Monthly Archives: March 2014

Fannie and Freddie “Restructuring”

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Federal National Mortgage Association—Fannie Mae—and Federal Home Loan Mortgage Corporation—Freddie Mac—are at the heart of the US housing industry, since they play a central role in guaranteeing a major fraction of the mortgage loans through which we Americans buy our homes.  They also lie at the heart of the housing bust that was a major cause (albeit not the only one) of the Panic of 2008.  Their role in the bust stems from their decision functionally to waive credit standards and to encourage anyone with two nickels to rub together to borrow to buy a house, whether those borrowers could afford to make the loan payments or not.  And too often Fannie and Freddie waived the two-nickel standard, too.

The mortgage industry cries out for major reform, and now some of that reform might be in the offing.  A plan worked out by Senate Committee on Banking, Housing, and Urban Affairs Chairman Tim Johnson (D, SD) and Committee Ranking Member Mike Crapo (R, ID) and preliminarily agreed by President Barack Obama looks do away entirely with Fannie and Freddie and to replace them with a system of Federally insured “mortgage securities” whose private insurers would be required to take initial losses before any government guarantee would be triggered.

Of course, Senate Majority Leader Harry Reid won’t like the bill because it has Republican fingerprints on it.  House Republicans won’t like the bill, either, since they’re opposed to any government backstop in the private economy.  This isn’t a done deal.

This is, though, a valuable and needed step in the right direction.

There’s no arguing with a tired old man who insists on clinging bitterly to his hatred of all things Republican; Senate Democrats need to lose their fear of him and bypass him on this matter.

On the other hand, the chuckleheads in the House do have a chance to get smarter all on their own.  They’re right to insist that there be no Federal backstop in the housing market, much less in private economy, generally.  However, they also need to understand that this deal isn’t the final step, and that if they hold out for everything all in one fell swoop, they won’t get anything at all.

They should pass this deal, if it gets to them in substantially this form, and then they should begin working on a follow-on bill that withdraws that Federal backstop.  After all, if the free market wants such a thing—in the insurance industry, it’s called reinsurance—a market for mortgage reinsurers will develop.  If such a market doesn’t develop, it’ll be because the free market doesn’t need one.  If the governments of the individual States think such a thing is a good idea for their citizens, they can face their citizens and propose such a thing.  If the citizens of those States demure, then a State government backstop isn’t useful.

Step by step.  Slowly, and so surely.

EU Trade Protectionism

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Now the EU is looking to claim that cheeses originally made in Europe cannot be made anywhere else and marketed under those European generic names: feta and parmesan cannot be made in the US, but only in Greece and Italy, for instance.  Never mind that it’s the same cheese made here, the manufacturers have to use different terminology to market their cheeses, the EU is demanding.  The EU even is (mendaciously, say I) claiming that feta, for instance,

is so closely connected to Greece as to be identified as an inherently Greek product.

As if that original connection matters at all in a global market.  And, never mind that feta produced elsewhere is plainly competitive, if not superior, or there’d be no market for that produced-elsewhere feta.

The AP says that this sort of thing is

important for the EU as Europe has tried to protect its share of agricultural exports and pull itself out of recession.  The ability to exclusively sell some of the continent’s most famous and traditional products would prevent others from cutting into those markets.

Never mind that Europe does not own any share of any market; the market is possessed (not owned) by the aggregation of individual buyers and sellers that choose to operate in it.  Europe—as with any participant—earns a share of a market by competing effectively in it.

No, this is an issue that needs to be dragged out until after the 2016 elections, and we get a President that has the moral courage to stand up for American, if not free market, interests.

No War is Painless for Either Side

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But the war Russia is waging against Ukraine, and against Western values generally (against little things like the right of the citizens of a sovereign nation to govern themselves, the right of the people of a sovereign nation to run their economy their own way, the right of the citizens of a sovereign nation to hold their own, fair votes) can only hurt Russia in any serious way, if only Western leaders can find the courage to stand with Ukraine in a more meaningful and direct fashion than merely sitting courtside cheering the Ukrainians and clucking their tongues at the Russians.

There’s little to do, militarily, in the near term, but there are a number of devastating economic things that can be done, and these things will have their effect immediately and in the near and middle term (there’s unlikely to be a need for far term effects, but those would remain from the steps that can be taken now).  Such steps include

Treasury and State departments can much more aggressively target Russian banks and trading firms for their alleged involvement in such areas as arming Syrian President Bashar al-Assad or developing Iran’s nuclear program.  [To which I add Treasury and State can much more aggressively target the Russian banking system for its involvement in a nation committing this naked aggression against a sovereign country.  No special reasons are needed.  Full stop.]

Additional steps also can be taken, as I and others have outlined already.

Western leaders are fearful, though, and looking for bloodless solutions to an affair that’s bloody by its nature:

The US and other leading Western powers are focusing on individual, targeted sanctions because broader economic sanctions could directly harm Western businesses and lead Moscow to make good on its threats to retaliate against businesses from the countries pushing sanctions, according to current and former officials.

What these Nervous Nellies are ignoring, though, is that while Russian retaliatory sanctions will, indeed, hurt those Western businesses, Russian sanctions “would inevitably hit [Russia] like a boomerang.”  Russia, quite literally, has no economy beyond its oil and gas exports without those Western businesses and Western investments in Russia.  On top of that, as Western (read: US and Canada) oil and gas production and export increase, with special attention initially to exporting to Europe and Ukraine, and as prices drop from those increases, Russia would lose that remaining vestige of its economy.

And be unable to sustain its forces in Ukraine.  At that point, a suitable treaty would have Russia formally renouncing all claim on any territory outside the borders of the Russian Federation, canceling its lease on the naval base in Sevastopol and withdrawing all of its military units from Crimea, and removing all of its military and quasi-military units away from the Federation’s European borders by a distance of at least 200 miles.

More Governance by Diktat

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Rule by law, not rule of law.  Here‘s the latest Obama installment.

The president plans to make the announcement [ordering Labor to expand overtime pay requirements to include millions more workers] on Thursday at the White House, a senior administration official confirmed to Fox News. Though the administration has claimed previous executive actions had bipartisan support, officials are acknowledging that this particular move [does not.]

These aren’t blue-collar jobs covered by “collective bargaining” agreements—union contracts—either.  Now, managers and executive officers of companies will be…covered: fast-food restaurant managers, loan officers, computer technicians, and more.

There’s not even a pretense of union-management mutually agreed compensation structure in this latest government move—the Federal government is dictating to businesses how they must conduct their businesses, the Federal government is dictating to businesses how they must structure their internal costs.

No market forces allowed.  And if the law doesn’t let the Federal government do what it wants to do to us, the Feds (not us) will change the law, and the Feds will change it with, or without, our permission.

What’s next?  It’s a truism, that if something becomes—or is made—more expensive to have, buyers will buy less of it.  If labor—blue- or white-collar—is made more expensive, businesses will retain/hire less of it.  Look for slowed hiring and outright management staff reductions, either in people retained or in salaries paid to make room for the mandated overtime increases.

Then, look for this administration to change/write its own law to mandate that salaries and wages can never be reduced, and that once hired, an employee can never be terminated.  Businesses, after all, are jobs welfare programs in the Progressive mind.

Some More re Obamacare

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The Wall Street Journal provided an interactive and a graph earlier this week in their online issue.

The Healthcare.gov Explorer, available here, allows you to quickly explore the highlights of what’s available in your county.  As I’ve mentioned before, what I can get in my little county in Texas would be vastly more expensive in terms of premiums required and deductibles to be paid by me before the health plan would begin to pay (only) some of my expenses, were I to have to replace what my wife’s employer provides due to the employer’s decision to cancel its program.

This (these) graph(s) shows the subsidies you’re paying, both in terms of additional Obamacare taxes and in terms of those higher premiums and deductibles in order to pay for someone else’s health plan.  I’ve broken the WSJ‘s single image into two parts for convenience.  Keep in mind that the example presented is for a single person (and for that person living in Ohio).  The first part gives the basis for subsidy calculations:

This second part gives the additional subsidies that are available under Obamacare:

I’ve written elsewhere about the poverty trap that is government welfare, and the rational nature of the economic decision to stay on welfare rather than take a wage increase which is that trap.  Here, we see that a person making $11,490 (a student, perhaps) who graduates and takes an entry-level job at $28,725 will see his health plan out-of-pocket costs skyrocket from $1,000/yr to $5,000 and his $100 deductible go to $1,500.  He’ll also see his monthly premium (heroically assuming that the two plans in these two graphs have identical premiums, but you get the idea) increase by $1,212 per year.  The total health plan cost increase of $6,612 per year represents nearly 40% of that wage increase—and this is before considering the other welfare subsidies which this man also loses from that wage increase.