The propaganda strategy for selling the public on the creation of supposedly new improved GSEs is becoming more apparent. Recall that we had an initial skirmish a month ago, when the Center for American Progress published a plan to reform Fannie/Freddie and the housing finance system. It would create an FDIC-like insurance fund to stand behind private Fannie/Freddie like entities that will offer reinsurance with an explicit Federal guarantee on mortgage-backed securities. These new firms can also be controlled by banks.
This plan, which was very similar to ones presented by the Mortgage Bankers Association, the Federal Reserve and the New York Fed, t was clearly an Administration trial balloon; the CAP is the mainstream Democrat think-tank, with close ties to Team Obama. But after the CAP proposal got some resistance, the Treasury’s report, which came later in the month, went the route of presenting three alternatives rather than a specific plan. But we argued at the time that this seeming change was merely a tactical move, to present the Administration as fair brokers in a politically fraught process, and that it still favored what we called the GSE 2.0 plan.
We think the idea of reconstituting the GSEs in somewhat improved form a terrible idea because it preserves the bad incentives of a public/private system and launders housing market subsidies in an inefficient and unaccountable way through the banking industry (see here and here for more detailed discussions).
So now the challenge for the Administration is to sell this plan without looking like it is selling it. Timothy Geithner set expectations for a long process by saying that the Administration wanted legislation approved in two years. Huh? Nothing important (except extortion exercises like the TARP) gets passed in the months before a Presidential election. Early summer 2012 is the last viable window in this Congress. That’s a lot less than two years, according to my calendar. So more than 16 months is guaranteed to be more than two years. But the message from Geithner is to expect this to take a long time, and that is consistent with trying to build support for their preferred option, which is to create new mini-me GSEs that are made to look more palatable by having better balance sheet support.
The more official PR salvo came in the form of a front page New York Times article, “Without Loan Giants, 30-Year Mortgage May Fade Away.” The argument is that without a government guarantee, there would be no thirty year mortgage in the US.
That might actually be true, but the reasons why provide further proof that this proposal is just another example of throwing taxpayers under the bus to save the banks from suffering the consequences of their incompetence and criminality. We have gotten increasingly specific reports from mortgage investors that they aren’t buying residential mortgage bonds due to the lack of securitization reforms. We have further been told by an industry expert that investors are very worried about the chain of title issues that are leading to gridlock and more and more adverse decisions on standing issues in courthouses all over the US. The only reason they haven’t acted is that they fear applying more pressure on this front will ignite a new financial crisis.
So let us be VERY clear about this: this is GSE non-reform. It’s merely reconstituting the GSEs with better capital cushions but also a full faith and credit guarantee on their mortgages, which is a better backstop than Fannie and Freddie enjoy now. And the only compelling reason for continuing to offer government guaranteed mortgages is to escape exposing and cleaning up mortgage and securitization industry abuses.
The Times is running with the biggest and best threat the fans of this plan can come up with: that the US will lose its much-loved thirty year mortgage without it. We have a new version of TARP type extortion tactics, that of Bill Gross claiming that investors would demand three percent more to invest in mortgages without government guarantees. That’s patently untrue even now. Jumbo mortgages, which were never GSE guaranteed, are now being done at a 75 basis point (3/4%) premium to Fannie and Freddie mortgages (the premium before the crisis was 25 to 40 basis points).
A government guarantee also comes with not-widely recognized systemic risk. Freddie and Fannie engage in hedging on a massive scale to manage the interest rate risk of their exposures. This hedging iss “pro cyclical”, which meant it increased the amplitude of interest rate movements. In 2002 and 2003, Fannie and Freddie hedging had reached the scale where it was economically destabilizing. And as John Dizard described in the Financial Times in 2008, this interest rate risk was also a hazard to Fannie and Freddie themselves.
We can also look to the example of other markets to challenge the need for the new GSEs. No other market, save Canada, has a government mortgage guarantor (I am in the process of trying to read the expert on this topic, since it’s apparently a complicated program). Yet they all have long-dated mortgage products, virtually all also have a high level of middle class homeownership, some like Australia even higher than the US, with no Freddie/Fannie equivalent or other form of large scale government mortgage guarantee program (and you can verify the sort of mortgage products you can get overseas readily; here’s a search tool from Australia, for instance).
The Treasury document subtly argued that it was important to preserve the thirty year fixed rate mortgage, and the New York Times picks up this argument. But a thirty year fixed rate mortgage is not always the best product for borrowers. An adjustable rate mortgage, particularly one with floors and ceilings on interest rate movements (which was a staple of co-op loans in New York in the early 1980s) would in many cases be a better deal. But only a right wing economist (Alex Pollock of the American Enterprise Institute) makes this case; the opposing argument from Susan Wachter, that “There needs to be a systematic way of preventing” fragmentation,” is peculiar and unconvincing. Are the mortgage markets in Britain, Australia, France, and other countries “fragmented”? How exactly are consumer hurt by having more choices? We seem to think that’s a good thing in toothpaste and credit cards; why not in mortgages?
For reasons I cannot fathom, the traditional affordable housing-banking coalition is still holding together on this issue. It should be clear by now that affordable housing programs and mortgage finance are two separate beasts, and the extent of the sops demanded by the banksters mean affordable housing goals will take a back seat. The government should be out of the mortgage finance business; the taxpayer should not backstop risks when foreign markets show that the private sector can handle them perfectly well on its own. Housing subsidies, like the old Section 8 program, can be used to advance important social goals, and should be provided as government programs, with clear targets, performance measurement, and accountability, not as contingent liability timebombs.
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The Obamacare model comes to the mortgage market.
The only reason anyone would want to prop up the very existence of MBS is to serve the banksters, since we know securitization serves no social or economic purpose whatsoever, but is purely destructive.
So this entire debate is false and demented, since it’s purely over what’s the best way to continue enslaving humanity to the banks. Assuming the continued existence of mortgages at all, there’s only one rational, moral, and practical answer here: End securitization and restore the old way of local lending, local filing, and local repose of the loan. No one can give an answer which hasn’t been proven to be a lie as to why we need or want anything more than that.
For reasons I cannot fathom, the traditional affordable housing-banking coalition is still holding together on this issue. It should be clear by now that affordable housing programs and mortgage finance are two separate beasts, and the extent of the sops demanded by the banksters mean affordable housing goals will take a back seat.
That’s classic liberal behavior, which in turn is part of the neoliberal corporate strategy. Most of them are corrupt and just want a cheap reward for helping with the scam, while the idealist “progressives” are cowards who cling desperately to the few crumbs they can still get through this collaboration, even when it becomes clear that the crumbs themselves will be taken away.
No matter how many times history proves this will always fail, the liberal pathology keeps repeating it, calling themselves “pragmatic” by way of delusional compensation.
an end to 30 year mortgages might actually be a silver lining, russ…long term debt, be it mortgage or student loans, is just a stealth way to put people into indentured servitude, not much different than the company stores that the appalachian miners ended up owing their souls to…most other countries dont have 30 year mortgages; why should people have to go into debt to the banksters for 30 years & be forced to work off the debt? in what we can now clearly see coming, the people’s wages are being driven down to below the level needed to service the debt, and the plutocracy succeeds in reducing the people into virtual slaves, which they will always look to do whenever the prevailing politics change to support a system of mass debt bondage…the egyptians may be free, but not many americans are…
I agree completely. We need to break the bank tyranny completely and abolish all concept of REO and mortgages.
What we really need to do is transcend this antiquated ideology of landed property and debt completely.
I don’t know. The experience in other countries suggests you can have a 30 year mortgage without a guarantee but it won’t be both fixed rate and free of prepayment fees. Despite fairly strong encouragement from the previous UK government, the amount of fixed rate 30 year mortgages on offer in the UK, even with prepayment fees, is negligible.
I never said that. In fact, in an older post I linked to, I discussed at considerable length that the Treasury scare tactic was based on the loss of a 30 year, fixed rate, pre-payable mortgage. The Times article omits that detail and makes it sound as if 30 year mortgages will go down the tubes (unless you read carefully and also get to the second page, and many readers don’t).
I don’t see any social justification for creating contingent liability to sustain a product that the experience of other countries shows is not necessary. In addition, as I indicated in the post, having GSEs bear the interest rate risk produces systemic risk via the pro-cyclicality of the hedging of the interest rate exposures. And frankly, why should people have a right to refi when interest rates fall? It’s completely routine in corporate bonds to have in the indenture that a bond cannot be repaid by the proceeds of a financing at a lower interest rate.
If you want to benefit from lower rates, take an ARM. The problem with the ARMs offered in the 2002-7 time frame is that many presupposed refis based on price appreciation (the teasers and option ARMs). I had an ARM in the early 1980s with an interest rate floor and ceiling. It’s a perfectly fine product and I suspect a lot of consumers would take it particularly since the expected interest payments over the life of the deal would be lower than for a 30 year fixed.
come on! the GSE’s do not bear the interest rate risk -the holders of the GSE MBS bear that. The rate hedging problem you refer to was/is the product of the GSE’s decision to retain some of their own MBS issuance financed by issuing debt. This was an ill-conceived gambit to arbitrage the implicit gov’t guarantee (GSE could issue debt at very low spreads to Govies and capture the spread between the MBS yield and their debt yield with no incremental credit risk) At one point the Fannie & Freddie retained nearly 30% of the stock of their MBS outstanding. Rightly since debt issuance has curtailed and now retained MBS is down to 10%. Explicitly forbidding MBS retention will eliminate the interest rate risk you cite.
GSEs bear some risk through their pipeline (mortgages they have bought, but not issued the mbs’s for yet) Given the large size of the pipeline, this is significant. Remember, big bond houses like lehman and bear were brought down by this pipeline risk (credit risk, not interest rate risk)
Also wanted to mention that agree with the rest of your post and that pipeline risk (both credit and rate) is reasonably hedgeable if the intention is to actually capture the spread rather than gamble on the direction of the credit spread and/or curve movements.
Having worked with banks supplying mortgages to FNMA and FHLMC, when loan production is high the pipeline gets log jammed. i.e. Not all the pipeline risk belongs to the GSEs. And while I won’t go as far to say the GSE MBS issuance process is highly efficient and always effectively mitigates a large portion of the pipeline risk, the GSEs are large scale MBS production operations, and as stated by others, hedging this type of risk is fairly commonplace. So, as long as the intent isn’t to leverage volatility to increase short-term returns, the systemic risk of the pipeline, absent the issuance shut down experienced in 2009, should be minimal.
I know, what is and what should be are often two different beasts.
It’s my impression that unlike CMBS bonds, most of the bonds issued by the GSE are guaranteed for both term and and interest rate, and are NOT simple pass-throughs. So the GSEs bore both interest rate and prepayment risks. The difficulties with this became obvious when in the dot bomb period the Fed lowered interest rate to a lower level than was contemplated when the GSEs developed their hedging strategies. Then of course they committed massive ammounts of fraud in an attempt to “smooth” their earnings to appease Wall Street.
Look, contrary to what many conservative pundits would have people believe, the GSEs were NOT the trigger for the mortgage meltdown. The worst of the sub prime poo that blew up with a vengence was the sort of stuff that they had minimal exposure to. However, they ARE the biggest part of the mess, and figuring out how to reduce taxpayer exposure is critical going forward out of this mess. The time is truly past when anybody can pretend that if we just have the GSEs to buy everything the day is saved.
Yawning,
With all due respect, you don’t get it.
The GSE hedge the interest rate component of their risks. As an insurer, you want to match the duration of your investment portfolio to the duration of your exposures.
That hedging is pro cyclical. Massively so. Go read the Dizard piece I linked to. Greenspan was worried about it tin 2002-3 because it was becoming destabilizing.
Fair enough. Still, I doubt there’s all that much political will to move to a predominantly ARM market so soon after the crisis.
I think the song goes: “Money for nothing and the chicks are free”.
It was all about the music industry…….no scams anywhere else.
Far as I can tell, financial products of the “make a home mortgage affordable” flavor mostly just drive up housing prices, thus making hosuing less affordable, especially to those not using such products or unless you manage a hedge fund or something.
This was a major driver of the real estate crisis, IMHO.
”
just drive up housing prices, thus making hosuing
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Not at the moment. We are now in down-cycle which should last until 2014. And remember kids, “don’t forget to factor in inflation, rising property taxes from melting local governments, and rising home repair prices from desperate plumbers.” But yes it will start another pricing bubble in 2015 that should keep lot of deserving people out on the street, on the street and homeless.
Hi Yves,
I share you views that “the only compelling reason for continuing to offer government guaranteed mortgages is to escape exposing and cleaning up mortgage and securitization industry abuses.”
However one should not forget that the dollar as a reserve currency is now clearly at risk.
So, sure from a “moral perspective”, your argumentation is valid. It just makes sense to re-play the great American sub-prime pattern again and again.
From a financial one however, I think it is out of touch with the reality of harsh money.
How come that a country running your average non-reserve-currency can really fool counter-parties into making low-return 30-years loans on a future “non-reserve” currency?
What “plain normal country” – even with a decent currency – can afford a massive absence of net saving at most levels and a pattern for lending. Money and the bun? Have your cake and eat it too?
Except from forced savings – via currency manipulation – by a well-known Asia country, I can see no candidate. Except of course a couple of your-home-country-pension-funds-managers under very strict federal controls. In view of the return for such loans, I can not see that lasting!
Check the world for a country that can offer this? Is that a return of the US exceptionnalism?
No decent 30 years loans in a country intentionally drowning their currency. Or is that plan part of the scenario … My bet is a big and loud YES.
So the chances are that in the end, we have a dreadful RE market and a solid dollar à la Volcker. OR a continuation of the dreadful scenario of the Bush years by other means. Means such as the ones mentioned in this post… And a disappearing dollar by the way.
My bet is of course on the later. Even more so.
One of your regular Austrian-minded reader
I don’t understand what your complaint is about. Non government guarantee mortgages will result in somewhat more expensive mortgages. I think the claims that they will be wildly more expensive are an exaggeration and to the extent true, reflect a lack of reform rather than how lenders feel about mortgage risk per se.
And you seem to approve of more pricey lending so what’s the beef?
But separately please read up on Modern Monetary Theory. We’ve had a lot of posts on it. The US does not need foreign funds to “finance” its budget deficits. The constraint is inflation, not foreign willingness to lend.
And the “reserve currency at risk” is overblown. The recent rise in the euro is a short squeeze; jck at Alea called it perfectly. Even so, the euro is well below its 2008 highs versus the dollar, the appreciation of the CAD and AUD is very much tied to commodities, the GBP is well below its highs, and the yen is very strong but the smart money is betting on it to fall, pronto. The US will eventually lose that status, but it is not as imminent as you suggest. China does not want the disadvantages that come with the role, and the Euro is not a candidate despite the size of its economy due to the lack of a fiscal mechanism (I can even give you a paper from a conference I attended where European economists deemed the euro to be a non-candidate for reserve currency status).
Yves said: “…not as imminent as you suggest.” when referring to the US dollar and its Reserve Currency status.
So Yves, when? 5 years? less? I think less.
Big change? Yep
An Austrian-minded person who advocates federal mortgage guarantees? Really? I didn’t think that was possible.
Personally, I hate the Austrian School and its neoliberal sister the Chicago School. They both seek to achieve the same ideological ends, albeit through different monetary means.
But economics are irrelevant to the question of the GSEs, whose original purpose has been perverted beyond recognition. The GSEs have proven to be a money laundering vehicle for the banks. If Glass-Steagall were still in effect, there might be a hope that the GSEs could go back to their original purpose, but there is no such hope now. And there is no political will to reimpose Glass-Steagall. On the other hand, we have lots of people with their knives out for the GSEs . . .
“I think the claims that they will be wildly more expensive are an exaggeration”
May I say that I respectfully disagree on that one.
“And the “reserve currency at risk” is overblown. The recent rise in the euro is a short squeeze.”
I do not mind whether the Euro, Renmimbi or anything else, are better bets. The issue is not whether a so-called reserve currency is leaking less than as another one. The issue is that there is literally no “reserve currency” left. Except for some exotic bets such as the CHF.
Federal US will understand what the “Mur de l’argent” is. No exception there. We have been there the US will be. Within 2 or 3 years. All currencies will anyway since inflation expectations are growing massively. That these expectations do not relate specifically to US real-estate prices doe not change to the bill.
“But separately please read up on Modern Monetary Theory.”
Why not mention VAR and other great recent “inventions” by the way? Please stick to you expertise in law. I took my financial education way before 1980 and, sure, I can live with this one to-day:)
PS: I severy miss a better command of English and hope you understand that, in case my wording may appear harsh, it’s in no way intentional. Push on the good work.
Daniel,
There are deals being done now with no government guarantee at 75 basis points than GSE loans. So how does your belief that loans without a government guarantee will be wildly more expensive have any factual support?
i got out of mortgage banking about a year ago and the only institutions i knew of offering 30-fixed jumbo paper were the big banks, and i suspect they were booked into the portfolio, not securitized. the small, local banks i knew offered only ARM’s. the fed’s were always looking at their interest rate risk in the CAMEL rating.
i remember a few years back when jumbo rates were actually better than conforming.
have to agree with yves. get rid of the fed backing.
I struggle with this relationship given what I’ve observed with the jumbo and non-conforming mortgage markets and borrowers. For starters, don’t see many truly jumbo mortgages at 30 years, or 15 for that matter, and the owner’s equity stake is typically much higher. The jumbo lending market is big banks (the only independent jumbo prime mortgage originator/securitizer that I was aware of closed shop in early 2010 despite having a significant market share). Point being, while I won’t argue that rates are only 75 bps higher, hanging your hat on that as proof against a big jump in mortgage rates may be a heroic leap.
My suspicion has always been that non-conforming rates are managed relative to the market for conforming mortgages and not the result of market forces (risk or supply and demand or the Fed – for those who don’t believe in capitalism, free markets or market forces). And, if they are managed relative to the conforming market they may be a poor indicator of unsubsidized mortgage rates.
The 30 year mortgage was more a trick to lower payments than anything else. It probably should go away. At a minimum it will become more expensive to get.
I don’t see a problem with a ten year mortgage that had a big balloon to be refinanced. The number of mortgages that actually run for the full 30 years is very small. We keep moving and dying.
A big problem that will come is the prepayment penalty. It has to be at least 2% for the first few years. It will decline to zero after 5 years. This will take some getting used to but it gets the lenders out of the interest risk that a prepayable mortgage creates.
For me the biggest thing to come is the 10/1/2011 cut back in maximum mortgage amounts. As of now those limits are set to be CUT IN HALF. This will get the government out of the lending business pretty quick. But there will be hell to pay on the value of homes over $500k.
The 30 year going away is the least of the worries in the RE market.
“I don’t see a problem with a ten year mortgage that had a big balloon to be refinanced.”
You work for a mortgage broker?
What is the current state of the law on the federal backstop of the GSEs? I was under the impression that the federal guarantee is to keep the GSEs net value positive through the end of 2012, and that that was the maximum possible guarantee under current law. In other words, it would take an act of Congress to extend that guarantee.
I find it very hard to believe that this Congress would pass a further GSE bailout. Has there been some other change to the GSE guarantee? How can the administration be talking about 2 years before passing GSE reform?
The banks don’t need no damn guarantee and the banks themselves know it.
Yesterday my 30 year, 6.375 fixed, which had run 62 months, was forcibly refinanced to a new 30 year, 5.375 fixed. My signature was on the papers, but I had nothing whatever to do with it. JP Morgan Chase, my servicer, instigated the refi a month ago. I got UPS/FedEx overnight envelopes, was phoned repeatedly, was dragooned into a closing yesterday. I never phoned them, I made no application, I ignored requests that I log in to special webpages or fax my 1040 as part of any application process. For their part, I was not sent a payment coupon for March, I was told over the phone that if I made another payment on my existing mortgage, that the check would be returned, not cashed.
I was railroaded. Yesterday at signing I went over the paperwork like a fiend, looking for anything out of line. The documentation seemed to have been perfectly ordinary boilerplate. I might be safe.
The unaffiliated notary/ex-real estate broker who supervised the signing said he lived in a townhouse with an ARM. Which had just reset to 3%. Elsewhere my research turned up someone else who had been railroaded by JP Morgan Chase. They had a 15 year fixed at 4.75. Chase offered them 15 years at 4.0. In that case, as well as mine, the offer not only could not be turned down, it was entirely non-negotiable. In the current market, 5.375% isn’t so hot, but Chase utterly refused to negotiate – and I tried.
This is what happens when the housing market crashes, but banks compulsively want to create new MBS to sell to – well, suckers, or so I presume. Existing mortgages are being forcibly churned. The notary said he has been doing these for six months.
I’m self-employed. Three years ago I tried refinancing, but Chase – and Wells Fargo – both told me I didn’t qualify. Not enough showing on 1040 line 37. That restriction has gone out the window.
The reason I was given for this bizarre behavior is that Chase was “afraid” I would take up some other refinancing offer. But that’s bogus. By forcibly refinancing & showing me the ropes, they’ve made it more likely I will refinance in another few months. Presuming, of course, that the teasers I get in the mail – 4.0, 3.75%, etc., are actually real.
The banks don’t need an MBS guarantee. That demand is phony. Could it be, as with the collapse of 2008, that a single individual is behind this?
Are you also being “forced” to pay the Bank? “My signature was on the…but I had nothing” Are you high/crazy or are you for real?
if you didn’t want to refi, why did you sign it?
Would a predominately ARM market hamstring the Fed in raising interest rates (eventually) if there was the threat of widespread resetting ARMs?
Also Yves – what people are you reading to learn more about other countries? Seems like there’s not a lot of scholarship on this issue.
This comment was in another section but equally applies to Dave of Maryland’s situation in my opinion. Forced attempts to get paper they can enforce re chain of title issues for previous securitization failures.
Tao Jonesing says:
March 3, 2011 at 9:09 pm
If BofA doesn’t have the documents, what is being “modified?”
Are these “modifications” just a way to create a new and kosher debt obligations out of thin air?
In Canada, we have government guarantees on mortgages, but the longest fixed rate mortgage you can get is 10 years with a 30 year amortization and in fact, most people only take a 5 year fixed rate, or a variable mortgage.
It’s not difficult to explain why affordable housing advocates would hang with the banksters on this one–and no, it’s not because they make oodles of money, as the right tends to argue. It’s because instead of having an affordable housing policy–everything from public housing to co-ops to non-profit housing to mortgage write-downs and silent seconds funded by the government–we treat affordable housing as a sorry step-child of the housing industry, and the only way to fund affordable housing is through the crumbs from the table of the mortgage industry.
It’s time for the 30 year mortgage to be binned anyway. Very few people stay in their homes for 30 years now, those mortgage products were designed for a time when a young family bought a house in their 20’s and had it paid off by the time they retired.
We don’t utilize housing this way anymore. Our society is much more mobile and it’s time for some new mortgage products that account for that.
Frankly, I think 15 year mortgages should be the norm. Yes, it will push prices down since it will raise the monthly nut of what people can afford, but it is what makes sense for the way we live today.
And eliminate the damn mortgage interest deduction while we are at it. It is just another means of pushing prices upward and subsidizing the wealthy.
“And eliminate the damn mortgage interest deduction while we are at it. It is just another means of pushing prices upward and subsidizing the wealthy.”
There’s a cap on the deduction, as I recall, so it’s influence on home prices is limited in certain areas of the country.
If we’re going to continue eliminating deductions for real people, why not do the same for corporations? At the very least, let’s get rid of interest deductions for any business loans not taken for domestic capital purchases or improvements. And certainly get rid of interest deductions for loans taken out to speculate on the secondary markets (and why not impose a windfall corporate tax for any speculative gains made through leveraged speculation).
I completely agree. Personally, I’m all for removing every last deduction for everyone (business and personal) and lowering the brackets to compensate. Deductions are just ways to allow people to cheat out of paying their share in order to engineer behavior.
private mortgages
or
go back to the 99 year / lifetime lease.
get rid of interest, which is where the nexus hides.
private mortgages
or
go back to the 99 year / lifetime lease.
get rid of interest, which is where the nexus hides…
”
pro cyclical”, which meant it increased the amplitude of interest rate movements. In 2002 and 2003, Fannie and Freddie hedging had reached the scale where it was economically destabilizing.
”
That, loyal readers, is what a market-maker is. He is the pro-cyclical-guy who keeps the sine wave churning up and down for the trading-range-workers who buy low and sell high. You got to have ups and downs to make it on derivatives and calls on contracts, let alone puts. But they can’t prime the cosine without legislators synchronizing their wave-forms on the oscilloscope, legislators and business news barkers who tell you about moving averages to prod you into lock-step with the triple pole alternating GDP Deflater. The only guy who consistently beats the market is the guy who manipulates the market. Is he an independent company? No! He is a joint venture, a joint venture serving all the mob-families equally, an equal-opportunity-legitimate-business-man.
Do you know what else is pro-cyclical? 37th President’s slamming shut the gold window is pro-cyclical. That gives Central Banks the World Over a chance to pump the swing up and down with the taxpayer sitting in the swing. But the largest Pro-cyclical is the regressive tax. Just as progressive taxation is counter-cyclical the regressive payroll tax is pro-cyclical, big-time. That’s why the mob loves it sooooo much. Efficiency would be to stop taxing the destitute heavy lifters but raise taxes on the landlords who can in turn hike up the rent to squeeze more money out of the deeply indebted losers. Look at it this way, “The landlord can skip town without paying the tax, but his real estate is going nowhere fast. Land will still be sitting there for the sheriff to confiscate.”! By contrast, the loser can skip town without paying his complicated 1040 + all those extra schedule papers you got to fill in even if you are a loser. All that loser-time-on-the-computer is equal to the GDP of Kansas. What a waste!
No respect
!
I’m convinced that, moot is any discussion of mortgage finance absent its context within a physical economy whose structure largely makes a house a home and not an investment. Absent revival of such practical, national intention, all that’s left is determination of the depths to which taxpayers will be saddled with the rotten fruits of fraud, the likes of which physically cannot be indefinitely perpetuated, and so eventually must collapse.
Were physical economy in fact righted, then there would be more than enough excess capital created as a result, thus making for stable mortgage finance (among many other things).
There can be no credible GSE reform without a return to the Glass-Steagall principle as a means of employing a Hamiltonian credit system to the task of financing perpetual investment in physical economy. This, the engine of American capitalism, must be efficiently operating if anything resembling the post-WWII real estate market is to be resuscitated.
Anything else is to be considered continuation of an imperial, monetarist scam venturing toward a modern form of feudalism.