Monthly Archives: April 2013

Don’t Return to the Go-Go Days

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But do accelerate mortgage lending regardless of credit risk.  That’s the conflicting position Fed Governor Elizabeth Duke seems to be taking.

She doesn’t want to return to the days of easy mortgages that obtained in 2005-2006, a run of money that the graph below illustrates.

But she adds

But I also don’t think it would be a good idea to go back to the quite restrictive credit conditions of the early 1980s[.]

Hmm….

The Wall Street Journal points out that

[t]he drop in purchase mortgages—loans for buying a home rather than refinancing an existing loan—has been most pronounced among borrowers with low credit scores.  Originations have dropped by 30% for borrowers with credit scores above 780 between 2007 and 2012, but they’ve dropped by 90% for borrowers with credit scores between 620 and 680.

And

[T]he trend…”has disturbing implications for potential new households” because younger borrowers typically have credit scores that are more than 50 points below older borrowers[.]

What does this mean?  It means that poorer credit risks have a harder time getting loans than better credit risks.  What’s the downside of that?

Is Duke still holding out for the CRA debacle that anyone should be able to get easy credit for no better reason than that they exist?

The problem, says Duke, is that the economy may actually be worse off if the pendulum stays stuck at too tight….  The ability of newly formed households that are more likely to have lower incomes and credit scores to get loans “will make a big difference in the shape of the recovery[.]  Without first-time homebuyers, the move-up market will be sluggish, new and existing home sales will be more subdued, and purchase mortgage volumes will return only slowly.”

But this is a static view.  A dynamic analysis shows pretty clearly that this is just a path to a new equilibrium, at which point the pipeline of first-time buyers will be back at a “normal” level; they’ll just be older, with better incomes, and with those two characteristics established, more stable, and so better, credit risks.

Owning a home is certainly the American dream, and it remains a worthy dream.  But it’s not an inalienable right.  Those who work hard, develop good credit—and manage their finances so as to maintain that good credit—do get mortgages today.  Those who don’t haven’t done anything to earn the same rewards as those worked hard.

It’s just that simple.  Even a Federal Banker ought to be able to keep up with that.

Some Questions about the Labor-Chamber of Commerce Accord on Immigrant Labor

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Over the last few days, Big Labor and Big Business have reached a working agreement on one the last (apparently) sticking points in the immigration reform idea being worked by the Immigration Gang of Eight in the Senate.  This agreement, which centers on low-skill “guest workers,” has the following outlines.  These guest workers

  • would be paid the higher of the prevailing industry wage as determined by the Labor Department or the actual employer wage
  • would be allowed to pursue a path to citizenship and to change jobs after they arrived in the United States

Moreover, the visas

  • would be issued under a W Visa program that would start at 20,000 visas, rise to 35,000 visas in the second year, 55,000 in the third, and 75,000 in the fourth.  In the fifth year, the program would expand or shrink based on the unemployment rate, the ratio of job openings to unemployed workers and various other factors.  A maximum of 200,000 guest visas would be granted each year after the fourth, with a maximum of 15,000 visas per year for some construction occupations
  • although low-skilled construction workers would be included, trades like crane operators and electricians would be explicitly excluded
  • one third of all visas available in any given year would go to businesses with fewer than 25 employees

Richard Trumka, President of the AFL-CIO, says of this agreement

We have created a new model, a modern visa system that includes both a bureau to collect and analyze labor market data, as well as significant worker protections.

I have a number of questions about this.

  • Why do we need another government bureaucracy to assess this program and to determine the allowed limits—and wages—to the expanding and contracting visa program?  Why not let the free market determine the demand for labor?
  • Why do we need a minimum wage—which suppresses hiring?  Why not let the market for those low skills determine the wages paid?
  • Why does this guest worker program need a special path to citizenship?  If the immigrants are here legally, and if they’re allowed to stay and to change jobs, they already have the existing citizenship path that any other legal immigrant has.
  • Why do we need a quota on visas?  If the end game is to let the program expand or shrink based all those government-assessed factors, why not, instead, let it expand or shrink more responsively and efficiently based on market factors: demand for labor as driven by demand from consumers and businesses for the product on which that labor will work?

To abuse an old sitcom’s tag line: hold it.  I don’t think you’ll like this picture.

Are Bank Depositors’ Funds at Risk?

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…from yet more government confiscation schemes?  It seems that Euro Group President Jeroen Dijsselbloem’s remark that raiding Cypriot depositors’ deposit accounts to bail out failed banks in that country ought to be the model for the rest of the eurozone wasn’t so far off the mark after all, the publicly pronounced opprobrium notwithstanding.  This condemnation, for instance, came from Luxembourg Prime Minister Jean-Claude Juncker:

It disturbs me when the way in which they tried to resolve the Cyprus problem is held up as a blueprint for future rescue plans.  It’s no blueprint.  We should not give the impression that future savings deposits in Europe might not be secure.  We should not give the impression that investors should not keep their money in Europe.  This harms Europe’s entire financial center.

Yet this seems to be the plan, according to Spiegel Online International reporting.

[I]n the European Parliament, politicians are considering ways to make banks bear greater responsibility for their own financial problems.  …  The discussion includes the possibility of future compulsory levies on major depositors[.]

…

Under the proposal, deposits of up to €100,000 would be excluded from any loss participation at a bank.  Any deposits over that amount would only get hit if the losses couldn’t be fully covered through a bank’s shareholders and other creditors.

Why would anyone deposit their money with banks in a political regime in which those deposits are at such risk of confiscation whenever a government finds it…useful?  Wouldn’t such placement be a violation of the fiduciary responsibility of the depositor toward his own investors and creditors?

The Arrogance of Government

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Here is an example of why we have a Constitution that explicitly limits the power of the Federal government and within that Constitution a Bill of Rights that both explains those limits and explicitly reserves the infinity of remaining rights and powers to the people and to the states.

This example, though, is by one of those state governments, the government of Maryland which also says it’s legal for approved gangs to commit trespass and terrorize children inside their own homes.  State Senate President Thomas V. Mike Miller (D, Dist 27) said this in all seriousness:

We’ve allowed them to manufacture.  We’ve allowed them to sell, and we’ve cut back on their paperwork.

Notice that: government has allowed.  Because government will make these decisions, because what a manufacturer—or anyone—can do is only what a government will permit.

Never mind that the Maryland Constitution says this in Article I of its Declaration of Rights:

That all Government of right originates from the People, is founded in compact only, and instituted solely for the good of the whole….

In other words, government works for the people, and what government can do is what the people will permit, not the other way around.

Oh, wait, this is just Progressives disregarding yet another Constitution that’s more than 100 years old, confusing, and not binding on anything.