How to fix the American housing system

[mgk920]

The worst thing that ever happened to the residential real estate market was when the Federal government started meddling around in it, ultimately pumping it up to such unsustainable levels that it started reminding me of the tulip bulb market in 17th century Nederlands. Assistance in a mortgage as a perk for military service is one thing, but blinding subsidizing home ownership and dictating wacked-out terms from on high is totally something else. Eventually, that souffle was going to fall - and fall HARD.

Assuming that this 'denationalization' of the residential real estate market is followed through with and sensible rules are put in place for the market to be 100% private (including repealing the mortgage interest deduction for loans written after it takes effect), I see no reason why it would not work out and it could ultimately be one thing that would be looked back upon as a rare domestic policy 'success' for the BHO administration.

If some outer-suburban and exurban developments crash, burn and return to nature in the process, so be it. Also, I certainly hope that local pols will be willing to adjust their zoning laws to accommodate the changes in demand for housing units.

Mike

[ColoGI]

I don't disagree with you, but this is where we are today. In a way, the announcement today (on a Friday news dump, I should add), was inevitable. the Federal proposals on the table (and what I originally proposed on this thread) aredriven by hard fiscal realities. If people want to live in exurbia, they need to figure out how to pay for it in a way that doesn't require national suicide to sustain their habits. According to the Fed, in 2006, $23 trillion in collateral (the total value of mortgaged US housing stock) supported $10 trillion worth of Federal guarantees. Today, between $13 and $16 trillion in collateral support the same $10 trillion in outstanding guarantees. That''s right.. that's how much value they estimate was destroyed. 8 times more in constant dollars than was wiped out int he run-up to the Great Depression. .. and to make it worse, only $4 trillion of that actually applies to the $10 trillion. The rest of it belongs to people who've already paid off our homes. A $6 trillion shortfall! Our country's entire GDP is only $14 trillion. The valuation gap (financed by agency mortgage notes sold to countries like China) alone is over 40% of our GDP!

...
Look, this isn't our fault. It's not my generation's fault. It's our parents' fault. And our grandparents' fault. But it is what is. We're the ones who have to deal with it. And it's really starting to look like we'll be dealing with it by living in rental homes, in cities.

I'm merely saying an awful lot of people's self-identities are tied up in the vision of a house in the suburb. There is going to be a lot of angst if this isn't done right. I'm certain that when cheap energy goes away a fraction of the people living in houses made of ticky-tack will move of their own accord, and they'll augment their identity somehow. But others will not. We need to figger out how to make them feel as if the soshulizt gummint isn't telling them what to do. Note I said 'feel'.

[Cismontane]

I was working with some interesting numbers at work the other day. In second tier and interior Chinese cities, each square meter of retail space yields an average of $3,000 to $4,000 in sales (at purchasing power parity). Contrary to US pundits, the Chinese don't actually under-consume. Their consumer spending is a roughly similar proportion of their disposable income as Euros, Koreans and Japanese at PPP. It only looks like they're underconsuming because their government manipulates their exchange rate as badly as it does. In fact, the Chinese consume a bit too much for their level of income. In those smaller cities, urban PPP per capita income is only about a fourth the US average. Strangely, though, each square meter of retail space in the US yields the same $3,000 to $4,000 in sales, on average. Typically, in high income countries, you'd expect the sales per square meter to go up. It's closer to $5,500 in Beijing, where PPP income is about half that of the US average. It can be as high as $7,000 to $8,000 in cities like London, Hongkong, Paris, Singapore, Dubai. Americans should be able to consume at least 4 times as much as the Chinese in those mid-tier cities do per person, but yet the sales per unit space is the same (we actually consume 5 or 6 times more). That's because Americans, as it turns out, have over 5 times as much retail SPACE per capita. The Chinese have about one square meters of retail space per urban person (up to 1.5 in their first tier cities).. The Western Europeans, about 1.2 to 1.6 square meters. Some especially wealthy cities have up to 1.9 or 2.0 square meters (e.g., London). We have something like 5.5 square meters, over the entire US. No other country even comes close, even comes half as close.. including Canada and Australia. This is even more interesting, when you consider that we have entire regions which have household incomes of around $20,000 to $25,000 per year (roughly the same on a per capita basis as those 2nd tier interior Chinese cities!.. although they do have smaller households). What do they have, Wal Marts with rows of virtually empty shelves?

My point with this anecdote is to say that Americans have a strange relationship with space and land. On nearly all measures - from housing unit size to household parcel land area to retail space - we consume it at 2 to 4 times the rate of the rest of the advanced industrial planet, even controlling for differences in income. This is fine up to a point.. we have more land, but we don't have THAT much more land... and we certainly don't have more accessibility, if it was not for that other holy cow: cheap gasoline.

The fact is, this is possible not because we have so much land, but because our economy has vast socialist enclaves, such as housing, land-use, some forms of infrastructure, fuel costs, and other areas. In these areas, government policies - subsidies, handouts, welfare entitlements, corporate tax breaks, call it what you will - subsidize over-consumption and market distortions on a scale that would've made Karl Marx blush. We fund this Soviet-style Central Planning with a combination of our taxes and our profligate borrowing. Other countries with fewer distortions use those same taxes (and less in the way of borrowings) to fund infrastructure, job creation, healthcare, etc. We use it to buy every American family a single family home at radically inflated values - propping up bubbles that in the end benefit only i-bankers and developers - and to buy and operate two or three foreign-made SUVs for each of those homes. We used to throw in a chicken in every pot too, but that one went away a long time ago... not enough profit for big agri-corps, I guess. Now 40 million of us just go hungry (sorry, redefined by the last president as having "low food security.")

Remember the whole brouhaha over healthcare? Expanding government on it? Well, these two socialist sectors of our economy, that've existed for decades, are, respectively, twenty-three (well, now closer to twelve times since the economic crisis wiped out half of it) and eighteen times the size, in terms of cumulative fiscal impact. Healthcare isn't even a drop in the bucket compared to what we're talking about here. Healthcare we can afford. These other things, we can't.

The vision outlined by the president, in his initial campaign platform and forcefully reiterated in the SOTU last month, seems to me to express a desire to begin to dismantle these vast socialist vestiges - distortions that are fast catching up on us.. or as the case may be, caught up to us a long time ago and we just weren't willing to admit it. For example, he wants gasoline subsidies to go away, he wants some notion that sounded a lot like concurrency on infrastructure projects, energy and water conservation, and to reform regulatory distortions for business. Now, with his housing reform policy, he's effectively going after yet another socialist holy cow... one that effectively wiped out our economy already. This is a pretty radical vision.

But it is also a vision that is going to reshape our national landscape in every way imagineable and in many ways the pundits and the media haven't even begun to guess. The housing and gas subsidies alone largely funded the quituplying of our cities' gross land take since 1950, during which time our population merely doubled. When the president made his announcement about fuel subsidies in the SOTU, I immediately heard, in his words, $6 to $8 dollar a gallon gas or more: well above unsubsidized transit operations costs in most cities. Now, it seems he's dropped the other shoe. Housing reform. Who knows, maybe land and land-use reform is next. These programs - if successful - will have consequences. They will change the way we do planning, and they will transform the shape and form of our nation. And they are necessary. No choice. The message is pretty clear: we simply can no longer afford to do things the way we've been doing them for the last half century. People must be made to pay something approximating the true cost of what they consume, or we will simply fail as a nation.

Whatever hang-ups we have about our "identity" or our "expectations" - when were enabled in the first place by socialist market distortions on a grand scale - won't survive - didn't survive - collision with reality. Now we're the ones left to pick up the pieces and try to put them back together into some semblance of liveability.. and some hope for a future.

[HomerJ]

If some outer-suburban and exurban developments crash, burn and return to nature in the process, so be it. Also, I certainly hope that local pols will be willing to adjust their zoning laws to accommodate the changes in demand for housing units.

Mike

Interesting. I always felt with this housing crash that exurban development may have some redeeming qualities (mostly that they usually have some commercial base to support themselves). I would be very curious to see how this plays out, which suburbs will survive and which will go under and whether their geographic relationship to the larger city produces a consistent outcome.

I immediately heard, in his words, $6 to $8 dollar a gallon gas or more: well above unsubsidized transit operations costs in most cities. Now, it seems he's dropped the other shoe. Housing reform. Who knows, maybe land and land-use reform is next. These programs - if successful - will have consequences. They will change the way we do planning, and they will transform the shape and form of our nation.

This notion certainly makes a high speed rail transportation project sound more feasible. Lower energy costs, more efficient use of land. If only our country had enough money to put into this instead of an inefficient, over-expanded, and deteriorating infrastructure.

[bsteckler]

If this hasn't been brought up already, one of the things we should examine is the perception that TOD is "expensive" to build and live in, and that suburban houses are "cheap" to build and live in. Changing these ideas will be a big part of fixing this.

I believe that this is partially because of homeonwners' failure to adequately examine long term costs, instead, they focus on the short term. Some of this has undoubtedly been caused by the massive subsidies that were applied to suburbs, but I think that part of it is a reflection of the "American Dream" as well. Due to our unique ideas about car ownership, many people don't think about how much transportation or energy costs impact them.

Case and point:

A family of four lives in a suburban house, they own three cars. One for each parent, and one for one of the kids, who we'll assume has a driver's license. they pay for the procurement costs of these cars, the insurance, fuel, and repairs for them. Let's estimate this to be about $75,000 per car over 10 years (that's pretty realistic from the estimates I've seen). That's a grand total of $225,000 every decade.

A family of the same size lives in a condominium complex in a TOD. They own one car which they use occasionally. However, because they live in a TOD, all the family members can commute to work/school without having to drive, and thus the family only spends $65,000 to $75,000 per decade on cars. I know some people will argue with this example, but them's the facts.

This money saved thus offsets the perceived cost increases of living in a mixed-use TOD environment. This will become more apparent once the mortgage market figures out that it can't keep giving away money that it doesn't have.

There are also the various psychological and other affects that come from living in suburbs, but that should be another discussion.

[Cismontane]

Here we go. Republican House majority leader Eric Cantor, while addressing an audience of real estate brokers and lobbyists, poo-poos taking action on the mortgage deduction as called for the by president, 'cause he has to kiss up to special interests, like the National Association of Realtors! 'cause housing bubbles are cool!

http://thehill.com/blogs/on-the-mone...rest-deduction

So.. the Republicans oppose smaller government if it undermines their industry donors. Surprise, surprise.

Traitors.

[ColoGI]

Here we go. Republican House majority leader Eric Cantor, while addressing an audience of real estate brokers and lobbyists, poo-poos taking action on the mortgage deduction as called for the by president, 'cause he has to kiss up to special interests, like the National Association of Realtors! 'cause housing bubbles are cool!

http://thehill.com/blogs/on-the-mone...rest-deduction

So.. the Republicans oppose smaller government if it undermines their industry donors. Surprise, surprise.

Traitors.

Right. In this Kabuki theater, we don't really expect the character with the sword to actually cut anything.

[christopherdc]

"I'm open (and I'm sure the Federal government is open) to suggestions on how best to accommodate our addiction to suburban living while digging ourselves out of a hole so deep Dante himself couldn't conceivably navigate it."

The solution is incentivizing government and particularly in-city businesses to promote, really promote and not just pay lipservice to sustainability, by mandating exurban and suburban shared work environments that eliminate escalating commute times for those who can afford to live out of city and whose livelihoods do not require them to be physically present in-city. the result will be less driving, more productivity, and better quality of life, all massive public goods. An important key is to get real, substantive buy in to eliminating the incoherence between wanting, and being able to afford exurban living and far suburban living, (these dreams are good but now come at too great a cost in terms of loss of qualitiy of life: commuting, less time with family, living in an absurdity) and the tradeoff that is required after obtaining this still sought after dream.

The government is not open to solving this Dantean nightmare. Until they get their hands out of the pockets of the roadbuilding, auto, oil, and development lobby, this kind of thinking can't even get onto the political/policy radar. Until an entity can be created that will loudly and emphatically call out the government on this kind of corruption nothing will change. We'll just keep the killing going, of our planet, our future, and our prosperity.

[bsteckler]

Until an entity can be created that will loudly and emphatically call out the government on this kind of corruption nothing will change. We'll just keep the killing going, of our planet, our future, and our prosperity.

I know a lot of you will laugh at me for saying this, but why wait for said entity to be created by someone else? We obviously have a lot of very knowledgeable people who see what's going on and understand why it's bad. Those of us who work in the public sector are undoubtedly used to taking all kinds of crap from the NIMBYists and BANANAists of the world, so we could easily come up with counter-arguments for the inevitable attacks by the Tea Party, etc.

[Linda_D]

Maybe I missed something, but when and where did the Republicans or the Tea Partyers campaign against the mortgage interest deduction? Unless tax rates were to be dramatically lowered, it would result in a significant tax increase for most middle income Americans, and advocating it would be political suicide for any politician representing any district with a significant percentage of home owners.

[Gotta Speakup]

The mortgage deduction made no sense. But we are most likely stuck with it forever. Its like many other things. Once there is a constituency, or the economic consequences are great, you can't undo things.

[mgk920]

Maybe I missed something, but when and where did the Republicans or the Tea Partyers campaign against the mortgage interest deduction? Unless tax rates were to be dramatically lowered, it would result in a significant tax increase for most middle income Americans, and advocating it would be political suicide for any politician representing any district with a significant percentage of home owners.

I also SRT that it is the BHO administration that is pushing the repeal of that deduction (not that I think that it is a bad idea to eliminate it). The sad thing is is that all that that deduction does is mean that if you itemize, you are paying that interest with pre, rather than post, tax money. It is still in your far best personal financial interest to pay off a mortgage loan as fast as possible, the 'savings' from the deduction come nowhere near the cost of the interest on the loan.

And, IMHO, any government subsidy interference in the market will only result in bad things in the long term.

Also, I would only eliminate it for new loans, while 'grandfathering' in the existing loans for as long as they are in force and for as long as we still have an income tax.

Mike

[Linda_D]

I also SRT that it is the BHO administration that is pushing the repeal of that deduction (not that I think that it is a bad idea to eliminate it). The sad thing is is that all that that deduction does is mean that if you itemize, you are paying that interest with pre, rather than post, tax money. It is still in your far best personal financial interest to pay off a mortgage loan as fast as possible, the 'savings' from the deduction come nowhere near the cost of the interest on the loan.

And, IMHO, any government subsidy interference in the market will only result in bad things in the long term.

Also, I would only eliminate it for new loans, while 'grandfathering' in the existing loans for as long as they are in force and for as long as we still have an income tax.

Mike

My point is that a politician or a political party can't be "traitors" if they never supported/campaigned for somethiing. As far as I know, the Republican Party never called for the elimination of the mortgage interest deduction. Individual politicians may have suggested that, but one or two people don't speak for the entire political party.

Moreover, I fail to see the linkage between the mortgage interest deduction and smaller government. If anything, it would give the federal government billions of more tax dollars to spend, and that's unlikely to lead to fewer government programs.

[mgk920]

The mortgage interest deduction is a subsidy (as are all other targeted tax perks, both positive and negative) intended to affect behavior and the market. Eliminating such tax perks eliminates government's interest in whatever is being subsidized, getting government out of the way and freeing the market from that interference.

FHA loans are another BIG and ultimately disastrous government market intervention.

Owning a house should be (and is now returning to being) the 'American dream', not the 'American right'.

Government interference in the real estate market (other than for truly wholesome color-blind non-discrimination laws and the like - for example, I consider the original Civil Rights Act of 1964 to be EXCELLENT law), is one of the many creatures on my list of things from the 20th century that should have stayed in the 20th century.

Mike

[GButler]

Moreover, I fail to see the linkage between the mortgage interest deduction and smaller government. If anything, it would give the federal government billions of more tax dollars to spend, and that's unlikely to lead to fewer government programs.

It is government administered wealth redistribution as well as market interference. Two things that Republicans are supposedly against.

Also, MID is a benefit only if you itemize your taxes. Most middle income Americans do not do this.

[Cismontane]

Yes, most Democrats, the BHO administration, moderate Republicans and even some Libetarians/borderline teabaggers seem to have some amount of consensus on getting rid of the GSEs and the phasing out or limiting the MID. It's a strange alliance. Against them, are the corporatist Republicans, predictably. By the way, most Republican think tanks like the idea.. always have.. just not those who get big campaign donations from mortgage bankers and realtors associations.

As eloquently pointed out below, the MID is distorting, it is a subsidy, it doesn't benefit most Americans and tends to lead to property overvaluation and a reduced ability to housing markets to adapt quickly to market trends (by externalizing the reasons for income elasticity of demand). In short, it's a bad thing by all accounts, but it's very bad for one big reason: it is preventing a housing recovery.

The GSEs have invented a financial product, called a 30 yr fixed rate mortgage available to Joe Public at quasi-sovereign borrowing rates of, today, around 5%/yr. They pay for that product at immense taxpayer cost. After you attach the MID, that's as low as 3.3% to 3.5%/yr for some borrowers, enabling people to borrow a multiple of their annual income for lower than the US government's cost of raising sovereign debt, on the same yield curve (the 30 year treasury has yielded between 3.9% to 4.6% reccently!). You do see how letting people borrow at a lower rate than the sovereign is ridiculous, don't you?

This ridiculous math - where an upper middle income homebuyer who itemizes his taxes and is eligible for a 30 year convention Fannie or Freddie mortgage at 40 to 110 bps lower than the comparable 30 year cost of funds for the US Treasury - led to the massive oversupply bubble, and now (because the whole housing supply market is accustomed to providing product at these prices and those terms are unavailable to 95% or more of borrowers today) it is preventing a recovery. It is preventing even the beginning of a housing recovery because these fictitious costs aren't currently available to most homebuyers.. in fact, they never were. It was a grand illusion.

Until we start fixing this problem, we still won't have a functioning American housing delivery system. Like Mike, I don't have a problem with grandfathering existing loans. Blowing up the GSE conduits today worse than they are would not too much good to America's regard in international capital markets, and it would cause too much misery at home. For future loans, post-GSEs, I believe we have no choice about getting rid of the MID.

[mgk920]

Yes, most Democrats, the BHO administration, moderate Republicans and even some Libetarians/borderline teapartiers

(correction noted)

seem to have some amount of consensus on getting rid of the GSEs and the phasing out or limiting the MID. It's a strange alliance. Against them, are the corporatist Republicans, predictably. By the way, most Republican think tanks like the idea.. always have.. just not those who get big campaign donations from mortgage bankers and realtors associations.

As eloquently pointed out below, the MID is distorting, it is a subsidy, it doesn't benefit most Americans and tends to lead to property overvaluation and a reduced ability to housing markets to adapt quickly to market trends (by externalizing the reasons for income elasticity of price). In short, it's a bad thing by all accounts, but it's very bad for one big reason: it is preventing a housing recovery.

The GSEs have invented a financial product, called a 30 yr fixed rate mortgage available to Joe Public at quasi-sovereign borrowing rates of, today, around 5%/yr. They pay for that product at immense taxpayer cost. After you attach the MID, that's as low as 3.3% to 3.5%/yr for some borrowers, enabling people to borrow a multiple of their annual income for lower than the US government's cost of raising sovereign debt, on the same yield curve (the 30 year treasury has yielded between 3.9% to 4.6% reccently!). You do see how letting people borrow at a lower rate than the sovereign is ridiculous, don't you?

This ridiculous math - where an upper middle income homebuyer who itemizes his taxes and is eligible for a 30 year convention Fannie or Freddie mortgage at 40 to 110 bps lower than the comparable 30 year cost of funds for the US Treasury - led to the massive oversupply bubble, and now (because the whole housing supply market is accustomed to providing product at these prices and those terms are unavailable to 95% or more of borrowers today) it is preventing a recovery. It is preventing even the beginning of a housing recovery because these fictitious costs aren't currently available to most homebuyers.. in fact, they never were. It was a grand illusion.

Until we start fixing this problem, we still won't have a functioning American housing delivery system. Like Mike, I don't have a problem with grandfathering existing loans. Blowing up the GSE conduits today worse than they are would not too much good to America's regard in international capital markets, and it would cause too much misery at home. For future loans, post-GSEs, I believe we have no choice about getting rid of the MID.

Without those subsidies and other government market interferences, there will also be less incentive and opportunity to 'game' the system, so the now ever tightening regulatory screws that are being driven into the mortgage loan writing business will also no longer be needed. The regulations that are now being imposed on lenders will severely restrict the availability of mortgage loans to those who ARE worthy and able to make use of their services at realistic market rates, artificially depressing the market.

As with many other things nowadays - get the government out of the way and things will work just fine!

Mike

[The One]

I haven't had time to research any of this recently, but I remember a connection being made between the (married filing jointly) marriage (tax) penalty and the MID. Specifically not getting rid of the MID because it offsets the marriage (tax) penalty. I seem to remember the sanctity of marriage being kind of important to the right and that getting rid of the MID could remove one of the big reasons people stay married.....money.

http://www.therepublic.com/view/stor...VORCE_4735202/

http://andrewsullivan.theatlantic.co...-marriage.html

[mike gurnee]

Yes, most Democrats, the BHO administration, moderate Republicans and even some Libetarians/borderline teabaggers seem to have some amount of consensus on getting rid of the GSEs and the phasing out or limiting the MID. It's a strange alliance. Against them, are the corporatist Republicans, predictably. By the way, most Republican think tanks like the idea.. always have.. just not those who get big campaign donations from mortgage bankers and realtors associations.

As eloquently pointed out below, the MID is distorting, it is a subsidy, it doesn't benefit most Americans and tends to lead to property overvaluation and a reduced ability to housing markets to adapt quickly to market trends (by externalizing the reasons for income elasticity of demand). In short, it's a bad thing by all accounts, but it's very bad for one big reason: it is preventing a housing recovery.

The GSEs have invented a financial product, called a 30 yr fixed rate mortgage available to Joe Public at quasi-sovereign borrowing rates of, today, around 5%/yr. They pay for that product at immense taxpayer cost. After you attach the MID, that's as low as 3.3% to 3.5%/yr for some borrowers, enabling people to borrow a multiple of their annual income for lower than the US government's cost of raising sovereign debt, on the same yield curve (the 30 year treasury has yielded between 3.9% to 4.6% reccently!). You do see how letting people borrow at a lower rate than the sovereign is ridiculous, don't you?

This ridiculous math - where an upper middle income homebuyer who itemizes his taxes and is eligible for a 30 year convention Fannie or Freddie mortgage at 40 to 110 bps lower than the comparable 30 year cost of funds for the US Treasury - led to the massive oversupply bubble, and now (because the whole housing supply market is accustomed to providing product at these prices and those terms are unavailable to 95% or more of borrowers today) it is preventing a recovery. It is preventing even the beginning of a housing recovery because these fictitious costs aren't currently available to most homebuyers.. in fact, they never were. It was a grand illusion.

Until we start fixing this problem, we still won't have a functioning American housing delivery system. Like Mike, I don't have a problem with grandfathering existing loans. Blowing up the GSE conduits today worse than they are would not too much good to America's regard in international capital markets, and it would cause too much misery at home. For future loans, post-GSEs, I believe we have no choice about getting rid of the MID.

I guess that I should know off the top of my head what GSE, MID, bps, etc. mean. Fortunately, I do not care as this is a political diatribe. General Electric shows how well corporate America honors its tax obligations. Why do the blind get an extra tax deduction not allowed a quadrapalegic? But thank you all for solving a non-existent housing "problem."

[Cismontane]

MID = Mortgage Interest Deduction

GSE = Government Sponsored Enterprise (the official term for Fannie and Freddie, the big housing finance agencies behind much of the bubble)

You cannot be arguing that there's no housing crisis now.....

There is, by the way Mike, plenty of scope to continue with special accommodations for vets, the disabled and other targeted groups. The president allowed for this in his speech on the future of the GSEs two months ago.

[Linda_D]

MID = Mortgage Interest Deduction

GSE = Government Sponsored Enterprise (the official term for Fannie and Freddie, the big housing finance agencies behind much of the bubble)

You cannot be arguing that there's no housing crisis now.....

There is, by the way Mike, plenty of scope to continue with special accommodations for vets, the disabled and other targeted groups. The president allowed for this in his speech on the future of the GSEs two months ago.

I think that Mike's critical of your advocacy of what is essentially a scorched earth policy on home mortgages. I'm with him. I think your "solution" would end up being far worse that the current "crisis".

Fannie and Freddie are entirely separate issues from the mortgage interest deduction, particularly in light of the fact that MID has been around as long as the federal income tax (1913). Moreover, removal of the MID was a suggestion from 2 members of the deficit reduction panel, and their suggestion was to end it only on mortgages of more than $500,000. As far as I know, that position has not been adopted by the Obama administration. It is certainly not embraced by the majority of Democrats in Congress and certainly not by rank-and-file Democratic voters. I also find it highly unlikely that many tea partyers support it, either, since they want spending cuts not tax hikes, which a simple removal of the MID would be.

[Cismontane]

Linda,

I'm not pushing very hard on the MID. I just find Cantor's comments hypocritical. But then again, I usually find Cantor hypocritical. I'm more interested in the president's agenda of ending the GSEs.. and I do not believe that's scorched earth at all. In fact, it's necessary given the scale of the debt associated with bailing it out again. Basically, I'm pro-deficit and debt-reduction. Supporting free markets is not "scorched earth".. sometimes things just need to change.

[Cismontane]

Yet another body blow to the GSEs:

http://www.businessweek.com/news/201...guarantee.html

The Int'l Monetary Fund just chimed in, saying that the US GSEs, as currently structured, run a risk of destabilizing the entire global economy.. and otherwise threatening the stability of the rest of the planet. They want the US to bring their debt obligations on balance sheet.. something that would be honest but would also damn the GSEs once and for all (since it would show up as an increase the declared Federal debt by trillions and the Federal deficit, massively as well).

[mgk920]

I can't even imagine what the true Federal debt would be if all future obligations, including Social Security, were to be included in it.



OTOH, I have felt for years that it will take a kick in the pants from foreigner bankers and bondholders to really get things started back on the right track. It won't be pretty and there will be incredible amounts of wailing and gnashing of teeth, especially from the left, but the alternative is far worse.

Mike

[Cismontane]

I can't even imagine what the true Federal debt would be if all future obligations, including Social Security, were to be included in it.

Personally (as a tax-and-save fiscal conservative.. yeah yeah, I know, I'm also a Democrat, since I'm socially progressive, AND I believe in both HIGHER taxes and FEWER government programs...) I have an inherent distrust of off-balance sheet government stuff (then again, I also have an inhenerent distrust of excessive government spending generally.. but let's leave that for another day).,,,

But, Medicare and SS are a little better than the GSEs, because they don't externally bond finance, off-balance sheet but implied-full-recourse.. if worse comes to worse, we can always not pay what's due to future generations of our citizens under those programs.. and all we'd have to deal with are the riots (torches and pitchforks an' all). The problem with the GSEs (and why the IMF is concerned) is that each dollar of exposure in terms of domestic bank mortgages guaranteed... is backed by quasi-sovereign indebtedness. Trillions of dollars worth... That's a bit more than torches and pitchforks... well, torches and pitchforks AND inflation and debt collectors... Who ever thought that was a good idea?.. hrmph.