Liberty Maven

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?

by John Browne – Senior Market Strategist, Euro Pacific Capital

As the health of much of the global economy weakens on a daily basis, political leadership increasingly ignores the source of the malady and instead focuses on short term “band-aid” remedies. These measures which may buy a few months, or years, of relative well being, will convince the public that problems have been solved and will thereby take pressure off governments to make the needed structural changes.

The recently announced $1 trillion EU bailout is a perfect example of this “band-aid” approach. The just concluded general election in the United Kingdom is another. The inconclusive UK result, which creates a Conservative/Liberal Democrat coalition, will be an unhappy, unquestionably temporary arrangement. Similarly, the EU bailout will continue to infuriate Northern Europeans, who may ultimately push for a breakup of the Union.

NuLabour (what the center-drifting Labour Party of Tony Blair has been branded) took a spectacular beating as a result of the clumsy stewardship of now former Prime Minister, Gordon Brown. Mr. Brown, whom I knew as a political bruiser in his early days in the House of Commons, had led Britain far down the road to economic ruin. As a very powerful Chancellor of the Exchequer under Tony Blair, he introduced many stealth taxes to finance a wave of high government spending. Seemingly operating as an unelected Prime Minister, he unleashed massive spending programs and interfered with UK banks in ways that worsened the effects of the financial crisis.

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The New York Sun praises Ron Paul for his life-long tenacity at fighting for Constitutional money. They bring up the racist newsletters, but end up defending Paul more than criticizing him.

Our own view of Dr. Paul, however, is different. It has been formed in the process of covering his campaign for sound money on and off for nearly 30 years, starting with his membership on the United States Gold Commission at the start of the Reagan presidency. We clearly have differences with Dr. Paul in respect of foreign policy and, in recent years, the current war. He has, however, earned our abiding respect for the clarity and commitment with which he has pressed the case for a constitutional approach to money, which in our view is one of the fundamental issues facing the country.

Check out the full editorial here.

by Peter Schiff, president of Euro Pacific Capital and author of Crash Proof 2.0: How to Profit from the Economic Collapse

During the 1990s, inflationary Federal Reserve policy fueled a tech stock bubble. When that bubble burst, the Fed inflated a larger one in real estate. Now that the real estate bubble has burst, the Fed is inflating the biggest bubble of them all – a bubble in government. While the earlier booms at least provided the illusion of prosperity and some fun while they lasted, the government bubble will cripple the economy and deliver widespread misery to the vast majority of Americans.

Of course, there will be winners in the government bubble, at least for a while. As was the case with the stock and real estate bubbles, plenty of money will be made by the well-connected and parasitic classes. Government employees will continue to enjoy pay raises at our expense, as will anyone benefiting from the new wave of subsidies, such as Wall Street investment bankers, financial speculators, and those working in health care or education.

These gains will come at the expense of the taxpayers who foot the bill and the consumers who face higher prices. As government grows, it deprives the private sector of the resources it needs to survive and grow. The result is a lower overall standard of living. Not only are government jobs less productive than private sector jobs, but bureaucratic interference actually makes the remaining private sector jobs less efficient as well.

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Another interesting exchange between Ron Paul and Ben Bernanke during a Financial Services Committee hearing earlier today.

The U.S. Department of Education was established on May 4, 1980 with its primary objective being to “[assure] access to equal educational opportunity for every individual,” as well as to improve educational quality across America. One of the largest arguments for the creation of a federal department, however, was to coordinate the federal loan programs set forth in LBJ’s “Great Society” program. Johnson proudly signed the Higher Education Act of 1965 into law, proclaiming that the loan programs would “swing open a new door for the young people of America” by making higher education more affordable.

Flash forward several decades from these grand government schemes and these proclamations seem dubious at best. The average cost of attendance at a public university has increased from $950 per year in 1965 to $2,165 in 1980 to $11,034 in 2007 – to say that the federal loan program has failed to make college a more attainable goal for lower-class families would be an understatement. This rising cost spiral has been discussed at length elsewhere, however; the other issues inherent in the federal micromanagement of education are less often mentioned and are perhaps of more importance in our society.

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Earlier today Ron Paul did what he does best: Hammered central government/economic planning during a House committee hearing. He then gets to ask Ben Bernanke a few questions on interest rate manipulation. Unsurprisingly, Bernanke claims the problems were due to not enough regulation rather than admit that regulation was the cause of the problems.

“Central Banking is an art.” – Bernanke

Near the end of the 2nd clip both men get to the heart of their differences:

Bernanke: “You are a gold standard, er, uh…”
Paul: “I’m for the Constitution.”

httpvp://www.youtube.com/view_play_list?p=8CBCE62A55B9A4F7

by Peter Schiff, president of Euro Pacific Capital and author of Crash Proof 2.0: How to Profit from the Economic Collapse

If the global economy were a three ring circus, then the center ring attraction would be the currency and debt battle quietly and slowly building between the United States and China. But for the past month the world’s attention has been distracted by a much more entertaining sideshow in which European unity, and the ongoing viability of the euro, is being tested by the Greek debt crisis.

I believe the short-term problems in Europe are being overblown and the potential demise of the euro highly exaggerated.  For those who can connect the dots however, the Greek drama throws some much needed light on the far more daunting problems unfolding within our own fiscal house.

The scenario that is eliciting the greatest fears is that resentment from the more solvent EU members (Germany, France, et. al) will prevent a bailout. If the Greek government then fails to adopt austerity measures that will bring it back in line with EU debt requirements, an expulsion, or withdrawal, from the Union becomes a possibility. This could set off a domino effect that will bring down larger European political or monetary union.  On the other hand, if Greece does receive a bailout, a moral hazard will be created that will encourage other indebted countries (Portugal, Spain, etc.) to press for equal benefits.

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