The Coming Rental Housing Crisis

In a 6/26/10 editorial, Stop dreaming: Home ownership is not for everyone, the Wall Street-bashing NJ Star-Ledger acknowledged that government policies brought about the financial crisis. They wrote:

"Owning your own home has been part of the American Dream for decades. But what if home ownership isn’t for everyone?

"Sheila Bair, president of the FDIC, had the guts to raise exactly that question recently before a group of nonprofit housing developers. Gutsy, and long overdue. As we’ve witnessed over the past few years, helping people buy homes they could not afford did them no favor and helped bring on our financial crisis."

I left the following comments:

zemack June 26, 2010 at 11:42AM
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So, the Star-Ledger wants us to “stop dreaming”. OK, then. Are American liberals ready to let go of their utopian dream of central economic planning?

The federal government’s affordable housing crusade began under FDR with the creation of agencies such as Fannie Mae, which killed off the originate-and-hold bank mortgage lending model in favor of originate-and-sell. Over the decades, through regulations, tax policies, government guarantees, political pressure, Federal Reserve monetary policies, and so on, layers upon layers of government interference was built up in the housing and mortgage markets. The purpose, as the Editors point out, was to expand homeownership.

The financial crisis we’re still not out of was the culmination of these government policies. I’m glad to see that acknowledged here. Never mind the irresponsible lenders and borrowers. They are culpable, but they are minor “moving parts” and are just convenient scapegoats. The private players represent merely the consequential face of this crisis. The fundamental cause was yet another failure of central economic planning. Without the government's housing and monetary policies, this crisis simply could not have happened.

I never cease to be astounded by how often the Star-ledger correctly identifies a problem, and then misses the obvious conclusion. The lessons of 150 years of central planning’s failures continues to multiply. So, do we get a call for an end to the government market interventions that the Editors finally admit was the cause of our problems? No, we get vastly expanded government control under the cover of “financial regulatory reform”. And do we get a call for an end to the homeownership crusade? No, trhe market distortions remain, and we get a call to make the same policy mistakes in the rental housing market!

To fix the problems the government itself caused, we reward the government with more power. The entire financial system right down to the consumer ATM transaction will be forced into a bureaucratic straightjacket under a powerful new central planning maze. The financial industry will be private in name only, as is typical under fascism. Then our brand new affordable rental housing crusade will establish the groundwork for yet another crisis that will not be allowed to go to waste. Then we will see de facto nationalization turn into outright nationalization, the final step and ultimate goal of the socialists.

The Editors dream on, and the nightmare approaches.

Dionne Defends the Concentration of Political Power

In this article, Whose Supreme Court is it?, EJ Dionne Jr. demonstrates the vital importance of understanding the diametrically opposed natures of economic and political power.

My commentary:

Zemack wrote:

To understand the sinister purpose behind those that attack the “concentration of economic power”, one must first understand the difference between economic and political power.

Economic power derives from the ability of a person or organization of persons (a corporation) to produce economic values. It is benign and benevolent, in and of itself. The economic power of a business, no matter how big, is granted only by the voluntary consent of those who buy its products, fill its job positions, or buy its shares. Economic power is non-coercive, but only in a free market.

Political power is the power of physical force, because government alone has the power of law. It can force you, literally at the point of a gun. The concentration of political power is the danger, and the only danger. That is why a constitution is needed to restrict government to use its monopoly on physical force - its power of the gun – to protect the individual rights of its citizens. All of them, including those “regular, average” folks associated with corporations. When government steps outside of those restrictions, it becomes the tool of special interests seeking the power of the gun – political power.

When “private corporations … dominate the state” and “buy government”, it is not economic power that is at work. It is political power. That alleged “concentration of economic power” is made possible by the very power progressives love, the alleged “right” of “our government's elected branches to legislate and regulate” at the behest of the special interests with the most political clout of the moment, which progressives call “the public interest”. To the progressives, corporations are not “the public interest”. Unions and wealthy individuals like George Soros are.

Since political domination of the economy is the goal of progressives, individuals who assert their First Amendment rights through corporations become the enemies of the state. When progressives seek to empower “the political system to protect itself against corruption” and attack “corporations virtually unlimited rights to spend money to influence elections”, it is seeking to protect the political elite from accountability to the people, the ones who disagree with them, and consolidate the concentration of political power.

This article is classic postmodernism, or the use of language as a weapon to cloud the issues to advance a statist agenda. Progressives seek to rein in the “concentration of economic power” in order to increase their own concentration of political power over “regular” people. The only system that can prevent benign economic power from being converted into malignant political power is laissez-faire capitalism (the separation of economics and state). The alternative is totalitarianism. That is the ultimate choice we face. It’s economic power and freedom, or political power and tyranny. Take your pick.

Upholding Objective Law

The US Supreme Court has just struck a blow for "limited government" by a surprising 9-0 vote. Bob Braun of the NJ Star-Ledger analyzed the decision in an article entitled U.S. Supreme Court removes 'bite' from law used against corrupt N.J. officials. His wrote:

Antonin Scalia went far beyond the progressive Ginsburg in wanting to strip the so-called "honest services" statute of its bite. He did it simply and clearly:

"It fails to define the conduct it prohibits," Scalia wrote in a concurring opinion.

That’s ground zero in constitutional law. The law must say what is illegal. The core of due process of law. Otherwise, anyone can be accused of anything and, if the prosecution is persuasive, anyone can be convicted, particularly by a jury prone to believe all officials are corrupt.

[N]othing beats Scalia’s analysis. "The statute," he wrote, "does not answer the question, `What is the criterion of guilt?’"

It’s got to be something other than election to public office.


I left the following supportive comments:

zemack June 28, 2010 at 4:52PM

Great article. It’s so refreshing to see a concrete issue analyzed in relation to fundamental ideas, an all too rare occurrence. In this case, both Mr. Braun and the US Supreme Court stood up for objective law.

When I heard prosecutors complain that this Court decision stripped them of their “flexibility”, I knew instinctively that the right decision was made, even before I familiarized myself with it. Lack of “flexibility” in prosecurorial matters by government officials is precisely what the American doctrine of “a government of laws and not of men” is intended to enshrine. Non-objective law means arbitrary government power, a basic tenet of a dictatorship.

Just as I cheered the court’s recent decision that removed restrictions on corporate and union campaign spending because it upheld the First Amendment, so I cheer this one. Both uphold critical fundamental principles vital to a free society.

Bob Braun has done a good job here presenting the essential aspects of the issue clearly and concisely.

More on NJ's Municipal Welfare

Trenton crowd's constitutionally incapable of property-tax reform, by Paul Mulshine

In this article Paul Mulshine discusses the idea of a property tax cap in NJ, and touches on the nature of Trenton's redistributionist state aid scheme.

I've left the following comments:

zemack June 23, 2010 at 8:53PM
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The core issue is much bigger than quibbling over which towns get how much state aid. The issue is the validity of state aid to municipalities as such, or what I call municipal welfare. On the face of it, it makes no sense to send income tax dollars to Trenton, in order to get it back in state aid checks. Of course, the real purpose is wealth redistribution.

Municipal welfare is wrong for the same reason any government-imposed redistributionist scheme is wrong. It is immoral, unconstitutional, and a violation of individual rights and the proper function of government. In addition, like all socialist schemes, it doesn’t work. The current incarnation of the municipal state aid scheme started in the 1970s with the court-pressured imposition of the income tax. Since then, income tax rates have soared, state budgets sank increasingly into the red, aid-fed municipal budgets swelled, and all the while, property taxes soared. And what are we left with? – Abbott districts that are so bad that even many liberals support letting parents get their kids out of Abbott schools via vouchers under the Opportunity Scholarship Act. Only socialism could pull that off.

"It’s not fair," [Assemblywoman Allison Littell McHose of Sussex County] said. "I think people finally understand that they are paying for their own school and they are paying for these Abbott districts on top of it."

No, it is not fair. The whole purpose of municipal welfare is just that. So, why not see that the Emperor has no clothes? Why not adopt a GOP platform plank to repeal municipal state aid, which now consumes more than half the state budget, along with the income tax that funds it? Come to think of it, if forcing people in one town to pay for the education of children in the next town is unfair, then why isn’t it just as unfair to force them to pay for the education of children on the next block?

But that would be another topic – free market capitalism. Republicans and conservatives just can’t seem to let go of socialism when it comes to education.

Robinson on Joe Barton Apology

A GOP chorus of Joe Bartons on the BP oil spill
The BP apologist is mainstream among conservative Republicans.
- By Eugene Robinson

Select quote:

"A group constituting roughly two-thirds of all Republicans in the House takes the position that President Obama was wrong to demand that BP set aside money to guarantee that those whose livelihoods are being ruined by the oil spill will be compensated. In other words, it's more important to kneel at the altar of radical conservative ideology than to feel any sense of compassion for one's fellow Americans. This, ladies and gentlemen, is how today's GOP rolls."


My commentary:

6/23/2010 5:08:21 PM

The whole point of having a civil court system is to establish an objective venue to settle damage claims. This is the best rights-protection the victims of BP’s well failure, and individuals generally, have. All sides get a hearing, and the facts dictate the outcome. In politics, political connections reign supreme over any facts. Whether the $20 billion represents a shakedown of BP or a protective shady deal cut between Obama and one of his campaign donors is beside the point. The real issue is the Executive Branch’s usurpation of the judicial system.

We are in dangerous territory, if justice is the goal. Considering the assault on the rule of law by this powerlust-driven administration, it is shamefully trivial for Obama Democrats and their supporters to babble about the GOP “favoring” oil companies. They claim to be the voice of “average” Americans, whom they derogatorily call “the little people”. Yet, they have no problem stripping them of their right to their day in court, and replacing that objective venue by throwing them into the world of political calculations.

Plenty of Gulf oil spill victims are going to be shafted if this deal leads to government officials doling out the cash, rather than judges and juries, which it probably will. And plenty of non-victims will be rolling in BP loot. In a court of law, each individual stands tall, win or lose. When power politics trumps justice, the un-politically connected become “the little people”. Mr. Robinson worries about ideas, or “radical conservative ideology”, which he doesn’t bother to name and refute. Meanwhile, he protects the real threat - arbitrary government power. He sees nothing wrong or un-American about a King – excuse me, a president – having the power to force a private company to hand over its money, oblivious to the danger that that precedent poses to all private companies into the future. So much for a government that protects our rights!

Today’s Left-Wing Washington rulers are throwing their fellow Americans under the bus, that they may gain a photo-op handing a check to favored victims. And then Mr. Robinson accuses Republicans, who at least have some semblance of respect for the constitutional separation of powers that protects us from the growth of tyranny, of having no “sense of compassion for one's fellow Americans.”

This, ladies and gentlemen, is how today's Democratic Left rolls.

Menendez: Rein in Wall Street

In this article, entitled It's time to protect consumers, rein in Wall Street, NJ Senator Robert Menendez touts the financial "reform" bill now before congress. On the premise that NJ residents are stupid and unthinking, he pins the blame for the financial crisis on a few Wall Street firms.

I've left the following comments:

In Senator Menendez's statist Emerald City fantasy world, the great and powerful Oz, exemplified by "Wall Street", has wreaked economic havoc. Nowhere is the role of government interference examined. Mr. Menendez wants us to pay no attention to that man behind the curtain – the government’s political and bureaucratic wizards who pull the levers that control the financial industry and manipulate the markets through such mechanisms as Fannie and Freddie, the FDIC, mark-to-market accounting rules, explicit and implicit mortgage guarantees, the government licensed and competition-protected rating agency cartel, the CRA, the FHA, affordable housing crusades, overt and covert pressures on banks to increase low-income lending by lowering loan standards, too-big-to-fail taxpayer bailout policies, the perverse inversion of normal market incentives through socialization-of-losses policies, and that mother of all culprits – that funny money machine called the Federal Reserve.

The politicians rig the system to get people who can't afford homes into homes. Under the government's bipartisan "affordable housing" crusades, a conveyor belt of sub-prime mortgages runs overtime from the Fed to Fannie and Freddie. Wreckless lenders and borrowers flourish, to the delight of politicians who tout rising homeownership rates. Fannie and Freddie spread toxic mortgages throughout the system via securitization. Quick buck artists overwhelm prudent heads on Wall Street, cashing in on the game the men behind the curtain created. The system collapses. Derivatives and "Wall Street" get scapegoated. The politicians move for de facto nationalization of the financial system to "protect" that mystical entity - consumers.

How do you bring socialism to a country that would never explicitly vote it in? We've seen this pattern before. It's brought in through the back door of fascism. In finance, energy, healthcare, and education, to name a few areas, totalitarian powers are being accrued to Washington. The government creates crisis after crisis, which are never allowed to go to waste. In the not to distant future, we will wake up to find that our major industries are private in name only. Every area of our lives will be controlled by a small clique of all-powerful wizards, who manipulate the levers that run the shell corporations that used to be our great industries.

The fascist wolf has been creeping toward our American house for decades. Under the Bush Administration, the wolf reached the door. Under the Obama Administration, the wolf has crashed through the door.

Menendez, Obama, and their ilk are selling us a bill if goods, and down the river to tyranny. It's time to pay attention to that man behind the curtain

.

BP and Environmentalism

From Erosophia: Environmentalism is Responsible for the Gulf Oil Spill, by Jason Stotts

My Commentary:

June 10, 2010 at 5:24 PM
Another major contributing factor is the government’s paltry $75 million liability limit on behalf of deep water oil drillers. This was to manipulate insurance rates lower after oil companies complained that high rates made most drilling unfeasible.

This had the predictable result. Incentives to pursue innovative tecnologies to make drilling safer were stifled, as was the need to be prepared for worst case scenarios (as BP obviously was not). The insurance industry is the economic bulwark against excessive risk. Insurance companies’ make judgements based on economic, technological, and environmental realies, and price their rates accordingly. If oil companies find insurance rates too high, then they can abandon deep water drilling, or they could find better and safer ways to operate to satisfy the insurers and reduce rates.

Sen. Robert Menendez (D-N.J.) has sponsored a bill to raise that limit to $10 billion, believing that the $75 million cap encouraged ecological gambling, because it was so low. Yes, so why then should oil companies be shielded at all? Artificially capping liability is the very kind of market manipulation that causes problems, by short-circuiting the normal risk management incentives inherent in a free market.

Yes, BP must clean up the mess, and compensate the victims, even if it bankrupts them. If BP engaged in fraud to get the permits, prosecute the company. And, NO BAILOUTS. It is BP’s well, after all.

But, just as with the financial crises, the government rigs the system to encourage excessive risk and reduce personal responsibility, and wonders why disasters happen.

And in similar fashion, we’re seeing the usual demands for more regulation, with blame being placed on a non-existent “free market”. This is perverse. BP is the proximate cause, but government regulation is the ultimate cause. We need less regulation, and more economic laissez-faire.

Catalina has left these two comments:

June 13, 2010 at 3:55 AM

OK, suppose that it _were_ legal to drill close to the shoreline. What do you think BP and Mobile Exxon would do when the oil runs out, like it has in Texas?

It would only have postponed the inevitable.

June 13, 2010 at 5:22 AM
Oh, I forgot to say, I suppose the environmentalists are responsible for THIS, too ?

The article Catalina references is entitled Nigeria's agony dwarfs the Gulf oil spill. The US and Europe ignore it, by John Vidal. The subtitle reads:

"The Deepwater Horizon disaster caused headlines around the world, yet the people who live in the Niger delta have had to live with environmental catastrophes for decades"

Mr. Vidal reports on the mess supposedly created by the oil companies in Nigeria. It's really a saga of government running amuck, and business taking the blame. Jason Stotts answers her, as do I. Here is my response to Catalina:

June 13, 2010 at 11:18 AM
Catalina;

What BP or Exxon or any other energy producer would do “when the oil runs out” depends in large part on the level of governmental restrictions – environmental being perhaps the biggest.

But, let’s say for the sake of your argument that deep water drilling is where they wanted to go. In that case, the best protection against a BP-type disaster is to keep government out of the market’s hair, and let its dynamics play out (See my comment above). In the BP disaster, the government’s hands are all over this spill.

I am not excusing BP completely. Cap or no cap, there is a moral responsibility to be respectful of other people’s property, and be prepared to compensate others for damages caused. At the same time, as even Sen. Robert Menendez (D-N.J.), whom I rarely agree with, acknowledges, the government’s artificial liability cap is a prime culprit. There was nothing inevitable about the BP blowout.

But, as Jason Stotts argues, environmentalism is the cause of causes for the BP spill. In the name of protecting “environmentally sensitive areas” where it is technologically and environmentally much safer to drill, such as ANWAR and other coastal areas, we now have the worst environmental mess in US history. Environmentalism’s hands are at least as oily as anyone’s, because of its obsession with “pristine” nature and its disregard for man’s need to exploit nature to survive and thrive.

Remove all environmental restrictions (except where consistent with the protection of private property rights), abolish market interventions such as liability caps, and leave energy producers free to go where they may go. Then we’ll find the answer to the question: “What do you think BP and Mobile Exxon would do when the oil runs out”? – if it runs out.

PS – The Nigerian government, according to that article, is a “partner” with the oil companies, and “Oil spills and the dumping of oil into waterways … have become common due to the lack of laws and enforcement measures within the existing political regime.” In other words, that government is avoiding its proper function to protect private property rights. Instead, it’s running the show and collecting protection money, while private industry gets the blame for “blocking progressive legislation”. That article is a very good argument for the separation of economics and state – i.e., laissez-faire capitalism.