The Market Fundamentalist

When it comes to housing, however, the United States is really two countries, Flatland and the Zoned Zone.

And Zoned Zone housing prices, which have risen much faster than the national average, clearly point to a bubble.

Paul Krugman, 8/8/05

Even serial statist NY Times columnist Paul Krugman understood how zoning drives up the cost of housing.

Houston absorbed 100,000 Katrina refugees, and housing prices did not go up. Houston, the fifth largest American City, has no Zoning. Other areas with little or no zoning (such as Raleigh Durham, NC) experienced no housing bubble.

But, even though Krugman recognized the problem 3 years ago, is he calling for land use de-regulation? No, his voice is silent.

Only CATO and HERITAGE think tanks are calling for an end to zoning and the anti sprawl, anti automobile hysteria that helped fuel the housing bubble.

Brendan

DEAR AMERICAN:

I NEED TO ASK YOU TO SUPPORT AN URGENT SECRET BUSINESS RELATIONSHIP WITH A TRANSFER OF FUNDS OF GREAT MAGNITUDE.

I AM MINISTRY OF THE TREASURY OF THE REPUBLIC OF AMERICA. MY COUNTRY HAS HAD CRISIS THAT HAS CAUSED THE NEED FOR LARGE TRANSFER OF FUNDS OF 800 BILLION DOLLARS US. IF YOU WOULD ASSIST ME IN THIS TRANSFER, IT WOULD BE MOST PROFITABLE TO YOU.

I AM WORKING WITH MR. PHIL GRAM, LOBBYIST FOR UBS, WHO WILL BE MY REPLACEMENT AS MINISTRY OF THE TREASURY IN JANUARY. AS A SENATOR, YOU MAY KNOW HIM AS THE LEADER OF THE AMERICAN BANKING DEREGULATION MOVEMENT IN THE 1990S. THIS TRANSACTIN IS 100% SAFE.

THIS IS A MATTER OF GREAT URGENCY. WE NEED A BLANK CHECK. WE NEED THE FUNDS AS QUICKLY AS POSSIBLE. WE CANNOT DIRECTLY TRANSFER THESE FUNDS IN THE NAMES OF OUR CLOSE FRIENDS BECAUSE WE ARE CONSTANTLY UNDER SURVEILLANCE. MY FAMILY LAWYER ADVISED ME THAT I SHOULD LOOK FOR A RELIABLE AND TRUSTWORTHY PERSON WHO WILL ACT AS A NEXT OF KIN SO THE FUNDS CAN BE TRANSFERRED.

PLEASE REPLY WITH ALL OF YOUR BANK ACCOUNT, IRA AND COLLEGE FUND ACCOUNT NUMBERS AND THOSE OF YOUR CHILDREN AND GRANDCHILDREN TO WALLSTREETBAILOUT@TREASURY.GOV SO THAT WE MAY TRANSFER YOUR COMMISSION FOR THIS TRANSACTION. AFTER I RECEIVE THAT INFORMATION, I WILL RESPOND WITH DETAILED INFORMATION ABOUT SAFEGUARDS THAT WILL BE USED TO PROTECT THE FUNDS.

YOURS FAITHFULLY MINISTER OF TREASURY PAULSON
(Thanks to Mike Holmes)

Rush Limbaugh says that no Republican is really standing up to the bailout.
Well, maybe he is right. Ron Paul is really, “NO REPUBLICAN” like any of the
rest.

CNN has realized that Ron Paul speaks for a large audience, and they have
given him an OP ED on the financial crackup.

It seems the rest of the Republicans have their fingers in the air, trying
to see which way the wind is blowing. Cheney is coming down to the house. Is
he bringing cash? Threats? Pictures and videos? No one knows for sure, but
when the godfather comes calling, you gots to show some respect.

Then vote against the Bailout!

Ron Pauls commentary on CNN.com:
By Ron Paul
Special to CNN

Editor’s note: Ron Paul is a Republican congressman from Texas who ran for his party’s nomination for president this year. He is a doctor who specializes in obstetrics/gynecology and says he has delivered more than 4,000 babies. He served in Congress in the late 1970s and early 1980s and was elected again to Congress in 1996. Rep. Paul serves on the House Financial Services Committee.

Rep. Ron Paul says the government’s solution to the crisis is the same as the cause of it — too much government.

(CNN) — Many Americans today are asking themselves how the economy got to be in such a bad spot.

For years they thought the economy was booming, growth was up, job numbers and productivity were increasing. Yet now we find ourselves in what is shaping up to be one of the most severe economic downturns since the Great Depression.

Unfortunately, the government’s preferred solution to the crisis is the very thing that got us into this mess in the first place: government intervention.

Ever since the 1930s, the federal government has involved itself deeply in housing policy and developed numerous programs to encourage homebuilding and homeownership.

Government-sponsored enterprises Fannie Mae and Freddie Mac were able to obtain a monopoly position in the mortgage market, especially the mortgage-backed securities market, because of the advantages bestowed upon them by the federal government.

Laws passed by Congress such as the Community Reinvestment Act required banks to make loans to previously underserved segments of their communities, thus forcing banks to lend to people who normally would be rejected as bad credit risks.

These governmental measures, combined with the Federal Reserve’s loose monetary policy, led to an unsustainable housing boom. The key measure by which the Fed caused this boom was through the manipulation of interest rates, and the open market operations that accompany this lowering.

When interest rates are lowered to below what the market rate would normally be, as the Federal Reserve has done numerous times throughout this decade, it becomes much cheaper to borrow money. Longer-term and more capital-intensive projects, projects that would be unprofitable at a high interest rate, suddenly become profitable.

Because the boom comes about from an increase in the supply of money and not from demand from consumers, the result is malinvestment, a misallocation of resources into sectors in which there is insufficient demand.

In this case, this manifested itself in overbuilding in real estate. When builders realize they have overbuilt and have too many houses to sell, too many apartments to rent, or too much commercial real estate to lease, they seek to recoup as much of their money as possible, even if it means lowering prices drastically.

This lowering of prices brings the economy back into balance, equalizing supply and demand. This economic adjustment means, however that there are some winners — in this case, those who can again find affordable housing without the need for creative mortgage products, and some losers — builders and other sectors connected to real estate that suffer setbacks.

The government doesn’t like this, however, and undertakes measures to keep prices artificially inflated. This was why the Great Depression was as long and drawn out in this country as it was.

I am afraid that policymakers today have not learned the lesson that prices must adjust to economic reality. The bailout of Fannie and Freddie, the purchase of AIG, and the latest multi-hundred billion dollar Treasury scheme all have one thing in common: They seek to prevent the liquidation of bad debt and worthless assets at market prices, and instead try to prop up those markets and keep those assets trading at prices far in excess of what any buyer would be willing to pay.

Additionally, the government’s actions encourage moral hazard of the worst sort. Now that the precedent has been set, the likelihood of financial institutions to engage in riskier investment schemes is increased, because they now know that an investment position so overextended as to threaten the stability of the financial system will result in a government bailout and purchase of worthless, illiquid assets.

Using trillions of dollars of taxpayer money to purchase illusory short-term security, the government is actually ensuring even greater instability in the financial system in the long term.

The solution to the problem is to end government meddling in the market. Government intervention leads to distortions in the market, and government reacts to each distortion by enacting new laws and regulations, which create their own distortions, and so on ad infinitum.

It is time this process is put to an end. But the government cannot just sit back idly and let the bust occur. It must actively roll back stifling laws and regulations that allowed the boom to form in the first place.

The government must divorce itself of the albatross of Fannie and Freddie, balance and drastically decrease the size of the federal budget, and reduce onerous regulations on banks and credit unions that lead to structural rigidity in the financial sector.

Until the big-government apologists realize the error of their ways, and until vocal free-market advocates act in a manner which buttresses their rhetoric, I am afraid we are headed for a rough ride.

The opinions expressed in this commentary are solely those of the writer.

And this blogger as well!

Strange Bedfellows indeed.

The social justice crowd
and
The financial sector.

This should really not be that surprising. Those who seek power from the state often find strange bedfellows. Like the Sierra Club and T-Bone Pickens, for example. Political scientists who have studied Public Choice Economics (The branch of economics that studies government with the same analytical tools that it uses on the rest of the economy) have come to call this confluence of divergent interests seeking favors from the state the alliance of “Baptists and Bootleggers”.

In the case of the Sierra Club and T Bone, for example, the Sierra Club would be the Baptists, the true believers in the redemptive power of government to change reality to a more beatific plane, without hurting anyone in the process. (Or at least, anyone truly righteous.)

TBone is the bootlegger. He is in it for the money, pure and simple. If he can put a gloss on his greed, and say his whiskey is really medicine, so much the better. But deep down, he really doesn’t care about the religious beliefs of the Baptists. He just wants the state to guarantee him a nice profit.

In the current crisis, it is apparent that the subprime crisis is the result of the confluence of interests between do gooder politicians at the Housing and Urban Development Department, who just wanted a little social justice, and banker and mortgage interests, who just wanted a little guaranteed profit. . Andrew Cuomo , head of HUD from 1997 to 2001, is the primary Baptist, but he had fellow religious zealots from both sides of the aisle in his choir. They just wanted to make housing affordable for everyone, no matter what their actual ability to pay, based on their credit rating, was. It was a matter of social justice, you see. Why should po’ folks not have a house? Aren’t we all entitled to a nice house, even if we have no money for a down payment?

The bootleggers of course were the bankers and mortgage lenders. They were quite willing to pay lip service to the Baptists, so long as there was real money to be made. Regulations were relaxed to take away the risk, and the government stood ready to bail them out if anything wrong happened.

And that is essentially the marriage made not in heaven, but in some other, hotter place that has snowballed into the mess we have today.

There were other players, to be sure. The Federal Reserve happened to be lowering and then raising interest rates just at this time, first creating the financial climate that favored the subprime mortgages, then just as quickly pulling the rug out from beneath them. And the regulations on lending were also relaxed, allowed for the securitization of these mortgages, pyramiding the debt to really, no one knows where now. The Fed is always a player in the financial regulation game, because it is the Fed that determines how much reserves banks must carry, the interest rate, the amount of currency in the system, and so on. In a truly free market, there would be no Federal Reserve, and these things would be determined not by central planners like Ben Bernanke, but by the individual banks and their customers.

But if anyone on this list wants to blame deregulation, Fannie May and Freddie Mac are regulated by the Housing and Urban Development Administration. Not Wall Street. The problem lies with trying to do good while doing well, an old American Tradition that goes back as far as the Quakers of Ben Franklin’s day. Sometimes it works well, but when you get the power of the state to do your good works for you instead of peaceful voluntary charity, there can be repercussions. And we are all facing them now.

I am urging anyone who reads this post to contact your Congressman and Senators and urge them to vote against the proposed Bailout.

As Ron Paul has said, voting against the Bailout is not necessarily voting to do nothing. There is plenty more that can be done.

Stop the wars in Iraq and Afghanistan and bring the troops home. Savings of a trillion a year.

Allow drilling in Anwar and offshore. Bring gas prices down.

Allow Ron Paul’s financial reforms of the monetary system and the Fed to be passed. Restore Sound Money.

Cut spending.

Cut taxes accross the board, not just for specific industries or classes.

Let the markets sort out this problem, not the former CEO’s and Bankers and their lackeys in Treasury and Wall Street.

Do not turn America and the world into a fascist, centrally controlled economy!