The movie is set in 2016 as the United States is on the brink of economic disrepair, eerily paralleling the current U.S. economic crisis. Young executive, Dagny Taggart, runs one of the largest remaining railroads. To save the railroad from financial ruin, Dagny seeks out entrepreneurial industrialist Henry Rearden, whose super-strength metal holds the promise of the future.  As government interference cripples economic growth, the country’s most competent and productive workers systematically disappear, expanding the realm of government influence and control. Dagny fights back against the growing influence of socialism.

Below you will find a short Q&A with Harmon Kaslow, producer of the film:

Q: Can you provide some opening comments about Atlas Shrugged: Part 1?

A: We are extremely proud of Part 1. We put together an amazing team and had an incredible experience adapting the novel. We learned a lot through the process and are very excited about proceeding with Part 2.

Q: Did the production time impose any constraints on the film? Were there any things you wished you could have done but weren’t able to?

A: John Aglialoro’s journey from acquiring the rights in 1992 to financing the production in 2010 is a fascinating story that is consistent with the novel’s themes of individualism. This is one of America’s greatest novels, yet no one but John had the courage to finance its production. So we had to proceed as an independent production and use our limited financial resources wisely. We also had a ticking clock that forced us to start production prior to June 15, 2010 or risk losing the rights. All the while, we had in our hearts a desire to adapt faithfully the book into a movie that would be entertaining and true to Ayn Rand’s message. Given these variables, my focus was on getting all of the moving parts that go into producing a motion picture in place so that the production team had what they needed to remain as faithful to Ayn’s vision as possible under the circumstances. John and the rest of the team were supportive and up to the challenge. We’re never going to be able to please everyone but one thing we know for sure: we did what everyone said was absolutely impossible – MADE ATLAS SHRUGGED INTO A MOVIE. Opinions vary but again, we are extremely proud of Part 1 and have every intention of making a great Part 2.

Q: Was the film tailored at all to tap into recent political events?

A: We wanted to adapt faithfully the book. So when you see things relating to what’s happening today, those are events that we thought could occur. What’s interesting is that many of the events we thought might happen … are happening. You have to go back and remember what the world was like in April/May 2010 when we were writing the screenplay. While there were conflicts in the Middle East, the implosion we’re experiencing now was not happening. The book is prophetic, and if you understand its message and add a bit of creativity and thought, Brian O’Toole and John Aglialoro, the screenwriters, did an excellent job in setting the foundation and context of where and when the events in our adaptation were taking place and gave us an authentic view of what the near future might look like. We dated the film September 2, 2016 and many of the things we projected might happen are happening now. A lot of these things are coming to fruition a lot sooner than any of us expected, which shows that Atlas Shrugged remains an incredibly relevant piece of literature.

Q: Do you think the message is crucial given our current political and policy environment?  

A: When it comes to the politics of Atlas Shrugged, the message really hits a wide group of people who believe that self reliance is the key to happiness and true liberty. This is about a movement back to the role of reason in human life, and the role of government and the citizen. I believe the movie does a great job of illustrating the power of the individual.

Q: Do you believe that Rand was actually prescient or just possessed a preternatural understanding of human behavior?  

A: Ayn Rand was not born in America. Apparently, she had some life-changing experiences in Russia before coming to America which inevitably impacted and shaped her view of this great country and all that it offered. She had experienced, first hand, a different form of government, which most likely affected her view of the role of the government and the individual. She seemed to have a very sound understanding of America’s greatness. It seems like immigrants see the opportunities we tend to take for granted and she saw that opportunity was being quashed by the government and was courageous enough to tell us a story that would inspire us to not stand idle and let it happen.  What’s important to John and me is that the movie inspires people to read the book.

Q: How do you respond to critics of some of the Rand’s more salacious beliefs — her atheism, the extra-marital affairs, the “greed” — all of which appear to have been represented in the film?

A: We feel no way about Ayn Rand being an anything. We are very proud to have the opportunity to bring Ayn Rand’s magnum opus to the silver screen. It’s an incredible honor that we take very seriously, and we hope to do her justice. When John and I embarked on producing Part 1 staying true to book was of primary importance. So, there was never any reason to explore Ayn Rand’s personal position on the issues you mention above. More importantly, I think people of faith will find that the film, like the story, emphasizes cardinal virtues such as self-reliance, integrity, honesty, strength of character, liberty and justice.

Q: What has been your response to the Atlas Shrugged reviews?

A: We believe the successes and failures of Part 1 are entirely on us. We are extremely proud of the work we did on Part 1. We had an amazing team, and it was truly an incredible experience. We’re never going to be able to please everyone but one thing we know for sure… we did what everyone said was absolutely impossible – MADE ATLAS SHRUGGED INTO A MOVIE. Opinions vary but again, we are extremely proud of Part 1 and have every intention of making a great Part 2.

Q: With the upcoming elections in 2012, do you believe the film can provide any guidance for Americans?

A: Absolutely, Ayn Rand’s core message really revolves around respecting the rights of the individual – that’s where I think voters will find a real connection between the book and their political beliefs.

Q: Ayn Rand’s thoughts, as conveyed in Atlas Shrugged, have caused debate and discussion around the world and next to the Bible it’s one of the most widely sold books.  Why do you think it’s so important for the book to become a movie and for people to see it? 

A: These films are our best hope for bringing Ayn’s view to a culture that has never needed it more. Since 1957, Atlas Shrugged has inspired those who are intent on rationally living their lives for their own sake and, in the process, bettering the world around them. Since today’s generation gets most of their messaging from visual and sensory presentation rather than from the written word, this generation is ripe to experience the morality of individual responsibility and achievement through the medium of film.

Q: What would satisfy you most in terms of reception for the DVD/Blu-Ray release of the film?

A: People get their friends to watch the movie and then they buy the book and their lives are changed for the better.

Q: Will there be an Atlas Shrugged Part 2?

A: Without question. We know there’s been a lot of speculation as to whether or not we’d continue – all of it due to our own mixed messages – but I can tell you now, beyond a shadow of a doubt, we are fully committed on every front to getting part 2 done. It’s all systems go, and there’s no turning back.

Last week U.S. Rep. Ron Paul, R-Texas, chairman of the House Subcommittee on Domestic Monetary Policy and Technology, held a hearing on his proposed Free Competition in Currency Act of 2011 (H.R. 1098), which would repeal legal tender laws, restrictions on private mints, and taxes on gold and silver, since such taxes interfere with the metals’ circulation as money. Testifying were the executive director of the Foundation for the Advancement of Monetary Education, Lawrence M. Parks, and George Mason University Economics Professor Lawrence H. White. Video of the hearing is not quite an hour long and you can watch it here:

The full text of the legislation is simple and concise and can be found here:

http://www.govtrack.us/congress/billtext.xpd?bill=h112-1098

The legislation would seem to legalize the Liberty Dollar coins whose issuer recently was convicted on vague charges in federal court in North Carolina. Professor White quotes New York Sun editor and Wall Street Journal contributor Seth Lipsky to the effect that it doesn’t make much sense to suppress private money that is sound to protect money that is unsound.

Unfortunately the Free Competition in Currency Act has no co-sponsors and its introduction and this week’s hearing seem to be mainly an educational exercise. But that’s where everything starts.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

We’ve launched a new campaign. This one aims to trim the power of the FDA (the Food and Drug Administration).

The hardwired portion of the letter to Congress for this new campaign reads…

Make the FDA advisory, not mandatory.

We’ve placed this campaign under the Our Heresies tab on our website, because we know it will take the public time to catch up to the truth.

We think the evidence is overwhelming that the FDA is worse than bad. The FDA is evil. It kills people…

• It denies people access to life-saving treatments
• It treats unique human beings as if they were genetically identical clones with exactly the same needs and risks
• It hobbles research
• It creates barriers to entry for new companies
• It makes medicines and supplements more expensive than they need to be
• It serves the interests of Big Pharma at the expense of the consumer
• It violates the First Amendment, by restricting commercial speech
• It opposes prevention, preferring that people get sick first, before they can receive treatment
• It stands as a major obstacle to anti-aging research that could cure most of the ailments that still ravage mankind

So “evil” is perhaps too weak a word, but we have no stronger term to use. The evidence to demonstrate our heretical claims about the FDA will come to you in an avalanche over the months ahead.

We begin with a statement of principle, which I sent to my elected representatives this morning. If you agree with our position then please feel free to copy or borrow from the following sample letter . . .

I want to control what medicines I use. I DON’T want the FDA to do this for me. The FDA should make advisory recommendations only. It should NOT have the power to mandate which drugs I can buy, and which I cannot.

* If pharmaceutical companies value the FDA seal of approval, then they can pay the FDA to evaluate their drugs.
* If consumers value FDA approval, then they can decide to only buy FDA-approved medications.

If the FDA’s seal of approval is really so valuable, then it does NOT need to be mandatory. No coercion is necessary. Instead, the FDA should be able to sell its services through voluntary means, just like Underwriter’s Laboratory does.

Consumers and doctors should be free to consult available science, and make their own decisions about which treatments to try.

All human beings are unique. Treatments that might be dangerous for one person, could be the only possible solution for another. There is zero chance that one-size-fits-all dictates can possibly account for the vastness of human variability. Patients and doctors must have the flexibility to deal with individual human uniqueness.

The FDA should serve, not rule. And Congress should do the same. Stop trying to rule me. Instead, serve me. You can do this now by introducing legislation to make the FDA advisory, NOT mandatory.

END LETTER

Assuming that you agree with us, you can send your own letter to Congress on this issue using DownsizeDC.org’s Educate the Powerful System.

However, if you have a high degree of confidence in the kind of coercive regulation the FDA provides, we encourage you to read “How To Think About Regulation” at the Downsize DC Foundation website.

Finally, YOU have an offer from Bill Haynes of CMI Gold & Silver…

Bill will double the size of your one-time contribution or new monthly pledge to DownsizeDC.org.

We FREQUENTLY (and gratefully) hear from people who write, “I wish I could do more.” Well, here’s your opportunity! You’re $5 donation can be $10. Your $25 donation can be $50. Your $100 donation could be $200. And so on… 

Please, act NOW! We have a September 30 deadline.

Thanks for being a DC Downsizer,

Perry Willis
Vice President
DownsizeDC.org, Inc.

D o w n s i z e r – D i s p a t c h

Official email newsletter of DownsizeDC.org, Inc. & Downsize DC Foundation.

The Supreme Court must now rule on this question, but we shouldn’t have to wait for that.I sent a letter to Congress telling them to repeal Obamacare now.

The hard-wired message says simply, “Please repeal Obamacare.”

I added these comments…

Uncertainty over what Obamacare will really cost companies is probably the major reason they’re reluctant to hire new people. Repeal Obamacare quickly, and this uncertainty will disappear. Unemployment would probably fall instantly, and dramatically.

Repealing Obamacare is probably the best thing you could do to create jobs.

But that’s not the only reason to repeal it.

Obamacare never had public support. It still doesn’t. The American people hate it. Plus…

The “individual mandate” is an affront to a free society. It violates the Constitution. The 11th Circuit agrees, and the Supreme Court will probably agree too.

And if the individual mandate goes, so must the rest of Obamacare. The individual mandate was essential to the scheme, because Obamacare also requires insurance companies to cover people with pre-existing conditions. The only way companies could afford that is through the requirement that everyone has to buy their product. But that won’t work if the court rejects the individual mandate.

This is a dangerous situation. If the Supreme Court kills the individual mandate, but not the whole of Obamacare, then the uncertainty companies face will grow. Job creation will remain stagnant.

America can’t afford to wait for a Supreme Court ruling, and then for further Congressional action to clarify things after the ruling. Instead, Congress should “fix” the problems of Obamacare by repealing ALL of it now.

You should also take IMMEDIATE steps to make health care more affordable, which is the key to expanding access. You can do this by allowing INDIVIDUALS to choose for themselves, with their own money. Here are some ideas…

* Introduce legislation allowing Americans to buy health insurance from any provider in the country, not just those licensed in their own state. This will reduce premiums for nearly every American.
* Remove all tax and regulatory incentives that tie health insurance to employment. This will give individuals full ownership over their own health insurance policies. This would also reduce the risk that people will end up uninsured because they change jobs, which is especially important to those Americans who have a family member with a pre-existing condition.
* Transition Medicare to a true voucher program with Health Savings Accounts (HSAs). People are always more prudent with their own money than they are when spending other people’s money. Therefore, HSA’s would reduce healthcare prices across the board.

Repealing Obamacare care now will help the economy immediately. It could also pave the way for more individual choice in healthcare. Choice would bring lowered costs, improved quality, and expanded access.

You can do better than Obamacare. Repeal it now. Then start over, using better ideas.

END LETTER

I urge you to send your own letter, or borrow from or copy the above. You can send your letter using DownsizeDC.org’s Educate the Powerful System.

And we invite you to share Downsize DC with your friends. “Like” us on Facebook and share us with your friends: http://www.facebook.com/downsizedc

Jim Babka
President
DownsizeDC.org, Inc.

D o w n s i z e r – D i s p a t c h

Official email newsletter of DownsizeDC.org, Inc. & Downsize DC Foundation.

A dangerous bill has been approved by the Republican-controlled House Judiciary Committee that would ELMINIATE your online privacy. That’s why I sent a letter to Congress using DownsizeDC.org’s Hands Off the Internet Campaign.

I urge you to send a letter. You may borrow from or copy this…

I insist that you oppose HR 1981, the so-called “Protecting Children from Internet Pornographers Act.”

The very name of the bill is dishonest and offensive. It misleads the public into thinking the bill gives law enforcement expanded tools to protect children from pedophiles.

But actually, it gives law enforcement broad powers to examine ANYONE’s Internet activities, for ANY reason. According to CNET (http://cnet.co/oU5t35):

* It would require commercial Internet providers “to store… customers’ names, addresses, phone numbers, credit card numbers, bank account numbers, and temporarily-assigned IP addresses.”
* Rep. Zoe Lofgren says this would create “a data bank of every digital act by every American” that would “let us find out where every single American visited Web sites.”
* If the law passed, criminals would simply go to libraries or coffeehouses and use the Web anonymously, while law-abiding Americans would have their activities recorded.

In addition…

* ISP’s will have to reconfigure their systems to accommodate the data retention requirements — an expense they will surely pass on to their customers (to you)
* Combing through mostly irrelevant records of innocent Americans is a highly INEFFICIENT form of catching criminals

As Kevin Bankston of the Electronic Frontier Foundation puts it, HR 1981, “would treat every Internet user like a criminal and threaten the online privacy and free speech rights of every American… Such a scheme would be as objectionable to our Founders as the requiring of licenses for printing presses or the banning of anonymous pamphlets.” (http://bit.ly/rffep9)

The First and Fourth Amendments guarantee my right to anonymity and to privacy. Both disappear if the government tracks my online activities.

Uphold your oath of office to support and defend the Constitution. Oppose HR 1981!

END LETTER

You can send your letter using DownsizeDC.org’s Educate the Powerful System.

DownsizeDC.org is one of 30 organizations that had sent a letter to the House Judiciary Committee concerning HR 1981. You can read that letter here.

And we urge you to share with your friends who are concerned about liberty and privacy. Go to our blog to “like” and “tweet” this message: http://bit.ly/qkBXM3

James Wilson
Policy Research Director
DownsizeDC.org

D o w n s i z e r – D i s p a t c h

Official email newsletter of DownsizeDC.org, Inc. & Downsize DC Foundation.

The Federal State’s price controls, paperwork, entry restrictions, environmental controls, and workplace regulations increase the prices you pay for everything you buy. These costs also discourage businesses from expanding and hiring. They often force lay-offs.

As the letter below indicates, the sheer size of the regulatory burden is shocking.

That’s why I sent a letter to Congress telling them to cut the invisible Regulation Tax.

You may borrow from or copy this letter . . .

You should repeal as many regulations as you can, and abolish the unconstitutional regulatory agencies that are obstructing economic growth. Here’s why . . .

A study by Nicole V. Crain and W. Mark Crain for the Small Business Administration estimates that federal regulations cost $1.752 trillion in 2008. (http://archive.sba.gov/advo/research/rs371tot.pdf)

* These costs are passed on to consumers, and average $15,586 per household
* This is an increase of over $5,000 since 2000

As Clyde Wayne Crews of CEI points out (http://bit.ly/l7oRVw) . . .

* Regulatory costs already equal 11.9% of GDP
* This almost twice the burden of the personal income tax
* There have been 38,700 new regulations since 2001, and the 2010 federal register had 81,405 pages — a record
* These numbers DON’T include the looming regulatory tsunami that Obamacare and Dodd-Frank will cause
* And the costs of lost innovation and productivity are impossible to measure

Federal regulations hit small businesses especially hard, and make them less competitive. The Crains point out that regulations cost businesses with fewer than 20 employed about $10,500 per worker, compared to mid-$7,000s for larger companies.

How can our economy recover when the Federal State makes it so expensive to do business?

I will NOT be afraid if Congress immediately de-funds most regulatory agencies.

* Manufacturers and sellers already have an incentive to provide safe products, and respectable industries will maintain standards
* Firms who compete for employees already have an incentive to provide safe working conditions and good pay
* The courts will still punish negligence and fraud even without the regulatory apparatus

Regulations force businesses to divert resources to please bureaucrats INSTEAD of serving the best interests of customers. Moreover, complicated regulations provide greater opportunity for fraud. Free markets, on the other hand, promote transparency.

A market free from federal regulation will also create . . .

* More jobs
* Lower prices
* More money in my pocket
* Economic growth

Shrink the Regulatory State!

END LETTER

You can send your letter using DownsizeDC.org’s Educate the Powerful System.

And we invite you to “like” us on Facebook and share our posts. http://www.facebook.com/downsizedc

James Wilson
Assistant Communications Director
DownsizeDC.org

D o w n s i z e r – D i s p a t c h

Official email newsletter of DownsizeDC.org, Inc. & Downsize DC Foundation.

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.

The widely-followed Case-Shiller Home Price Index fell 3.1% in January; prices are now at their lowest level since the housing market made its first bottom in April 2009. Sales of existing homes were off nearly 10% in February, and new homes sales were at a record low. As the economy worsens, there can be little doubt that housing is headed for a double-dip.

The government’s “make housing affordable” approach to market intervention is the root of the entire problem. To a large extent, this intervention takes the form of mortgage purchases by government-sponsored Fannie and Freddie. Through these entities, nearly all new loans for homes are now destined for public ownership. When these entities buy a mortgage, they are doing so to help the borrower get the needed financing. They have only a casual interest in the investment quality of the transaction. This is very different motivation from the private investor, who is primarily concerned with getting paid back; and on that basis, wouldn’t go anywhere near US housing.

Private investors naturally prefer borrowers who are likely to make good on their commitments. Employment prospects figure prominently into this analysis. But nearly one-quarter of the workforce is unemployed or underemployed - that’s millions of people who are probably struggling to pay for groceries, let alone a mortgage. Strike them off the list of potential homebuyers.

Of course, some people do have jobs, but that’s not enough to satisfy those crazy private investors. They also want to make sure the borrower has some skin in the game, via an initial ”down payment” of up to 20% of the home’s value. This threshold is a bit of a blast from the past. For most of the last century, a 20% down payment was the standard amount needed to qualify. Just ask anyone older than 55 or so about how they qualified for their first mortgage. I bet the story starts with their struggle to come up with a hefty down payment.

Following these general guidelines, the average American would need to put down $30,000+ to buy a median-priced home in the US. After decades of perniciously low savings rates, Americans just don’t have that kind of money. (To get around this thorny issue, the government is going where private lenders fear to tread by making loans for as little as 3.5% down.) Strike two.

Those few private investors who, despite all of the challenges, might still lend money to borrowers are being prevented from doing so by yet another government-sponsored institution, The Federal Reserve, which has prevented private lenders from charging an interest rate high enough to compensate for the extraordinary risk of lending into a collapsing market. Thanks to Helicopter, ahem, Chairman Ben Bernanke, interest rates are being artificially forced lower as part of a grand plan to re-inflate the debt bubble in the US economy. Strike three.

Naturally, all of these headwinds are having a predictable effect on housing prices. Thanks only to a $150 billion handout from the US taxpayer, and hundreds of billions of unprofitable investments at Fannie and Freddie, housing prices bottomed in 2009 and rose into the first half of 2010. But, as noted above, prices have resumed their downward trend, and are now within striking distance of making a new low.

Why is the government support not enough? Quite simply it is because prices were and still are too high. Even with the intervention, house prices have yet to find their natural equilibrium. And no private investor is going to invest in an asset class where prices are clearly headed lower. Strike four (as if we needed another).

The Administration’s stated goal is to extricate itself from the US housing market, in order to make room for private investors. Unfortunately, in the current environment, nobody with half a brain is going to put their capital at risk in this sector.

If you were an investor who saw that nearly one-in-four American adults did not have a full-time job, and those that could find work probably didn’t have an adequate down payment, and even if they did have a down payment, it would disappear into the abyss of falling housing prices, and even if you could find a suitable borrower, you would be forced to accept a below-market interest rate on your loan, would YOU invest in US housing? Neither would I.

I wish the President luck in getting the government out of the housing market. He’s going to need it.

http://www.youtube.com/watch?v=eVRy_aBO958

Here is his GMA appearance:

http://www.youtube.com/watch?v=rQFV9nN91Oc

Here is his interview with Hannity on the radio:

http://www.youtube.com/watch?v=-i0LbuS5KkM

Go, Rand, go.

To counter the increasing demands that government reduce its micromanagement of the economy, last week the Obama Administration offered a fig leaf in the form of a white paper entitled “Reforming America’s Housing Finance Market.” In addition to marking the official end of the Bush era “ownership society,” where increasing the level of home ownership was a national priority, the document contains a recommended regulatory overhaul of the Federal Housing Authority (FHA) as well as Fannie Mae and Freddie Mac (together known as Government Sponsored Enterprises “GSE’s”), that intends to bring the share of government owned home loans from the current 95% to 40% over the next 5-7 years.

In the report, the Obama Administration makes the important admission that government interference in housing had dangerously distorted the market. And, while the goal of reducing the government’s footprint in the housing market is certainly laudable, the reform plan is not only too little too late, but fails miserably to address the nucleus of the problem. Even if all the recommendations are adopted, the government would actually extend its explicit guarantees to bail out failing lenders. Most importantly, the proposal completely overlooks the most significant government distortion of the housing market: the Federal Reserve’s manipulation of interest rates. Thus, this plan will insure that government’s role in the mortgage market will likely expand in the years ahead.

Banks are in the business of borrowing on the short end of the yield curve and lending on the long end. Since interest rates are generally lower for shorter time durations, banks make profits by capturing the spread. But if the gap between long term and short term rates narrow, or sometimes vanish completely, banks have a much harder time operating. Rapid and dramatic changes in interest rates also expose banks to money losing risks.

In a free market, whenever the supply of savings contracts the cost of money tends to increase. Those rising interest rates curb the demand for borrowing and increase the propensity to save. Conversely, increased savings rates lower the price of money, thereby encouraging more borrowing. Consequently, in a free economy market forces tend to stabilize interest rate volatility. However in the United States interest rates are anything but free.

When interest rates are set by a few people behind closed doors, as they are by the Federal Reserve, massive distortions can occur in the supply demand metric. For example, the S&L crisis of the late 80′s and early 90′s was brought about by the loose monetary policy of the 70′s. Rising interest rates, which were a direct response to rising inflation, soon found S&L’s paying out more on their short-term borrowed funds than they were collecting on their long term assets. The consequences for those imbalances caused by our central bank rendered nearly one thousand banks insolvent.

To mitigate this problem, early in the last decade banks began turning more and more to securitization as a way to unload the mortgages on their books by packaging and selling loans to outside investors. Not only does securitization bring in fees and reduce banks’ risk exposure but it also sucks in more capital to the real estate market, while increasing financial sector profits. It’s no wonder that the securitization market grew to over $10 trillion in the U.S. before the credit crisis of 2008. On paper this was a good solution to the problem, but additional government involvement in the securitization market threw in a monkey wrench.

Given the size and diversity of the investment market in the U.S. and around the world, there was adequate private demand for securitized mortgages. With relatively low risk and more generous yields than government debt, pension funds and other institutional investors bought heavily. However, as the Federal Reserve continued to lower rates and as the government engineered housing boom finally went bust, this private label demand dried up almost completely. The GSEs now provide financing for 9 out of 10 mortgages. Therefore, the real estate market today is virtually 100% distorted and manipulated by government forces.

Treasury Secretary Geithner–the President’s main pitch man for the program–touted the proposed solution of a hybrid federal reinsurance plan that would include a standing federal catastrophic reinsurer for private guarantors of mortgage-backed securities. The government has already clearly shown that its erstwhile implicit guarantee is now in fact explicit for GSE debt. That condition would remain intact. However, now government involvement would also morph into an explicit guarantee to reinsure private label mortgages. Therefore, in typical government fashion, the proposed reforms are merely a repackaging of the previous sham. Even if the plan were to be successfully carried out, the GSEs would still account for nearly half of all mortgage financing. Only now the government would also back private insurance for private label MBS with yet another explicit guarantee in case of emergency. Who can doubt that such conditions will inevitably arise? As to how this can ever satisfy the need to remove moral hazard or getting the government out of the housing market is beyond me.

In other words, there is no meaningful governmental withdrawal from the market. Most importantly, the plan does nothing to address the Fed’s role in making interest rates much lower and more volatile than they would otherwise be. Unfortunately the housing market will remain in government control for years to come and another real estate crisis will inevitably occur.