Any kind of privatization outside of government guarantees would raise cost of mortgages not lower it. Further, the argument of financial innovation falls flat when one compares US mortgage mkt to that anywhere else in the world. Nowhere else 30yr fixed amortized fully pre-payable mortgage exits which is the least expensive option at the time of purchase assuming rates term structure is relevant. Further, any decline in home prices would effectively shut off new loans origination as private issuers would go into defensive mode. I would argue that current structure is the most efficient in real world. Any additional gains in efficiency would come with significant costs and risks
Yes a Catch 22 . Housing prices will never come down because it is where most citizens have their wealth and of course who would lend money on a decreasing asset.
The US sold their economy to the Lords of the Land where appreciation is easier than factory production .
A libertarian wouldn't have intervened in the financial market crisis of 2008-9, or bailed out an unregulated money manager in 2007. Nor, would a libertarian have bailed out middle tier commercial banks in 2023. Or, intervened in the Savings & Loan industry collapse.
What then, in those cases, would the outcomes be? What advantage or disadvantage would the U.S. reap or incur as a result of a libertarian approach to markets, and the regulation of markets?
Presuming that there is a purpose to regulation, what would be the purpose of regulation founded on libertarian principles? Or, is that an oxymoron?
“Markets, not bureaucrats, should determine how mortgages work.” Many on the left, of course, don't trust markets, or rather the self-interested actors who are attracted to certain markets because they have knowledge or experience that less educated, less well-informed consumers do not. This is the allure and promise of consumer protection. The question I struggle with: which is the greater threat, fish-hunting salesmen or ideologically-driven bureaucrats? It simply can't be one, all the time, irrespective of the market or context. I'm perfectly okay with laws that are designed to stop drunk bar customers from ordering another drink or gamblers from hitting an ATM machine for the 3rd or 4th time. The reality of any market is that we have predators and fools and complete inaction by the government is a win for the predators. This isn't to say Fannie and Freddie shouldn't be reformed, perhaps dramatically so, but I'd love to know how you would protect vulnerable consumers on the margins of the mortgage market.
This is why I don’t think government regulation is the problem. There’s no reason there shouldn’t be regulations (on fiscal/monetary policy or otherwise) to limit private debt to be a specific percentage of GDP.
The reason they don’t do this is because it would kill Keynesian demand from private investors and stunt growth. So the only alternative at that point would then be to raise government spending.
There is a 3rd option, which is that the government nationalizes key industries and uses the profits to fund deficits, while limiting private debt. But I guess in America it’s unrealistic to expect that happening at any point.
Well John, I agree the mortgage industry would be healthier if run as a free market. But this shotgun commentary goes off in so many directions, you may not have noticed you overlooked one of the main sources of failure of the 2008 mortgage fiasco. That is, if you had a Pulse, you were approved for any mortgage. If you throw out all common sense, how can any business long continue? The regulatory and government ‘interest’ in this segment of the economy are indeed a problem. Whatever government ‘supports’ only gets more expensive. Healthcare? Education? Anyone??? But even a government run mortgage industry can succeed admirably if you demand a minimum 10% down payment and a verified income stream.
IMO - 2008 happened because the C-suite at the financial institutions that were issuing mortgages then selling them out the back door as mortgage backed securities had no skin in the game. Take a big risk, make millions, get richly rewarded. Take a big risk, it blows up, ride out of town with your millions intact. What might have happened in 2008 if the rule was - “if your institution takes a loss due to poor governance and federal intervention is required everyone in the C-suite is rendered destitute? Cash, securities, real estate, toys, retirement - all gone. Maybe they would start managing institutions like its their own was their own $$ because in a way it would be.
2008 happened because the nearly 4% GDP growth of 2004/05 was phony and the jobs were all based on dollars being firehosed into a dysfunctional economy. So once the Ponzi scheme played out the jobs started disappearing and then Americans with families, that appeared to benefit from 25 year olds without families jacking up home prices, couldn’t make their inflated mortgage payments. The homes weren’t necessarily overbuilt but many people bought houses to flip and make money and not to create a home for their family.
Two comments - first, when government gets involved it always brings politics, and politics + underwriting standards always equal disaster. We need to rethink the traditional cops & robbers approach to regulating financial markets. The current approach is there is a blow up, new regulations get imposed but over time either the regulations get eroded, the regulators fall asleep or the financial community develops some new product that adds risk not covered by regulations.
But what happens when there is a blow up? Tax payers, shareholders or customers get stuck with the bill while the C-suite rides off into the sunset with their millions intact - they really have no skin in the game. What if the law was if the institution you manage suffers a loss due to poor governance and the taxpayers / FDIC have to step in the C-suite is rendered destitute. Cash - gone, stock portfolio - gone, retirement - gone, real estate - gone, toys - gone. Maybe with personal fortunes on the line executives will start managing banks like it’s their own money - because in a way it will be.
Ironically, it was Chris Dodd and Barney Frank who literally pushed banks and other mortgage companies to make more and more loans to unqualified borrowers because they were deemed “underserved”.
This is another example of our politicians making terrible decisions (to get reelected) and facing zero consequences while taxpayers must pick up the tab.
>If you take out a 3% mortgage and rates rise to 7%, you can’t take the 3% with you if you move. Other countries allow homeowners to take that protection with them. Many families then decline to move to take a better job, so there are fewer houses for other families to buy. A well-functioning private market would offer more dynamic mortgage structures—adjustable-rate options, shared-equity models, or fixed-rate loans with built-in flexibility.
Curious to learn more about other countries where this is possible? Especially transferring a mortgage to a different property.
Me too! That's not my understanding of foreign mortgages. With nearly three decades in the mortgage industry, IMHO FNMA & FHLMC need to removed from conservatorship and the stockholders need to start receiving dividends. They repaid their bailouts quickly, yet the government retains control. Why? Because they provide a steady stream of income.
No, they are in conservatorship because they don’t have enough capital to act as guarantors in case of another downturn. One would need at least $500 billion of new capital infusion to settle existing debts plus provide minimal level of capital sufficient to get proper buffer. The income streams you refer to are like insurance premiums collected. If anything like ‘08 happens again, they would need to be put back in into government hands. US mortgage rates are too cheap vs risk
We should have an interest free mortgage for single family homes that cost less than $200k. Why should lower income Americans with families suffer because the well off jacked up home prices?? So to qualify one would have to live in the home for 5 years before selling or renting, but walking away from the house would still be cheaper than renting.
Any kind of privatization outside of government guarantees would raise cost of mortgages not lower it. Further, the argument of financial innovation falls flat when one compares US mortgage mkt to that anywhere else in the world. Nowhere else 30yr fixed amortized fully pre-payable mortgage exits which is the least expensive option at the time of purchase assuming rates term structure is relevant. Further, any decline in home prices would effectively shut off new loans origination as private issuers would go into defensive mode. I would argue that current structure is the most efficient in real world. Any additional gains in efficiency would come with significant costs and risks
Yes a Catch 22 . Housing prices will never come down because it is where most citizens have their wealth and of course who would lend money on a decreasing asset.
The US sold their economy to the Lords of the Land where appreciation is easier than factory production .
eliminate deposit insurance
A libertarian wouldn't have intervened in the financial market crisis of 2008-9, or bailed out an unregulated money manager in 2007. Nor, would a libertarian have bailed out middle tier commercial banks in 2023. Or, intervened in the Savings & Loan industry collapse.
What then, in those cases, would the outcomes be? What advantage or disadvantage would the U.S. reap or incur as a result of a libertarian approach to markets, and the regulation of markets?
Presuming that there is a purpose to regulation, what would be the purpose of regulation founded on libertarian principles? Or, is that an oxymoron?
“Markets, not bureaucrats, should determine how mortgages work.” Many on the left, of course, don't trust markets, or rather the self-interested actors who are attracted to certain markets because they have knowledge or experience that less educated, less well-informed consumers do not. This is the allure and promise of consumer protection. The question I struggle with: which is the greater threat, fish-hunting salesmen or ideologically-driven bureaucrats? It simply can't be one, all the time, irrespective of the market or context. I'm perfectly okay with laws that are designed to stop drunk bar customers from ordering another drink or gamblers from hitting an ATM machine for the 3rd or 4th time. The reality of any market is that we have predators and fools and complete inaction by the government is a win for the predators. This isn't to say Fannie and Freddie shouldn't be reformed, perhaps dramatically so, but I'd love to know how you would protect vulnerable consumers on the margins of the mortgage market.
This is why I don’t think government regulation is the problem. There’s no reason there shouldn’t be regulations (on fiscal/monetary policy or otherwise) to limit private debt to be a specific percentage of GDP.
The reason they don’t do this is because it would kill Keynesian demand from private investors and stunt growth. So the only alternative at that point would then be to raise government spending.
There is a 3rd option, which is that the government nationalizes key industries and uses the profits to fund deficits, while limiting private debt. But I guess in America it’s unrealistic to expect that happening at any point.
Well John, I agree the mortgage industry would be healthier if run as a free market. But this shotgun commentary goes off in so many directions, you may not have noticed you overlooked one of the main sources of failure of the 2008 mortgage fiasco. That is, if you had a Pulse, you were approved for any mortgage. If you throw out all common sense, how can any business long continue? The regulatory and government ‘interest’ in this segment of the economy are indeed a problem. Whatever government ‘supports’ only gets more expensive. Healthcare? Education? Anyone??? But even a government run mortgage industry can succeed admirably if you demand a minimum 10% down payment and a verified income stream.
IMO - 2008 happened because the C-suite at the financial institutions that were issuing mortgages then selling them out the back door as mortgage backed securities had no skin in the game. Take a big risk, make millions, get richly rewarded. Take a big risk, it blows up, ride out of town with your millions intact. What might have happened in 2008 if the rule was - “if your institution takes a loss due to poor governance and federal intervention is required everyone in the C-suite is rendered destitute? Cash, securities, real estate, toys, retirement - all gone. Maybe they would start managing institutions like its their own was their own $$ because in a way it would be.
2008 happened because the nearly 4% GDP growth of 2004/05 was phony and the jobs were all based on dollars being firehosed into a dysfunctional economy. So once the Ponzi scheme played out the jobs started disappearing and then Americans with families, that appeared to benefit from 25 year olds without families jacking up home prices, couldn’t make their inflated mortgage payments. The homes weren’t necessarily overbuilt but many people bought houses to flip and make money and not to create a home for their family.
Two comments - first, when government gets involved it always brings politics, and politics + underwriting standards always equal disaster. We need to rethink the traditional cops & robbers approach to regulating financial markets. The current approach is there is a blow up, new regulations get imposed but over time either the regulations get eroded, the regulators fall asleep or the financial community develops some new product that adds risk not covered by regulations.
But what happens when there is a blow up? Tax payers, shareholders or customers get stuck with the bill while the C-suite rides off into the sunset with their millions intact - they really have no skin in the game. What if the law was if the institution you manage suffers a loss due to poor governance and the taxpayers / FDIC have to step in the C-suite is rendered destitute. Cash - gone, stock portfolio - gone, retirement - gone, real estate - gone, toys - gone. Maybe with personal fortunes on the line executives will start managing banks like it’s their own money - because in a way it will be.
Ironically, it was Chris Dodd and Barney Frank who literally pushed banks and other mortgage companies to make more and more loans to unqualified borrowers because they were deemed “underserved”.
This is another example of our politicians making terrible decisions (to get reelected) and facing zero consequences while taxpayers must pick up the tab.
>If you take out a 3% mortgage and rates rise to 7%, you can’t take the 3% with you if you move. Other countries allow homeowners to take that protection with them. Many families then decline to move to take a better job, so there are fewer houses for other families to buy. A well-functioning private market would offer more dynamic mortgage structures—adjustable-rate options, shared-equity models, or fixed-rate loans with built-in flexibility.
Curious to learn more about other countries where this is possible? Especially transferring a mortgage to a different property.
Me too! That's not my understanding of foreign mortgages. With nearly three decades in the mortgage industry, IMHO FNMA & FHLMC need to removed from conservatorship and the stockholders need to start receiving dividends. They repaid their bailouts quickly, yet the government retains control. Why? Because they provide a steady stream of income.
No, they are in conservatorship because they don’t have enough capital to act as guarantors in case of another downturn. One would need at least $500 billion of new capital infusion to settle existing debts plus provide minimal level of capital sufficient to get proper buffer. The income streams you refer to are like insurance premiums collected. If anything like ‘08 happens again, they would need to be put back in into government hands. US mortgage rates are too cheap vs risk
We should have an interest free mortgage for single family homes that cost less than $200k. Why should lower income Americans with families suffer because the well off jacked up home prices?? So to qualify one would have to live in the home for 5 years before selling or renting, but walking away from the house would still be cheaper than renting.