Liberty Maven

by Neeraj Chaudhary, Investment Consultant at Euro Pacific Capital

Recently, the Obama Administration seemed to flash a rare sign of laissez-faire thinking when it issued a report calling for the “winding down” of Fannie Mae and Freddie Mac, the two taxpayer-guaranteed institutions now responsible for backing at least 90% of the US mortgage market. In its press release, the Administration acknowledged that the private sector should be the “primary source of mortgage credit,” and that their goal is to “bring private capital back to the mortgage market.”

While such a pro-market stance is welcome, astute observers should recognize the intentions as empty rhetoric. Unfortunately, government domination of the housing sector is already a fait accompli, and any serious attempt to remove artificial support will result in the kind of political pitfalls no politician wants to face.

After decades of federal life support, the US housing market has become an invalid that is unable to fend for itself. When the absurd housing bubble finally popped in 2006, prices logically began to plummet back to earth. After national price declines of some 30%, a wave of “stimulus” dollars stopped the free-fall in mid-2009. But after less than one year of “recovery,” it looks like prices are headed south again.

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As fiscal conservatives continue to seek avenues through which to derail the federal gravy train, it helps from time to time to take a look at the mind-numbingly long list of federal departments and agencies that are on board. Of course, this list is hardly exhaustive – just one that is publicly available – but it can certainly give us some concrete ideas on how and where to cut the spending.

Today: Federal Housing Finance Agency (FHFA)

About: “[The FHFA seeks to] provide effective supervision, regulation and housing mission oversight of Fannie Mae, Freddie Mac and the Federal Home Loan Banks to promote their safety and soundness, support housing finance and affordable housing, and support a stable and liquid mortgage market. The Federal Housing Finance Agency (FHFA) was created on July 30, 2008, when the President signed into law the Housing and Economic Recovery Act of 2008.”
FY 2010 Budget: $139.3 million (Source)

In response to the housing crisis in 2008, media pundits and politicians were quite convinced that there simply wasn’t any regulation in the housing market. Pay no attention to the fact that Fannie Mae and Freddie Mac – two monstrosities created and backed by the federal government to “encourage affordable housing” – were the main culprits in driving the demand for housing astronomically above the free-market levels. Pay no attention to the fact that we already set up a regulating body – the FHFB – in the wake of the S&L crisis of the late 1980′s. (Apparently, changing the “B” to an “A” will solve our problems.) The solution is to regulate the government with more government! Surely, there will be no conflict of interest here. The fact that the director can call the FHFA an “independent regulator” while keeping a straight face truly boggles the mind.

The $139.3 million budget for the FHFA seems small, but is fairly misleading. Part of their mission statement is to “support a stable and liquid mortgage market.” This means calling on Congress and the President to throw more money at Fannie and Freddie if, in the opinion of the FHFA director, they could become insolvent. Their cost to taxpayers goes far beyond their own budget, as they are tasked with regulating the agencies which back more than $5 trillion in mortgages – most of which should have never been made.

Of course, the mission statement of the FHFA itself is a collection of laughable contradictions. On the one hand, the agency wishes to “support housing finance and affordable housing.” They are not ashamed to admit that the goal is to continue the same easy credit policies of Fannie and Freddie that caused the housing boom and subsequent bust. However, with their attempts to prop up housing prices to prevent an increasing number of mortgage defaults, by bailing out homeowners and extending tax credits, they are doing just the opposite of making housing prices affordable. While the pain of foreclosures would hurt many Americans, it would also accelerate the recovery by allowing people who had accumulated savings to buy the cheaper housing, even without the phony credit of the GSEs.

The best way to ensure a stable housing market is to stop distorting it with trillions of dollars of money in mortgages, impossibly low interest rates set artificially by the Fed, and regulators on top of regulators who obviously don’t have a clue. Rather than setting arbitrary goals that make us feel warm and fuzzy about helping the underprivileged in the boom, maybe we should be observing the plight of those same people in the bust – people who are now not only underprivileged, but underwater on their mortgages or bankrupt to boot.

One could argue that, as long as Fannie and Freddie exist, it is “Necessary and Proper” to regulate them, and thus constitutional for the FHFA to exist. Of course, I’d counter that with “Are Fannie and Freddie constitutional themselves?” The “necessary and proper” clause applies only to functions pursuant to “the foregoing powers” in Article I, Section 8. One would be hard-pressed to find the clause authorizing the federal government’s backing of mortgages, financing of banks with money to make more mortgages, or packaging of mortgages for sale as financial assets. Get the federal government out of the mortgage and loan industry, and perhaps the banks who make these mortgages have a bit more incentive to be prudent and cautious with their lending standards.

Of course, we know that “those who cannot remember the past are condemned to repeat it.” I’d add that those who choose to blatantly ignore the past deserve what they have coming to them. After all, it isn’t as if we couldn’t see this coming the first time.

Results
Constitutionality: None
Visibility: Moderate
Ease of Abolishing: Fairly difficult
Taxpayer Expense: Deceptively high
Priority: Fairly high

Wasn’t a major part of the housing bust due to the fact that too many loans were given to those who never really had the means to repay?

In a bid to stem taxpayer losses for bad loans guaranteed by federal housing agencies Fanny Mae and Freddy Mac, Senator Bob Corker (R-Tenn) proposed that borrowers be required to make a 5% down payment in order to qualify. His proposal was rejected 57-42 on a party-line vote because, as Senator Chris Dodd (D-Conn) explained, “passage of such a requirement would restrict home ownership to only those who can afford it.“

What’s wrong with these people?

Note: The inspiration for this article originated in Chapter 1 of Judge Andrew Napolitano’s “Lies The Government Told You,” which I would be remiss not to mention. However, the Judge mostly focuses on the history of discrimination against African-Americans and former slaves, and the resulting affirmative action laws that exist today. I felt that a broader approach was warranted due to the profound implications that state-supported collectivist preference (or outright servitude) has for us all.

From the founding of this nation’s government, we have lived in a society where “all men are created equal,” but are not treated that way. In fact, at some point in America’s short history, you can probably find an example where your ethnicity, gender, sexual orientation, or religion has received the short end of the state’s disregard for one of the basic rights that they claim to protect. Such discrimination has also occurred in nearly every administration, across party lines, in good economic times and bad, in times of war and of peace. A common thread can be seen in each case: the discrimination has been driven by political motives and the expansion of state power.

For starters, despite the language in the Declaration of Independence, slaves of African descent were not considered equals when it came time to ratify the Constitution. Although some of the Founders were opposed to slavery (such as Thomas Jefferson and Benjamin Franklin), the institution was nonetheless implemented and was kept in tact – largely for economic reasons – until after the Civil War. Even when Abraham Lincoln took office, the only major push to end slavery – the Emancipation Proclamation – was made for political reasons by Lincoln, who wished to create a slave uprising in the Confederate states.

Throughout the first half of the 20^th century, racial segregation continued to oppress African-Americans, mostly for the political benefit of those in power (affluent white males). Starting in the 1910s and 20s, the federal government embarked on a national housing segregation program which denied housing loans to those living in “areas in decline” (majority black neighborhoods), since it was believed that the presence of blacks in a white neighborhood would bring down property values. Historically black neighborhoods were destroyed to make way for elevated highways which connected white neighborhoods. Politicians, eager to gain the votes of those white voters in the majority opinion, happily violated the rights of the minority race, both to gain re-election and to expand government power in housing and transportation.

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Ron Paul and Barney Frank appeared on Larry King last night to discuss health care and financial reform.

In the first segment they discuss health care:

In the second segment, Ben Stein and Tanya Acker join Paul and Frank to discuss health care and Bernanke being named Time Magazine’s “Person of the Year”:

Finally, in the third segment, they discuss the public argument between Sarah Palin and Arnold Schwarzenegger, who they would have selected as person of the year, and Obama’s letter to Kim Jong Il of North Korea:

Rather than comment on the discussion within the videos I’d like to comment on how positive it is that Ron Paul seems to now be a “regular” on Larry King and several other main stream media outlets. It’s nice to have his atypical message being heard by so many people. The ability to wake the drooling masses begins by having a mechanism to reach them. Like it or not, the main stream media is that mechanism.

Editor’s Note: Below you will find an article with information about VA home loans. Ron Paul never wavers in his support of America’s veterans. Whether it be legislating tax breaks or fighting for veterans to receive their deserved medals Paul has always been at the forefront of ensuring those that sacrificed for this country receive the recognition they deserve. In light of that we thought helping spread more detailed information about the VA loan program would be something many of our readers would be interested in.

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America’s veterans have dedicated their lives to preserving liberty and ensuring the safety and prosperity of generations. To help give back to those who have served, the Veterans Administration administers one of the best home loan programs on the market.

VA loans provide veterans with a unique degree of flexibility and financial breathing room. The Veterans Administration does not actually issue the loans. Instead, the government guarantees loans issued by outside lenders, a layer of protection that often provides veterans and their families with preferable loans terms and rates.

Veterans can purchase a home without spending a dollar on a down payment or on private mortgage insurance. Some eligible borrowers can obtain a VA loan to cover 100 percent of their home value. Closing costs are capped and can be folded into the cost of the loan as a whole.

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