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Wednesday, March 26, 2008

Don't Take My Word For It...

John McCain Speaks on Foreign Policy:

And then...

UCLA Chancellor Reacts to McCain Speech:

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What Do California Voters Think?

New Results

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New Link From Ray McInnis

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But enough about Politics, lets talk about Sex on the road in Santa Barbara

Sex on the Road #2- Santa Barbara - Funny video clips are a click away

And...Today's Funny!


Raymond McInnis said...

john can you use this?

i post this as a comment on the all spin zone blog. since then -- today -- obama made a speech in ny calling for more regulation.

john, i also wonder whether there isn't a core of elderly citizens like myself who wouldn't have been able to purchase their first house without nha guaranteed financing. aren't these people a core group sympathetic to the restoration of the nha program?


steven, i invite your readers to check out jeff madrick’s piece from huffington post.– links below

madrick writes authoritatively about financial matters, from a liberal’s perspective, and comes down hard for more regulation, because it will — he claims — give us the protection that we need, including for a housing program backed by the government that works.

in another context, i have myself written about the history of the NHA, a program that seems to be an anathema to the reaganites and bushies, but as you’ll read below, was the program responsible for giving home ownership to millions following WW II

madrick’s piece is “We Need Regulation: The Mythology of Moral Hazard”


brief background on NHA:

The National Housing Act of 1934 created the Federal Housing Administration (FHA) and made home financing (FHA mortgages) more readily available to large segments of the employed population. In 1934, the federal Public Works Administration began building public housing.

Because of the Great Depression and WW II, housing in america did not take off until 1950, when a veritable boom in Home Ownership

Since the 1920s, the increase of the family’s income out-stripped the rate of housing construction.

During the Great Depression, while the rate of urban home ownership was around 55%, the chaotic financial markets of the 1930s discouraged potential home buyers.

Home buying expanded rapidly during the 1940s, however; many single-family rental units, subject to Federal rent control laws during the war, were sold to occupants.

During the 1940s, if we look at data about home ownership in five year intervals, we see significant progress:

in 1940, 41% of homes in urban areas were owner-occupied;

by 1945. 50% were owner-occupied;

by 1950, two-thirds of urban housing was owner-occupied.

(The 1945 figures are significant: while the federal government built temporary war housing, by wartime regulations, construction of new housing was severely constrained.)

In 1950, the dam burst, and the resulting housing boom in the 1950s was sustained by loans backed by the federal government: the Veterans’ Administration and FHA mortgages, or by investing private wartime savings.


jeff madrick “We Need Regulation: The Mythology of Moral Hazard”

here’s madrick’s text:

Suddenly, everyone’s talking about it. Regulation. Front page stories this weekend in the major newspapers — The Wall Street Journal, Financial Times, and The New York Times — wrote intelligently of a dawning age of re-regulation in American finance.

It’s about time, of course. I mean, about time for regulators to get realistic and about time the newspapers — the media in general, including TV financial news — began to treat the issue with modest objectivity rather than the persistent pro-Wall Street flavor of the recent past.

Washington, under Republicans and Democrats, was the enabler of the financial excess. There should be no mistaking this. By deregulating finance thoroughly since the late 1970s and even more important determinedly looking the other way when new markets developed that were not under anyone’s jurisdiction even as borrowing reached absurd heights, it opened wide the doors for the irresponsible and the corrupt.

With a few dispersed exceptions, business continues to resist. Some call on the false and simplistic ideology of free market fundamentalists. The real diehard free-market types argue that the Federal Reserve and Congress should do almost no bailing out. Those who lived by the sword should die by the sword, and that way the risk takers will be more careful next time around. That’s the best regulatory mechanism of all, they claim. Just let the market work.

Some less ideological anti-regulationists are also now on this bandwagon. The principle is called moral hazard. And it’s as old as insurance, which is where the concept started. The fear in insurance is that it changes behavior, usually inducing the insured to take more risks. Those who have automobile insurance may drive more frequently in bad weather, for example, or even drive a little faster. Thus, the insurance creates a moral hazard. And society is the worse off for it.

Thus, in finance, the fear of loss allegedly produces enough caution to minimize financial crises. The insurer in this case is the Federal Reserve or the U.S. Treasury, who will bail investment companies like Bear Stearns out when the going gets rough,

But does any really believe that the fear of loss truly produces sufficient caution? To the contrary, the fear of loss declines in direct ratio to how long the good times last. A distant memory of a big crash from the past generation will do little to inhibit similarly ridiculous investing patterns ten, twenty or thirty years later.

The proof? Look at the 1800s. Since 1836, there was no central bank to insure the nation and bail out the banks, only a tiny Treasury, not disposed to help anyone. We lurched from one financial panic and depression to another. An industrial revolution was underway, but accompanied by far more material and psychological pain and ruined lives than the text books tell us. It required J.P. Morgan himself in 1907 to save the system, and that made it clear America needed a lender of last resort. I suppose the moral harzardist are opposed to his bailout also. But it led thank goodness to the birth of the Federal Reserve.

The best research on moral hazard, done by the remarkable Nobelist Kenneth Arrow and in later years by some of his disciples like Joseph Stiglitz, actually makes a case for regulation. But there is little empirical analysis of the subject — for example, trying to compare a market with moral hazard to those without. Mostly, the academic work is theoretical.

So let’s get over it. Moral hazard is no substitute for regulation. The Fed is doing right now. The Congress should act to stem the tide as well by helping mortgage holders in trouble and reducing the number of house and condos that will go to market at distress prices. The risks of catastrophe are too great to abide by some faith that, if we just let the markets punish the risk takers, all will be fine. It won’t.

And if we get adequate bailouts, then we need re-regulation. What many a Wall Streeter really wants is a bailout and then no change in regulatory requirements. Let it roar again!

But good regulation is about transparency and a level playing field. It is about recognition that over-speculation is a persistent habit of markets and should be restrained but with ample room for market price setting.

Are there costs? Sure, more red tape, restrictions on borrowing and lending, maybe lower credit ratings from more responsible credit rating agencies, rules for derivatives markets which essentially operate behind closed doors today, less trading on inside information.

But there are bigger rewards. The economists who assess the costs of regulations rarely if ever write about the benefits of regulation. At least, I have not found a statistical assessment. How much would we have saved if we didn’t have the current disaster, for example? Would Bear Stearns shareholders be richer today than they now are if we had had a decent regulatory environment? I wonder if the shareholders are even asking that question in this ideological era?
Comment by Raymond McInnis — March 26, 2008 @ 9:45 am

Very good stuff, Ray. Thanks for the contribution. Yes, I think Bear Stearns shareholders would be in fine shape nowadays with regulation. Indeed, so would have been the people in charge of all those savings and loans that went belly up back in the Keating 5 days.
Comment by Steven Reynolds — March 26, 2008 @ 10:12 am

Bear Stearns = USSR
Comment by OH — March 26, 2008 @ 4:24 pm

you know, where are all the people that, thanks to the nha, now — since the 1950s — own their homes?

for me, these home owners — with their memories — would be a corps of voters that could — should — be reminded of the government program that allowed them to buy their homes, under a protected system, and why won’t they support a candidate who wants to bring that program back, so that, just as they were able to, vast numbers of their younger, fellow citizens can take advantage of the nha home purchase program?

could obama make this a plank in his campaign?

has the “repub” machine spoiled that thought completely?
Comment by Raymond McInnis — March 26, 2008 @ 5:00 pm

John Quimby said...


That's interesting insight that is lost in the current climate.

I've heard the siren song of the "free marketeers". I'm no economist and I'm aware that there are centuries of debate on the topic.

In my opinion it all boils down to this:

For the same reason you've got to have cops on the street you've got to have rules and regulation in the market. Free Markets may be perfect but human beings are not.