Raw Deal Alert
October 6, 2008
The by-line says "By STEVENSON JACOBS, AP Business Writer”. The story he
writes, dated 10/5/08, contains few facts to stimulate thinking but
enough anecdotes to arouse feelings. With the title "For bailout to
work, housing market needs to mend”, the timing seems a bit late to
convey what meaningless information it does to "inform” the public about
the uncertainty of the bailout plan working at all.
But Mr. Jacobs lights a candle of hope (that word again) with this
statement: "Rep. Barney Frank, D-Mass., the Financial Services Committee
chairman and a key negotiator over the past weeks, said the measure was
just the beginning of a much larger task Congress will tackle next year:
overhauling housing policy and financial regulation in a legislative
effort comparable to the New Deal.”
Just the beginning? Housing policy? Financial regulation? New Deal?
Barney Frank? Are you kidding me? I guess Barney’s buddies haven’t
ripped off the public to their satisfaction yet. Grandma must have some
more nickels stuffed in the mattress in her re-possessed house. While
Franklin Raines, Timothy Howard and their cohorts in crime cooked the
books of Fannie Mae to enrich themselves, Barney obstructed efforts for
an investigation by congress. But you can trust Barney Frank because
Nancy Pelosi says you can.
But Jacobs doesn’t stop there with his tidbits of hope. He goes on to
write the following: "In the meantime, the Treasury Department is moving
swiftly to get the plan started. Treasury Secretary Henry Paulson said
Friday he did not wait for final approval of the measure to begin
preparation. He has been lining up outside advisers as his staff works
out details on a multitude of complex issues.”
Outside advisers? Details on a multitude of complex issues? Henry
Paulson? The outside advisers will be political hacks and business
cronies. You can bet the farm (or your house) on that. The "devil is in
the detail”, and the devils will literally have control of what those
details are. Paulson’s real challenge is to convince the public that a
second fleecing is good for the economy while setting up the third
fleecing under Frank’s Raw Deal.
The government bailout must create the illusion that government has
fixed a problem. Re-inflating the housing bubble government created is
part of the illusion and will be touted as evidence the problem has been
or can be fixed by government. No one can predict the effect of the
bailout, but we can look in retrospect at what the government generated
housing bubble did and maybe come to an educated guess of what
sustaining that bubble will do.
Opening credit lines to un-qualified and risky borrowers put money in
the housing market that would not have been there otherwise. The supply
of play money increased out of proportion to the homes available for
purchase. Housing prices shot up benefiting every business associated
with home building, sales and ownership. Builders, realtors, lumber
yards, truckers, lawyers, insurance companies and many others profited
from the bubble. Local governments feasted on the increased property
taxes.
But there were also losers. Many things were not purchased by borrowers
strapped with mortgages and home equity loans they really couldn’t
afford. They aren’t buying cars. The wind used to inflate the housing
bubble was taken from the sails of the auto industry. They aren’t taking
vacations. The trains and boats and planes are empty as are the hotels
and motels, restaurants and beaches. Unintended consequences? You bet,
but there are more.
Moving from an apartment to a house is going to leave you with a few
unfurnished rooms, a boon for furniture manufacturers, at least for a
time. Tooling up to make more furniture while competing for some of the
same raw materials that go into home construction drives costs up. That
new machinery is sitting there idle now, but it still has to be paid for
and is still being amortized. The folks that make yard furnishings are
probably in the same boat. Given some thought, I’m sure you can think of
many other examples where inflated housing costs competed with other
industries, and overextended credit couldn’t be stretched any further.
The economy is far too large and complex to predict the results of
artificial inputs, especially those that are politically motivated. The
liberal plan to create affordable housing did just the opposite while
wrecking other parts of the economy to boot. What they offer is more
tampering, and what will get are more unpredictable and potentially
catastrophic results. Maybe Jimmy Carter can build us some more shacks
before Barney Frank totally destroys housing.
