CATO: Sub-Prime, Rates, Leverage Did NOT Cause Crisis
You gotta love the hard core ideologues: Its almost cute they way they stick to their theories, facts be damned. Cute, except for the amount of damage they caused.
(Hmmm, this Kool aid is delicious!)
Case in point: The latest work of fantasy from the CATO Institute. They are now insisting that a stricter fed policy wouldn’t have helped, nor regulation, nor less leverage:
“Many commentators have argued that if the Federal Reserve had followed a stricter monetary policy earlier this decade when the housing bubble was forming, and if Congress had not deregulated banking but had imposed tighter financial standards, the housing boom and bust—and the subsequent financial crisis and recession—would have been averted. In this paper, we investigate those claims and dispute them . . .”
Their name may be CATO — but that’s only because OUR UNIVERSE IS NOTHING BUT COGNITIVE DISSONANCE UNFETTERED BY REALITY wont fit on their letterhead!
>
Hat tip Paul!
>
Source:
Would a Stricter Fed Policy and Financial Regulation Have Averted the Financial Crisis?
by Jagadeesh Gokhale and Peter Van Doren
CATO, October 8, 2009
http://www.cato.org/pubs/pas/pa648.pdf
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October 9th, 2009 at 1:47 pm
http://clusty.com/search?input-form=clusty-simple&v%3Asources=webplus&query=Van+Doren+Quiz+Show
maybe it’s a ‘family thing’..
October 9th, 2009 at 1:49 pm
That is what happens when people start with the conclusion, and then try to work their way backwards to find facts that can support it. At some point the realities just overwhelms them and turn them into a caricature.
Free markets are good, free’er markets are better, free’est markets are best – get a life Gokhale.
October 9th, 2009 at 1:57 pm
What about actually refuting their arguments instead of calling them names?
rc
~~~
BR: I already did that — in 343 easy to read pages.
October 9th, 2009 at 2:12 pm
As a “hard core ideologue”, I believe leverage was at the heart of the matter. The leverage of the most heavily regulated institutions in the country (i.e. banks) lead to this. I am still waiting for an answer on how more regulation will solve this problem when we are seeing the obvious public choice issues arise; the more the regulations, the more the market leaders will come to dominate and control their markets (to paraphrase Tacitus.) This is the situation we are currently in, and have been for some time.
One regulation I would get behind (only for as long as we have a fiat currency) has been suggested by David Merkel repeatedly; control the amount of leverage allowed. I think 10 to 1 is still way high, but I don’t know what the right level is.
Regards,
TDL
October 9th, 2009 at 2:25 pm
I agree that regulation and stricter policy would NOT have helped prevent this crisis. Strict ENFORCEMENT of the rules would have. In general, I believe in having very few rules and a laissez-faire attitude, but VIGOROUS enforcement of the small number of (very important) rules. The problem is that we live in opposite regime: a clusterfuck of rules, but with regulators that don’t verify, don’t probe, and don’t enforce!
As for leverage, it is ALWAYS a problem. The only way to solve the problem of leverage is to allow every highly leveraged entity to go bankrupt without any bailouts. Which pretty much means every major investment bank, circa 2008.
HCF
~~~
BR: A defacto deregulation took place by designing lax enforcement — check out the SEC budget and staffing over the past 20 years — its been gutted!
Its no coincidence these scandals took place after the policeman’s budgets were slashed . . .
October 9th, 2009 at 2:27 pm
The Fed would not have been credited with preventing a housing-price bubble because none would have been observed.
Their thesis is that economics is not sophisticated enough to make real-time observations about housing bubbles and therefore nothing could have been done.
A fine tautology. You go with that. The phrase “tits on a bull” come to mind…
October 9th, 2009 at 2:28 pm
What about actually refuting their arguments instead of calling them names?
rc,
sometimes absurdity demands its like, in return..
tell me how STATO, who, in their own words: “The Cato Institute was founded in 1977 by Edward H. Crane. It is a non-profit public policy research foundation headquartered in Washington, D.C. The Institute is named for Cato’s Letters, a series of libertarian pamphlets that helped lay the philosophical foundation for the American Revolution.
Cato’s Mission
The mission of the Cato Institute is to increase the understanding of public policies based on the principles of limited government, free markets, individual liberty, and peace. The Institute will use the most effective means to originate, advocate, promote, and disseminate applicable policy proposals that create free, open, and civil societies in the United States and throughout the world.”
can be pro-FedRes, and I’ll spend the time refuting the inane article, from them, found above, in this post..
October 9th, 2009 at 2:29 pm
link http://www.cato.org/about.php
October 9th, 2009 at 2:31 pm
Would have been nice to see a little analysis instead of name calling. People don’t read your blog to watch you throw stones…
As to points they made – some seem a little silly, BUT when everyone in a society is leveraged up to wazoo how would more regulation and not better regulation change anything?
Further seems like you’re attacking the boys over at 0 hedge by assuming this fiat regime would last indefinitely. A foundation made of sand will crumble eventually regardless of the house on top.
~~~
BR: You must be new here — the details of the issues have been dissected at this site over the course of 7 years, including writing what has been described as “The Best Reviewed book on the bailouts.”
It would be foolish to have to remake a 200,000 word argument every time the subject came up . . .
October 9th, 2009 at 2:36 pm
The paper mentions the “Gramm-Leach-Bliley Act”. Looked it up on Wikipedia.
Apparently there was a quid pro quo. In essence banks could merge and become too big to fail so long as they agreed to keep making minority loans through programs approved by the CRA.
Very interesting.
October 9th, 2009 at 2:49 pm
“What about actually refuting their arguments instead of calling them names?”
He wrote a whole frekin’ book doing just that, not to talk about a couple of dozen blog entries.
October 9th, 2009 at 3:06 pm
I’m not entirely clear on the agenda of these “CATO” authors. I can understand the view of some for minimal regulation (I personally prefer to err on the side of minimal regulation, provided that there is maximal transparency), but I don’t get their view that the low Fed funds rates (from 2002-2004) constituted an insignificant factor in the housing bubble.
October 9th, 2009 at 3:12 pm
Some have proposed the idea of putting limits on the leverage that banks can use. Others have criticized this proposal, arguing that U.S. banks will become domiciled in foreign countries. My response? Fantastic! Let them become domiciled in foreign countries. Foreign governments can then bail them out when they get into trouble.
October 9th, 2009 at 3:19 pm
not sure how leaving the country would help them. as long as they do business in the US they would still be subject to US rules on leverage
October 9th, 2009 at 3:25 pm
Securitization was an implicitly leveraged activity.
October 9th, 2009 at 3:31 pm
Just look at who funds them.
October 9th, 2009 at 3:38 pm
willid3 @ 3:19
You bring up a point which I had not completely thought through, and I still don’t know exactly how it would work. A given multinational bank would have assets in many different countries, and a different “leverage ratio” for each country. In addition, the bank would be subject to different accounting rules in each country. So I’m not exactly sure how the leverage ratio would be calculated, even assuming that the bank management in question weren’t trying to play a
“shell game” with their assets.
October 9th, 2009 at 3:48 pm
@BR:
> Its no coincidence these scandals took place after the policeman’s budgets were slashed . . .
Agreed completely… I would say, though, that the financial cops have to look in to legitimate crimes against the people. No financial equivalent of busting hookers and teens with a few joints. I want the murderer/rapist equivalents taken out of Wall Street… Better enforcement, not more meaningless rules!
HCF
October 9th, 2009 at 4:06 pm
Well…I actually the paper Barry.
The only thing I would argue with them is that bubbles can actually be detected using statistical analysis: i.e. if home prices reach certain deviations away from equivalent rent, or when home prices reach xx% relative to medium income. But, then so what? What do you do then? Order people to stop buying homes? Go to a command and control economy?
But, that’s basically all I could really challenge in the paper….
How do you reconcile the fact that the Fed doesn’t really have control over the longer term interest rates?
How do you reconcile the fact the even with clearinghouse for CDS, we would still have had the same amount of damage. The only thing that would have happened is the clearinghouse would have gone bust or demanded massive margin calls on the exchange members.
I think they made some valid points in article…
~~~
BR: In order of your questions:
1) This wasn’t about detecting bubbles, it was about enforcing lending standards — something the Greenspan Fed refused to do. Hence, all of the Lend-to-Securitize firms that sold billions in junk sub-prime mortgages to Wall Street were allowed to operate with impunity. That most of them eventually went bankrupt is cold comfort to the rest of us.
2) On rates I would say Bullshit — the Fed takes rates from 6% to 2%, then leaves them there for a 3 years — including more than a year at 1% — WTF do you think is going to happen to long term interest rates?
To claim that the Fed “doesn’t really have control over the longer term interest rates” is to ignore reality. Indeed, it is the epitome of a clueless academic theorist who has never traded bond in his life.
3) CFMA specifically exempt derivatives from State Insurance regulations. But for that exemption, CDS — essentially insurance products — would have had required a reserve for future payments. AIG for excample, wrote 3 trillion in various CDS — and never reserved one penny for payments. Their CEO called it free money. (Gee, how could that ever go bad?)
Writing all that takes so much longer than merely saying “Clueless pea brains!
October 9th, 2009 at 4:14 pm
Andy T @ 4:06
“How do you reconcile the fact that the Fed doesn’t really have control over the longer term interest rates?”
True, they don’t control long term rates. But so much of the housing bubble occurred because of reliance on short rates. Morever, as I understand it, investment banks like Lehman were very dependent on short rates also. So I don’t see how anyone could conclude that Greenspan wasn’t a big part of the problem.
As for CDS’s, I very much favor a high level of transparency here. If there had been such, I think that the cost of insurance would have increased at an earlier point in time. And quite possibly, even the brain-dead regulators might have realized that there was a problem much sooner than they eventually did.
October 9th, 2009 at 4:57 pm
DL. They addresses the issue of short term rates and sub-prime. The studies show that the sub-prime people were solid as long as the prices kept going up. It wasn’t the resets that killed them so much as the falling prices with zero equity.
What’s the difference between a transparent price that’s incorrectly priced by the market and a non-transparent price that’s incorrectly priced by the market? Was the S&P priced right at 1440 in late May ’08? No, but it was transparent, right? Didn’t stop it from dropping 50% in a few months….
The crash in the credit as a result of the bubble bursting was very rapid. It’s doubtful a clearing exchange would have affected a different out. It would have distributed the losses differently. Instead of bailing out an AIG, we would have ended up bailing out several medium sized players who got caught out on the cliff-dive. The end result would have been a little different, yet similar.
It’s difficult to regulate people from making bad decisions. Very slippery slope indeed.
~~~~
BR: I totally disagree.
The FED should have enforced traditional lending standards. Greenspan should have listened to Fed Governor Ed Gramlich who warned about this years ago. That would have stopped the most egregious of then abdication of lending standards — NINJA, Liar loans, etc.
THERE MUST BE A REASONABLE EXPECTATION THAT BANKS MAKING LOANS TO BORROWERS WHO CAN REPAY THEM — MANY OF THE SUBPRIME LOANS WERE GUARANTEED TO DEFAULT — THE MONTH PAYMENTS WERE HIGHER THAN THE BORROWERS GROSS MONTHLY PAY
October 9th, 2009 at 5:07 pm
Here is a link to a market analysis of residential real estate in Charlottesville, VA.
http://www.scribd.com/doc/20827234/2009-CAAR-Market-Report-3rd-Quarter
It can be found also at: http://www.realcentralva.com/
It may be of interest to some here. I would note that hearkening back to 2005 allows for an image to persist which IMHO is rather distorted, that is, 2005 levels are afforded a normalcy they don’t merit. Benchmarking EconIndic’s in a narrow band does a disservice and creates confusion. I would argue that RRE & CRE at a minimum need to be tracked back to 1998 (perhaps more knowledgeable individuals could recommend a different point, one which would coincide with Fed policy deviations/deviancies).
October 9th, 2009 at 5:17 pm
This bubble was created by a combination of low rates (free money for speculators) and lack of regulations/rules for both who/how you give mortgage loans and how you can resell them and insure paper backed by those mortgage loans. These loan would never have been given if the originators would not have been able to sell them to unsuspecting costumers. As a result, there would never have been an absurd bubble in real estate prices without the ability to sell the sh*t loans to someone else.
October 9th, 2009 at 5:39 pm
@DeDude > That is what happens when people start with the conclusion, and then try to work their way backwards to find facts that can support it.
I tend to agree, but I actually think the causation works in reverse: Their clients have opinions, Cato provides them fodder for supporting their already-held opinions.
I only read the bit about not being able to detect bubbles in real time. Their support is quoting economists suggesting in the 2003-2007 timeframe that there was no bubble. They do throw a 2003 Schiller quote in, suggesting that since not even he could see this clearly in 2003, therefore it must not be possible. No charts. This was enough for me to give up on the paper. I admit I didn’t recognize the bubble as a bubble until 2005, but I was an econ-illiterate at the time, and perhaps I still am. To suggest that because some people were mistaken we must all suffer for their mistakes is beneath us, I think.
October 9th, 2009 at 5:42 pm
@MRegan 2005 levels are afforded a normalcy they don’t merit.
ding ding ding ding ding!
I knew when townhouses in our neighborhood went from 100K (1999) to 200K (2004) to 300K (2005) that this wouldn’t go on. Did the housing stock really triple in value in the first five years of last decade?
October 9th, 2009 at 6:17 pm
I wrote:
“What about actually refuting their arguments instead of calling them names?”
Barry replied:
“I already did that — in 343 easy to read pages.”
I guess everyone who publishes a book claims one finds the answers in there. Convince me that it is worth it to buy it.
~~~
BR: Perhaps these people (who read it) can convince you:
All of the reviews can be found here
October 9th, 2009 at 6:26 pm
DeDude,
““What about actually refuting their arguments instead of calling them names?”
He wrote a whole frekin’ book doing just that, not to talk about a couple of dozen blog entries.”
Of course, Barry wants to sell his book. I can understand this. If he wants to sell it to me, he needs to make me want to buy the book first, though.
What I have read in his blog postings about the causes of the crisis hasn’t impressed me so much that I am already convinced it is worth it.
rc
October 9th, 2009 at 6:53 pm
Giminnies rootless, get up off your wallet and shell out a couple bucks for the book it will
1) Allow you to be informed enough to know what you are talking about
b) Help fuel our mini boom
and also make you feel good about yourself.
Hey aren’ you just as happy as I am that Obama won the Nobel Peace Prize.
October 9th, 2009 at 6:59 pm
pmorrisonfl,
“I only read the bit about not being able to detect bubbles in real time. Their support is quoting economists suggesting in the 2003-2007 timeframe that there was no bubble. They do throw a 2003 Schiller quote in, suggesting that since not even he could see this clearly in 2003, therefore it must not be possible.”
This isn’t exactly what they say, nor what they do. They don’t say economist can’t detect bubbles in real time, they say “First, economists cannot detect assetprice bubbles in real time through technical means with any degree of unanimity.”
This is a different statement. It’s about unanimity. The majority of the economists didn’t see it coming, only a minority did. The quotes the authors bring serve to support this point that the “establishment” economists didn’t see the housing bubble. The majority of economists didn’t see it coming and the Fed’s policy wasn’t different to the majority view at the times.
rc
October 9th, 2009 at 7:32 pm
“Securitization was an implicitly leveraged activity.”
Eloquently said. Combine that with the hazard of no down payment and no income verification during origination, then add securitization’s ‘pass the hot potato’ component. There’s a recipe for disaster.
Funny how the old banking system worked fine for so many years. Some regulations have historical foundation.
October 9th, 2009 at 7:35 pm
HarryWagner,
“Giminnies rootless, get up off your wallet and shell out a couple bucks for the book it will”
I already own a book.
“1) Allow you to be informed enough to know what you are talking about”
What is this supposed to mean? About what am I talking, I don’t know according to you? And how do you intend to back up this bold statement?
“b) Help fuel our mini boom”
“Our”? Why “our”? Who is included in “our”? What “mini boom”? When is this “mini boom” coming? How strong will it be? How long will it last? Where is it coming from?
rc
October 9th, 2009 at 7:44 pm
So Cato must at least support Ron Paul’s proposed law to audit the Fed?
Until we know what we’re dealing with we can’t make rational decision right?
“The Cato Institute was founded in 1977 by Edward H. Crane. It is a non-profit public policy research foundation headquartered in Washington, D.C. The Institute is named for Cato’s Letters, a series of libertarian pamphlets that helped lay the philosophical foundation for the American Revolution.
Cato’s Mission
The mission of the Cato Institute is to increase the understanding of public policies based on the principles of limited government, free markets, individual liberty, and peace. The Institute will use the most effective means to originate, advocate, promote, and disseminate applicable policy proposals that create free, open, and civil societies in the United States and throughout the world.”
October 9th, 2009 at 7:53 pm
From the middle 1960s through the Reagan presidency, Household Debt as a percent of GDP fluctuated from 54% to 61%. By 1992, it reached 80%, and for the next 15 years it soared steadily reaching 120% by 2007!
During this 40-year climb, only village idiots and overachieving (and often over educated) economists, were blissfully unconcerned.
One problem often associated with long range forecasting is that no one cares or even listens until it’s too late. This was obviously the case here. Meanwhile, ‘yeasayers’ salaries, bonuses and careers skyrocketed . . . to the dismay of the ‘naysayers’.
The human conditions of greed and envy played their inimical part for the yeasayers who in all probability exclaimed that the naysayers were simply jealous. And they were absolutely correct . . . for just about 40 years! And then . . . .
So be it.
October 9th, 2009 at 9:22 pm
I have long held that the Cato Institute was not called after a Revolutionary War pseudonym, but after the original Cato who advocated keeping slaves busy from dawn to dusk to get the most out of them and then freeing them when they got too old to work so he wouldn’t have to feed an unproductive mouth. These recomendations are much more in keeping with the Institute’s policies than those of our Revolution.
October 9th, 2009 at 9:50 pm
Rootless at 7:35, it is nice to see you own a book, I own a couple too, perhaps we can trade books someday.
Well first. How do I intend to back up the statement reading will help you become better informed……. Doesn’t it?
Next, how should I know what you know are don’t know, you know, knowing something is only known to the person who knows, you know? I not sure I know, but I know I don’t know what you know and I am not sure I want to know.
Second, it means what is says, golly.
Also a mini boom is like a big boom, but smaller and a big boom is not like the big bang, but it is big.
October 9th, 2009 at 10:34 pm
You see this kind of thing every single day in practice. A shit-headed argument gets floated that just FEELS so intuitively wrong that you are tempted to just stand there with a disgusted look on your face expecting everyone around you to sense the obvious flaws and agree with you.
And then they don’t.
And then you say to yourself, “Oh shit, I better cobble together a quick argument to refute this because the freaking judge is actually buying it! It should be easy to do…”
But it’s too late; you’ve already fallen into a few traps opposing counsel has set for you and it all quickly turns into one of those days where the bear gets you, so to speak. Because unless you’re blessed with a natural genius for these things you often have to sit and stew on this kind of artfully spun BS to identify the sophistries and logic puzzles. But they are always there.
Here are a few assumptions in the CATO Institute piece I take issue with:
1) Unanimity of economist opinion as prerequisite to achieving sufficient certainty in real time.
“It is difficult to get a man to understand something when his salary depends upon his not understanding it. ” -Upton Sinclair
2) All the Fed does is set target rates that impact areas of the economy only indirectly.
Lawmakers took Mr. Greenspan to task for his advocacy of credit-default swaps, an unregulated kind of insurance contract that can help investors protect themselves against another party’s bankruptcy. Credit-default swaps were also used as a way of taking risks and are widely blamed for adding to financial-market instability. Rep. Waxman asked pointedly, “Were you wrong?”
Mr. Greenspan said, “Partially.” While he cautioned the lawmakers against excessive regulation, he said credit-default swaps “have serious problems” and, after some pointed questions, agreed they should be subject to oversight.
From Wall Street Journal, Oct. 24, 2008 “Greenspan Admits Errors to Hostile House Panel”
http://online.wsj.com/article/SB122476545437862295.html
October 10th, 2009 at 12:57 am
Rootless,
The reason Barry isn’t engaging him is that he’s already done it in both a book and many blog posts. If you are one of these clowns who think CATO is actually correct, there is no point engaging with you. You’ve already proven your intellectual abilities to him and to me too – so there is no point in bothering.
You’re a fool, and you don’t know what you are talking about if you think the CATO people made a cogent argument.
Specifically, their point about the clearinghouse not reducing systemic risk because the risk would still have been mispriced misses the biggest benefit of clearinghouses – shared risk among clearinghouse participants. If the CATO people don’t know this, they are fools. If they do know this, they are deliberately lying to their audience. What camp are you in, RC? The fool camp or the lying camp?
If AIG goes bankrupt and can’t pay, then the other members of the clearinghouse have to pay. Therefore, every member of the clearinghouse has a vested interest in seeing that no one person has too much exposure to the CH. No matter what how small the risk, clearinghouses will have position limits because of this exposure. Many clearinghouses have several layers of risk sharing to deal with for bankrupt positionholders. Look to ICE Trust and other ICE clearinghouses for more information.
If there was a clearinghouse for CDS, AIG would have never been allowed to do as much as they did. Never. We would have started hearing the smaller houses and players in the CDS market go beserk and pull out of the CH long long ago, and Goldman and DB would have been on the hook for those billions, as they would have had no credible defense at allowing AIG to build up over a hundred billion in potential losses.
I will say it again. RC, you are a fool. We in the reality based community are so tired of repeating ourselves, and then having some moron like you ask us why we will not engage their arguments. I will tell you the reason – you are so misinformed it is almost embarrassing to listen to you, boring to say these things a hundred times, and futile as you’ve already made up your mind.
October 10th, 2009 at 7:29 am
Washington’s Blog
http://www.washingtonsblog.com/2009/10/bought-and-paid-for.html
CATO is simply another conduit for the oligarchy masquerading as a public policy advocate.
They just happen to advocate the Conservative economic ideology which is required for admission.
This is not very complicated to understand.
October 10th, 2009 at 8:15 am
There is an old saw about book royalties — if your agent did his job, you should never see any royalties — meaning you got paid upfront.
I had a very good agent. Unless the book sells a 100k, I won’t see any royalties.
Circulating the book was about setting the record straight,, and fighting the absurd — and wildly incorrect — idealogies, so as those from CATO. I started with facts and worked forward. They start from a conclusion and work backwards.
I have a pet thesis: Most empires are destroyed not by war or famine or taxes — but by a faulty belief set. We are well on our way . . .
October 10th, 2009 at 8:53 am
The crisis was caused by the export of production without simultaneous export of consumption.
And no, the other countries are not going to give us a mulligan.
October 10th, 2009 at 8:57 am
Like the pet thesis – sad to see this strand got so negative though…
October 10th, 2009 at 9:08 am
I see you were busy overnight
“BR: In order of your questions: (over post 10/9 4:06pm)
1) This wasn’t about detecting bubbles, it was about enforcing lending standards ………..”
I am wondering if everything we are seeing .. was to arrive at the goal “prove government is useless” “free market capitalism is the best blah blah blah” and see the return to the wild west and utilize disaster capitalism to its fullest potential ….. G help us .. since that is spirit only .. we gotta get out of our heads and use our hands and feet .. peacefully or else disaster capitalism wins the battle/war
October 10th, 2009 at 9:59 am
Mike S,
Do you want to make me depressed? The first thing I see after getting up and looking in here in the morning is a full fledged ad personam attack against me. I seem to have made my first enemy here. I will enter this in my score card. And all this just because I asked Barry to refute the content of the paper instead of doing name calling. He could have done this in a way that even promotes his book. You have done him no service here, now. You make on me the impression of a religious zealot who feels threatened when someone doesn’t blindly adores the manifestos by his guru.
“… as you’ve already made up your mind.”
Nice projecting. It is obviously you who has done this already, since you conclude this, have me put in one of your ideological drawers already, make statements about my intellectual abilities and about how misinformed I was, and you call me names throughout your whole rant solely based on my request to Barry.
rc
October 10th, 2009 at 10:36 am
RC,
Note that you’ve demonstrated an unwillingness to read or understand Barrys posts. This at Barrys blog, at barrys house. Why does he have to write another 2000 word post on this specific instance of CATO foolishness? You are rudely asking for something he’s given you, but you are too lazy to get off the couch and get it yourself.
Also, I provided very specific evidence why the CATO study is flawed and foolish. They were literally looking at the wrong evidence and claiming it to be primary. It only leaves two bad options for their skills. Where is your response to my argument?
Best,
Mike
October 10th, 2009 at 11:02 am
Mike S,
“Note that you’ve demonstrated an unwillingness to read or understand Barrys posts.”
I have repeatedly replied to Barry’s post in the past. You apparently are unwilling to read or understand what I have had to say in my comments to his posts.
“This at Barrys blog, at barrys house.”
And this house needs to be defended by zealots? I doubt that.
“Where is your response to my argument?”
You aren’t seriously expecting that someone who is personally attacked and insulted by you in this way engages with you in a discussion about content then, are you? Or are you? Get real.
rc
October 10th, 2009 at 11:59 am
RC,
I am expecting a real response – you did. Your passive aggressive tone is pretty clear. I just prefer to be more forward about my opinions.
But in any case, my point about clearinghouses still stands without response. My other point about why you don’t find barry responding to you ‘critiques’ seems even more on target than I thought.
October 10th, 2009 at 12:13 pm
Mike S,
Whatever you project on me and it makes you happy, even though you obviously don’t have the slightest clue what my actual point of view is.
rc
October 10th, 2009 at 1:01 pm
i think we can can refute them in one word. Canada. They didn’t deregulate their banks. and guess what? they didn’t have to rescue their banks either. and their economy hasn’t tanked as much as those who did
October 11th, 2009 at 10:52 am
Good point on Canada, willidg3. That absolutely displays that proper regulation works. Of course, the CATO Institute would insist that Canada’s economy is too socialist and is just lucky
I submit that one very underrated reason for the housing bubble was the 1997 tax law change that allowed for the $250,000 individual/$500,000 married couple capital gains tax exclusion on profits from selling a primary residence, and allowed every 2 years. Could a law have been designed more perfectly to incite a bubble? They might as well have pointed arrows to real estate offices saying : SPECULATE HERE. If you give any asset class such incredibly preferential tax treatment over all other asset classes, don’t be surprised to see a bubble occur in that asset class. Where else in this economy could someone make $250,000 or $500,000 tax-free?????
Getting back to Canada, they don’t even have mortgage interest deductions for primary homes, let alone this ludicrous bubble-inciting tax treatment for real estate. Canadian home owners are much more likely to actually be able to afford their homes than Americans. Naturally, this makes for a much lower home ownership ratio but also for a much more stable economy not so prone to booms and busts.