Time to shut down Fannie Mae

Take careful note of what has been happening in the mortgage market. Fannie Mae and Freddie Mac were at the center of the mortgage mess, pressuring and enabling banks to let out bad loans, and then in late 2008, pleading for - and getting - tax money to cover the losses.

This article speaks volumes. The problem has not been fixed. The alcoholic has simply been given several more bottles of Jack Daniel's, and is on another bender. He now wants several more cases of booze, and a guarantee of a continuing supply.

It is time to shut down these Government Sponsored Enterprises (GSEs). Their existence is based on the idea that they can be self supporting. Clearly they can't. We've made a mistake. Let's cut our losses, take our (massive) lumps, and shut them down before they do any more damage.

Pay me to move?

It is hard to keep up with the torrent of Bad Ideas coming out of the Democrats in Washington. The latest is the extension of a scheme to borrow billions of dollars from Chinese investors to induce people to change residences, as long as you make the move by November 30th of 2009. The proposal would change the deadline to April 30th, 2010.

What is this, you ask? Why in the world should we spend tax money to get people to move?

Exactly, but after all, this is Washington, and any time politicians can buy favor with tax money, temptation and stampede comes before the dawning of common sense.

In this case, it is realtors, moving companies and house buyers who win. As usual, there are a lot of those who vote, and the program is naturally popular. Who is against free money?

As usual, it is harder to finger the losers, but two of the big losers are clearly the Taxpayers, and their children.

Mr Obama was talking today about a "post bubble" economy, while doing everything possible to ensure that bubble-sustaining incentives remain.

This is insane. Until the taxpayers wake up and refuse to pay the bill, the insanity will continue.

Cramdown is unwise

Our representatives in Washington, D.C. are feeling pressure to "prevent home foreclosures".  One recent idea being "intensely debated" in the U.S. Senate right now is appropriately called "Cramdown".   A recent news article here.

The idea is that homeowners unwilling or unable to pay their mortgages should have some sort of "help", and the public pressure on Congress to "do something" is intense.

There are only two ways to "help".

The first way is to give the borrower (tax) money so he can pay the loan.  This is not so popular, because it is so hard to determine which borrowers are "worthy" of getting a taxpayer subsidy. How long should the borrower be subsidized? Was the borrower flipping houses?  Was there fraud involved?  Many taxpayers are offended that those of us who have worked hard to make prudent choices should have our money spent to support those who made poor choices and took too many risks.

The second way is to allow the government to modify the terms of the loans.  This is more popular, because it does not spend taxpayer dollars directly.  The trouble with this is that it is basically theft from the lender. Recent news can be seen here.

As you might guess, the lenders, who are facing this idea as upcoming legislation, are not happy about it.  Only a fool would lend money to a borrower knowing that the borrower can ask Uncle Sam to change the loan terms if he has "trouble" paying it back.

The current "cramdown" legislation is theft from the lenders. It is a seizure of some portion of the loan value, to be given to the borrower for political gain.  It is corruption.

The U.S. Constitution recognizes and protects the sanctity of our right to contract. Article I, Section 10 states: "No state shall pass any law impairing the obligation of contracts." Moreover, in the famous case Hale v. Henkel, the U.S. Supreme Court says: "The individual may stand upon his constitutional rights as a citizen. He is entitled to carry on his private business in his own way. His power to contract is unlimited."

Free, responsible citizens pay their debts and keep their word on contracts.

The idea that the federal government has the power to reach out and modify private contracts should frighten us.  This sort of power begs to be abused.  Most of us are borrowers, so this power benefits "us" today, but once power is granted, it is seldom used as intended.  Next time around, we may be the victims.