If reading this article does not convince you that we are doomed, nothing will. Congressmen/women do not even know the basics of the free enterprise system and how capitalism works.
We have seen it here in Michigan with one of our Senators. Debbie Stebanow who does not know the difference between IRA, 401(k)s, Pension Plans which are all regulated so called Qualified plans and insurance and annuities which are non-qualified. In a meeting on Social Security, the Senator did not understand the difference and could not understand why non-qualifed even were allowed to exist. This is an unschooled political hack who does not know and does not want to know.
Of course, there are many of our "representatives" as the following article illustrates that are unable or unwilling to understand what they do not understand. Reminds me of the Representative who was concerned that by the military adding additional personnel to the island of Guam it might cause the island to flip over. Huh? Yes that is what he said. It is all on you tube.
Here is Peter Schiff's article.
Conservative Musings
Peter Schiff: Congress wants to repeat mistakes with housing market
June 19, 2012 9:39 am ET
While JP Morgan CEO Jamie Dimon has been credited for a confident and feisty performance this week in front of Congress, he was careful to not criticize their efforts thus far to regulate the financial services industry. Given that JP Morgan has been on the receiving end of federal bailouts, this should not be surprising. Last week I showed no such reluctance when I testified in front of the Congressional House Subcommittee on Insurance, Housing and Community Opportunity. The fact that my firm is unlikely ever to receive a dime from government was undeniably liberating in that regard.
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I was invited to testify about the Federal Housing Administration's (FHA) policy in the apartment lending market. Although this was a fairly narrow issue, I told the congressmen the same thing I did last year when I was invited by a different subcommittee to testify about job creation: government programs don't solve problems, they just create new ones. While I thank the Committee for inviting me, I believe the congressmen may have gotten more than they bargained for. I can apologize for shaking up what would have otherwise been a sleepy and forgettable proceeding, but I won't apologize for trying to inject respect for the Constitution and free market capitalism into a venue that has been doing its best to destroy both.
The subcommittee was considering whether to expand the activity of the FHA to insure loans for multi-family (apartment) buildings. The mechanism to achieve this was to extend FHA guarantees to pools of collateralized mortgages backed by multi-family residential housing units. In other words, Congress wanted to replicate the very dynamic that helped create the bubble in single family housing, which ushered in the financial crisis of 2008, the great recession, and left taxpayers on the hook after the bubble burst. As one of the few people who warned about the dangers of federally subsidized mortgages for single-family homes, I felt particularly qualified to warn Congress about repeating its error. At the risk of sounding egotistical, as a result of my unapologetic testimony the hearing turned into high drama. Entertainment value aside, the resulting event starkly illustrated some of the dense cobwebs that hang over the legislative process.
I have absolutely no objection to the idea that a healthy rental housing market is needed. However, I believe that market forces are sufficient by themselves to create it. The average American family now only has $7,000 worth of savings, which would not be nearly enough to afford a 20% down payment on the average American house. This means that most Americans should be renters and not owners.
Normally, these simple facts would attract investment capital to build affordable rental properties. However, these forces have been blunted by Federal tax and housing policies that have exaggerated the economic benefits of home ownership and have drawn excessive amounts of investment capital into that sector. To correct the distortions, the Subcommittee was considering, you guessed it, more distortive regulations. It never occurred to them to simply scale back the original regulations that are the root of the problem.
Critics of the free market argue that investors will ignore the needs of the poor. But Wal-Mart became stunningly successful by specifically targeting low to moderate income consumers. This success came without government guarantees or incentives.
Through a series of guarantees, loan assistance, and tax advantages, ironically it is the government that is ignoring the needs of the poor by encouraging them to buy over-priced homes. As a result they become trapped in perpetual poverty, as all of their disposable income is consumed by mortgage payments, property taxes, insurance, maintenance, etc. It's much better to get out of poverty first, then buy a house when one can actually afford it.
The panel of eight witnesses, of which I was a part, was composed largely of representatives of the many interest groups who benefit from FHA multi-family loans, including home builders, mortgage bankers, state housing regulators, and tenants groups. I came to represent the interests of the common U.S. taxpayer who will have to make good any liabilities incurred by the Federal Government and who will have to live with the consequences of distortive government policies (as we have been doing so conspicuously in recent years). It was clear from my heated exchanges with the legislators that they were not used to hearing from this particular constituency.
My other co-panelists had two missions: curry favor with the congressmen and give them the ammunition they need to vote for a policy that they likely want to support from the start. I wanted to let them know that, despite the claims to the contrary, all loan guarantees expose taxpayers to risk and that the housing market would be healthier if the government left it alone. I brought to the table the frustrations of the American taxpayer who has grown weary of government's urge to micromanage our economy and to fund their experimentation with our dollars.
When taking heat from these surprised congressmen, I couldn't help but think back to the reaction I received when I went down to the Occupy Wall Street protest last year. Both venues were dominated by people who knew very little about how capitalism actually works or how the United States rose to economic dominance in the first place. One congressman stated his belief that a functioning home market did not exist before the FHA came into existence in the 1930's. While such ignorance can be excused from scruffy protestors, we should expect more from our elected officials. The following exchanges illustrate that point:
Republican Congressman Robert Hurt expressed some appreciation of my economic positions, but even he seemed unable to grasp that my solution was not more regulation. Congress is addicted to the allure of doing "something." Trusting free people to make rational choices is not considered "something." They are addicted to the belief that if there is a problem, there must be a legislative solution. I repeatedly told the congressman that the best thing for government to do would be to "get out of the way," and that the market could fashion a solution on its own. But his frustration in not hearing specific legislative proposals meant that I might as well have been speaking Swahili.
Even more troubling was the discussion I had with two democratic congressmen. Emanuel Cleaver, II, failed to grasp how government loan guarantees create unintended and often harmful consequences. Perhaps hoping to undercut my credibility by eliciting my opposition to federally subsidized flood insurance (a program that he likely believes to be beyond controversy), I explained how those guarantees cost society money by eliminating barriers that would normally prevent people from living in potentially dangerous flood zones. The congressman gave no indication that he ever considered these arguments. Brad Sherman then tried to explain that since Congress would always bail out homeowners who had been harmed by "front page disasters," any policy that results in sharing the pain with private insurers should be considered prudent. I guess the congressman has never, nor will ever, consider a policy that involves short term political risk for the sake of long term economic health. In the end, that lack of political courage is a far bigger problem.
Credit in the United States is a limited commodity. Money loaned for one purpose is then unavailable for other purposes. Through its effort to take the risks out of home lending, the FHA has directed more credit into the real estate market than would have otherwise been the case. That means these funds are not available for other enterprises which may have put the capital to work in areas that may be more needed in the economy. I tried to convince the congressmen that siphoning even more money into the housing market is not the answer. They may not have listened, but I hope they got the sense that the political winds are blowing hard on their front door.
Peter Schiff is the CEO and chief global strategist for Euro Pacific Capital Inc. This commentary originally appeared on the firm’s website.
This guy criticizes OWS as a bunch of ignorant fools. He should be asking himself who is lobbying Congress. When the government bails out an FHA mortgage, it is the mortgage bankers who receive the money. That is why they have no fear of making bad loans when they are not on the hook when the loan defaults. This is just another variation of the credit default swaps they used to create the 2008 financial collapse and subsequent bailout engineered by Paulson (from Goldman Sachs) and all their stooges in Congress they have bought with their campaign contributions. Notice, however, that this guy keeps the spotlight on the government stooges instead of the bankers who are pulling their strings. He is part of the problem, not the solution.
ReplyDelete-- David (OWS)
David, re-read the article. He says nothing about OWS. He is criticizing Congress for attempting to do the same thing that got us in trouble in 2008 and the Congressmen can't get their arms around his concerns.
ReplyDeleteCongress is responsible for the entire mess that exploded in 2008 by not cancelling the Community Reinvestment Act which along with government intervention was the driver of all the fake loans. The bankers were only reacting to the pressure placed on them by the government. Were they blameless, hardly, but to put the total blame on the bankers, is like blaming the car maker for a car accident caused by your driving the car intoxicated.
The government is intoxicated with power and will not correct its ways. Maybe we should have a good ole revolution like Jefferson and Washington advised!
Money is power. Wall Street has the money. The top 7 banks have over $10 trillion in market cap. If they were too big to fail in 2008, they are now even bigger! Today, more than ever, politicians are dependent on their money to stay in office. Politicians are bought and paid-for from the day they get to Washington, D.C.
ReplyDeleteThe OWS movement puts the spotlight where it belongs -- not on the puppets, but on the puppet masters. I have given you that statistics on the CRA. That is the smokescreen used by Wall Street apologists. The vast majority of the toxic mortgages were not made by banks subject to regulation under CRA. They were made by outfits like Countrywide that had virtually no governmental regulations. Furthermore, their default rates were much higher than loans made under the CRA. Besides, all the mortgages COMBINED were a tiny part of the problem compared to the trillions in CDO's, credit default swaps, etc. manufactured by the Wall Street banks. This is factual information. You can read it in the congressional report on the causes of the crisis, and elsewhere.
--David
If you think he didn't say anything against OWS, maybe you should be the one re-reading the article. Here is what he says: "When taking heat from these surprised congressmen, I couldn't help but think back to the reaction I received when I went down to the Occupy Wall Street protest last year. Both venues were dominated by people who knew very little about how capitalism actually works or how the United States rose to economic dominance in the first place."
ReplyDeleteThis is an insult. I understand capitalism, and I know American history. I wonder how much this guy knows about the Great Depression and the role of the financial sector in creating both the Great Depression and the 2008 crisis. I doubt it.
--David