Saturday, September 10, 2011

How we killed the economy and how we can fix it

One of the solutions to our economic probles that the Left loves is "rebuild the infrastructure." The claim is it will employ people and it will boost the economy.

The problem with the "construction" industry solution is this.

The construction of private homes is not the same as building bridges, roads, etc. The materials required is different. The equipment is largely different. The planning is entirely different. The number of workers is vastly different. And the skill set is vastly different. A rough framing carpenter is useless in bridge building as is a finished carpenter. Plus you have very little need for plumbers and electricians.

And the number of workers needed for home building is much greater than what you need for road building.

Would it employ people. Yes. But not enough to jump start the economy and at a cost we can't afford.

So what you have is another Leftie central planning solution that won't work.

Now, what caused the housing bubble?

Greed. Greed of people wanting more than they could afford and greed of politicians wanting to give them a reason to vote for them.

In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders


''From the perspective of many people, including me, this is another thrift industry growing up around us,'' said Peter Wallison a resident fellow at the American Enterprise Institute. ''If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.''


Fannie Mae, the nation's biggest underwriter of home mortgages, does not lend money directly to consumers. Instead, it purchases loans that banks make on what is called the secondary market. By expanding the type of loans that it will buy, Fannie Mae is hoping to spur banks to make more loans to people with less-than-stellar credit ratings.

Fannie Mae officials stress that the new mortgages will be extended to all potential borrowers who can qualify for a mortgage. But they add that the move is intended in part to increase the number of minority and low income home owners who tend to have worse credit ratings than non-Hispanic whites.


In case you don't know, the above was published 9/30/1999 and the President was Clinton.

Now Wallison was right. And in 2003 the Bush administration tried to get control.

The Bush administration today recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago.

Under the plan, disclosed at a Congressional hearing today, a new agency would be created within the Treasury Department to assume supervision of Fannie Mae and Freddie Mac, the government-sponsored companies that are the two largest players in the mortgage lending industry.

But Barney Frank and Chris Dodd stopped it.

Significant details must still be worked out before Congress can approve a bill. Among the groups denouncing the proposal today were the National Association of Home Builders and Congressional Democrats who fear that tighter regulation of the companies could sharply reduce their commitment to financing low-income and affordable housing.

''These two entities -- Fannie Mae and Freddie Mac -- are not facing any kind of financial crisis,'' said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. ''The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.''


That Franks didn't know his rear end from first base is obvious. That he was doing this purely for political reasons doesn't need to be stated.

And the result was as expected. A overheated market. Greed by buyers wanting to speculate. Greed by sellers wanting to sell. Greed by banks who knew that whatever they did they could sell it to, among others, Fannie and Freddie and that the government wouldn't let them fail.

They were right. Read "The Big Short," by Michael Lewis.

Yet as the market imploded the Feds tried to ease the crisis by lowering rates. The economy remained strong and the end of April 2008 the situation, while not good, was somewhat under control.

Then the other shoe dropped. Oil went from around $85 a barrel in May to $145 a barrel by mid July and the economy collapsed. This was driven by speculators who were convinced, wrongly, that an oil shortage existed and that the Democrats would limit drilling. On the latter they were right. The Demos, in control of the House and the Senate blocked all attempts by the Repubs to increase drilling.

Finally Bush acted and issued an EO removing prohibitions. The oil bubble collapsed and the Demos, fearful of being left out, joined in.

By the time Obama was sworn in gasoline was $1.81 a gallon.

What did Obama do? Within days:

Facing gas prices near $4 a gallon and a pivotal national election, congressional Democrats allowed a ban on offshore drilling to lapse in September

But times change, and on Tuesday, the Obama administration - with gas prices roughly half what they were and many Democrats’ having been swept into office - blocked offshore drilling plans put in place at the last minute by the Bush administration, including plans to open the national outer continental shelf for drilling.

Interior Department Secretary Ken Salazar also announced last week that his agency would block drilling on public lands in Utah, criticizing the Bush administration for releasing its offshore drilling plan just days before leaving office.


And gasoline prices have since climbed steadily to a high of around $4.50 before falling back to the current $3.66.

And the economy is approaching depression levels.

How to fix it?

Start drilling for oil. Get rid of those regulations.

No charge for the education.

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"Unlimited tolerance must lead to the disappearance of tolerance. If we extend unlimited tolerance even to those who are intolerant, if we are not prepared to defend a tolerant society against the onslaught of the intolerant, then the tolerant will be destroyed, and tolerance with them." - Karl Popper

“Necessity is the plea for every infringement of human freedom. It is the argument of tyrants. It is the creed of slaves.” - William Pitt

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