Liddick: President Obama stars in a farce that really brings down the house
August 13, 2013
Karl Marx actually got this one right. Commenting on Hegel's observation that personalities and events repeat, he noted, "He has forgotten to add: the first time as tragedy, the second, as farce."
Case in point is the current "pivot to jobs" by our campaigner-in-chief, Barack Obama. While flitting about the country in another desperate attempt to divert attention from his administration's multiplying problems — Benghazi, the IRS scandal, spying on everyone with a cellphone — the president advanced the notion that "sweeping reforms" are needed in the nation's housing market. One step he proposed was the winding down of the Federal National Mortgage Association, better known as Fannie Mae, and its "brother," Freddie Mac. Both offer federal government backing for mortgages, both were forehead-deep in the housing-bubble crash of 2007, and both stuck taxpayers with a hefty tab when the smoke cleared.
To be fair, Fannie Mae recently wrote the U.S. Treasury a $4.4 billion check, an installment of the over $70 billion it was advanced during the housing collapse. As of now, the amount is about half paid, and Fannie and Freddie are making a profit, thanks to a modest housing recovery and the wholesale cashiering of pre-2008 management. It's also worth noting that President Obama, in proposing to wind-up both organizations, is echoing both the Senate and the House, where similar proposals are moving forward.
However, what neither the president nor the various flavors of politician on Capitol Hill will admit is that we are seeing the entre d'acte for the "farce" portion of the program.
To be clear: there is no problem with removing Fannie Mae and Freddie Mac from the housebuying equation. Inserting the government into a private transaction only creates market turbulence, the more so when federal mortgage guarantees create distortions by allowing purchases by people who do not have the financial wherewithal to pay back loans. The term for this is "moral hazard," a reference to processes that transfer risk from the parties that incur it to others — in this case, to taxpayers.
But what is being proposed here — by the president, by the Senate and the House, are projects doomed to failure. And the farcical heart of the matter is, we've seen it all before.
When President Obama proposes to "put the private sector, not the government, primarily at risk" for loans, he is not merely revisiting his failed suggestions of 2011 and 2012. If we take him at his word, we will quickly find ourselves back in the days when a mortgage was fifteen years long, and required a substantial down payment. Even the Associated Press can see this: banks like profit, not risk.
If the president really believes that "We should preserve access to safe and simple mortgage products like the 30-year, fixed-rate mortgage," he believes in something that has never been, and never will be: a risk-free loan cheap enough for the average consumer to buy, without onerous requirements, that offers a return high enough to entice investors to supply the funds. If you don't recognize this as fantasy, you're driving around town with a bag over your head in a car with a steel windshield.
Let's assume that we return to the days when banks actually ran the mortgage business, and 20 percent down on a 20-year note was the norm. Commence, au farce … How long would it be before "Organizing for America" and their economically-addled tools and fools hit the streets, railing against "big banks" and "corporate greed" and "bloodsucking lenders?" My bet is an hour and twenty minutes, tops.
What would answer the argument that it was "unfair" that "untraditional borrowers," to use a liberal term to describe those who haven't much of a chance of paying a loan off, did not have "access to financing?" Since Chris Dodd will no longer be in the Senate, Barney Frank may have to find a new partner, so… Let's call the effort to "reform" mortgage lending the "Bennet-Frank Bill." Which would, in the spirit of the Community Reinvestment Act of 1999, direct "greedy banks" to make loans regardless of any calculation of a borrower's ability to pay — in return for government guarantees and favorable regulatory treatment, of course.
The whole act smacks of Kabuki; everyone knows what will happen before the first move is made. The trajectory of events is painfully, stupidly obvious: another round of political hay-making at the private sector's expense and another housing bubble, created by politicians without principle truckling to those with a perpetual sense of entitlement and utter ignorance of the principles of market economics. The president's proposal is a wearisome, predictable Hegelian farce. But he obviously thinks we're dumb enough to buy it.
Is he right? Time will tell …
Morgan Liddick lives in Summit County.
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