmakers debate the merits of the sketchy plan, we have identified elements that any financial cleanup plan must have to win conservative support: Provide sufficient market liquidity to comprehensively resolve the financial situation. The nation faces a fast-spreading financial contagion and the risk threatens the economic security of Americans outside the …
Heritage fellow JD Foster explains what led to the credit crisis and why it cannot be ignored. There are unprecedented problems in the financial markets. The Federal Funds Rate is the No. 1 tool that the Federal Reserve Board has for governing monetary policy. The Federal Funds Rate jumped much higher than the Federal Reserve Board had targeted and the Federal Reserve lost control of it. The Federal Reserve is pumping money into places where it is not working and neglecting places where monetary liquidity is needed. Heritage has written …
Yesterday before the Joint Economic Committee, Federal Reserve Chairman Ben Bernanke made a clear case as to why federal action is needed: home mortgages and car loans had become harder to get, commercial credit was becoming scarce for many businesses and consumer spending had already declined. Leaders in both parties know that inaction will hit Main Street hard. According to The Washington Post, public utility companies will have to raise rates to cover the increased costs of short-term borrowing, two-thirds of National Small Business Association members report feeling pressure from …
