Whenever I hear the argument for "more regulation" and the demonizing of "deregulation", it infuriates me. The issue hasn't been the amount of regulation, but rather its quality. While securitization is straight-forward, you can really have some fun with bond math in terms of derivatives and swaps. At that point finance has more in common with physics than economics, and it's there that the regulators making $75K get rolled by rocket scientists (literally) making seven figures.
More than a regulatory or oversight problem, we've got an ethics problem in this country. People from all walks of life cheat in school, steal MP3s, game the system, etc. We've got the country and financial system we deserve, because we don't seem to bat an eye anymore when people behave unethically ... hell, anymore it's almost a greater sin to get caught than to commit a crime. Frankly I almost think we need to get our collective "pee-pees" spanked, as the only thing that seems to really adjust behavior in this country is strong negative reinforcement, or some cataclysmic event.
I blame much of that development on the idea of "moral equivalence". When you lose the ability to judge, you lose the ability to instill morals on a societal level. Frankly, I think it's a PC copout. It's not politically correct to tell someone they're not living up to their societal contract, so it's never said.
http://en.wikipedia.org/wiki/Narcissism Narcissistic culture <dl><dd> Main article: The Culture of Narcissism </dd></dl> Historian and social critic Christopher Lasch described this topic in his book, "The Culture of Narcissism",<sup id="cite_ref-2" class="reference">[3]</sup> published in 1979. He defines a narcissistic culture as one in which every activity and relationship is defined by the hedonistic need to acquire the symbols of spiritual wealth, this becoming the only expression of rigid, yet covert, social hierarchies. It is a culture where liberalism only exists insofar as it serves a consumer society, and even art, sex and religion lose their liberating power. In such a society of constant competition, there can be no allies, and little transparency. The threats to acquisitions of social symbols are so numerous, varied and frequently incomprehensible, that defensiveness, as well as competitiveness, becomes a way of life. Any real sense of community is undermined -- or even destroyed -- to be replaced by virtual equivalents that strive, unsuccessfully, to synthesize a sense of community. It can mean also many other things. Contrary to Lasch, Bernard Stiegler argues in his book, Aimer, s’aimer, nous aimer: Du 11 septembre au 21 avril, that consumer capitalism is in fact destructive of what he calls primordial narcissism, without which it is not possible to extend love to others.<sup id="cite_ref-stiegler_3-0" class="reference">[4]</sup>
The best way you can regulate the GSEs is to take the following steps: 1. Combine FNMA and FHLMC into one agency. Sell the HQ of one group (my vote would be for Freddie's in Tyson's as it's worth more). Take that money and direct it to retire the highest yielding debt in the Federal Government. 2. Sell off their ancillary businesses (e.g., multi-family lending and valuation groups) and portfolios of sub-prime mortgages and derivative instruments. Take that money and direct it to retire the highest yielding debt in the Federal Government. 3. Re-charter the new GSE to invest ONLY in conforming mortgages and EXPLICITY guarantee the bonds created by this new GSE. Sell the GSE to private investors. Take that money and direct it to retire the highest yielding debt in the Federal Government. 4. Get rid of government programs for low income participants regarding mortgage assistance. Get rid of all incentives for sub-prime lending. If a private entity wishes to get into that market, that's fine. However, the government should not be in the business of making it easy for people to take out bad debt. 5. In place of government programs, create a tax incentive like a 401k for money to be used for downpayments. Allow people to put money away tax-deferred for a downpayment on a personal home. That money cannot be touched or used for other purposes without triggering a tax. If used for a downpayment, the tax event on that money would be triggered If and when they sell the home and they don't purchase another with it. MBS should be a quiet backwater that retirees invest in. It should be safe, solid and secure. It should never be a high-yield product. Regulation of the above-created company would be so easy, you wouldn't need college graduates to do it.
In order for true deregulation to work, there is no lifeboat. The system has to fail, then it adjusts and survives. You can't just go halfway with a free-market system when things start going south.
I posted the video of what happened in 2004 when the regulator testified in front of Congress that Fannie/Freddie were fatally flawed. The response they received was criticism from Reps. Waters, Meeks, and Barney Frank. Regulation does no good when those empowered to affect change don't heed the advice of the regulator.
Don't we already sort of have this with existing 401ks? I seem to remember pulling out a huge wad of dough for my first home out of my 401k and didn't have to pay any penalties. (I think I did have to pay some tax on it, though.)
I'm very liberal, but many even on the bleeding edge of bleeding heart are starting to come around that not everybody should own a home. (Many conservatives used to think home ownership was the be-all-end-all too, in fairness.) There are huge societal benefits to increased home ownership, which is what has driven housing policies for decades among all sides. But lately we're starting to realize that you reach a point of diminishing returns. I don't think we need to be as draconian as you suggest. Fannie Mae worked just fine for decades in helping people just like me get their first home, and helping me get a home was a good investment for the taxpayer. It settled me down and got me investing in my property and my community and made me more responsible, and the government has reaped higher taxes from me as a result. 30 year fixed rate mortgages set a certain bar. When the government started helping lenders set up all these crazy ARM deals, it lowered the bar too far and lots of people who had no business owning a home (or owning an expensive home) were let in. The big lesson from the past decade is that we should help first-time home buyers, but just don't go crazy about it.
It would work exactly like a 401k. Right now there's a limit on the amount you can contribute and it's used for retirement. Imagine a similar program where you can contribute into a "downpayment fund", where you take pre-tax monies and put it into a fund with the sole purpose of providing a downpayment on a primary home. When you take the money out to put down on a home, it isn't a taxable event. The taxable event occurs when you no longer own a home. The flip side of removing the tax revenue from those monies is to shut down any government homeowner assistance. You can't do one without the other, or it takes too much money from the Treasury. It would put a floor under the market and likely represent a wealth transfer to current sellers of RE. It would also offer incentives to own a home rather than to rent.
I think you misunderstand what I'm trying to say. I'm fine with a GSE continuing to exist, but in a much more traditional model. However, don't kid yourself, the system is broken. It doesn't need to be repaired, it doesn't need to be overhauled. It needs to be junked and rebuilt.
Sorry, I re-read what you wrote and it makes more sense. I hadn't understood what you were referring to with "GSE" (I'm not that much of a wonk, I guess) and so I'd skimmed those points. For anybody else as thick as me, it means "Government Sponsored Enterprise." Guess there's a whole new slew of terminology I'm going to have to learn. GSE appears to be the new WMD. (Except we know for damned sure they exist. )
Yeah, I guess I just find it annoying that we need to have a 401k for retirement, an HSA for health, a college savings account for your kids and now you are suggesting a fourth account for home ownership. And if you move around in work and forget to file the paperwork, you may have 6 or 7 401ks. I like the benefits of these different programs and they make sense. I'd just prefer to somehow bundle them all together into one big account called something like "Tax-free account." If you need to direct more of that money to health because you are sick, then two years later toward college because your kid is of that age, and then retirement afterward, why shouldn't you be able to? What's the benefit of having the government regulate these separate accounts, other than the government thinks it's wiser than you in how you allocate your long-term savings? (Crap, now I'm sounding like a libertarian.)
We've had economic systems like the one you propose, eventually they would fail so spectacularly that people and governments realized that the upheaval and chaos that those crashes caused wasn't necessarily worth the benefits they provide. There's a reason Marx critiqued pure liaise faire capitalism (rather naively I might add), there's a reason that Charles Dickens wrote about the squalor and abject poverty of industrial England, and there's a reason that we endured a great depression in the 30s. I'd have to ask what is the point of having any particular economic system? Is its primary function to show "proof of concept" or should an economic system instead allow the production and exchange of goods, providing some measure of benefit to all of the people who engage in it? And no, I'm not advocating the redistribution of wealth by social planners, or cutting all of the tallest blades of grass, I'm just pointing out that economic systems are human constructs that ultimately should serve people, rather than people being servants of the system -- if it stops working properly then perhaps it's not infallible and ought to be critiqued. This isn't meant to turn into some kind of ideological argument against capitalism; it's still the most efficient way of distributing goods and services, but even Adam Smith understood that it relied on the the free flow of information (otherwise rational choice cannot be exercised, by buyers and sellers), when that free flow of information is restricted or when people hide things from the market we get the fucking mess we're in now. Imperfectly, we then have tried to rely on laws and regulation to keep people somewhat honest and try to prevent people gaming the system, unfortunately we've seen epic failures on the part of investors, regulators (including lawmakers), and money managers, such is human nature I guess?
