Taunter Media

If I may quote myself, from September 4:

When you find yourself in a hole, stop digging. Except the Bernanke/Summers/Geithner team, who seem to believe you try to dig your way through to the other side of the earth. Call it the Martingale Strategy of government finance.

Like every other problem gambler, this team is discovering that the law of large numbers does not work in favor of bad bets:

The Federal Housing Administration, the government agency whose loan-insurance programs have become a crucial source of support for the housing market, said on Thursday that its cash reserves had dwindled significantly in the last year as more borrowers defaulted on their mortgages.

The agency released an audit that spelled out the rapid deterioration of its finances. It is tightening loan standards in hopes it will not become another drain on the United States Treasury, but is reluctant to clamp down so much that it snuffs out the tentative recovery in housing.

Our leaders seem to have a problem of the imagination with housing.  It is assumed by so many people that high prices equal good that our representatives endorse the view, without ever explaining how that could be.  The closest analogy that comes to mind is the conventional wisdom that the common cold is caused by exposure to low temperatures, as opposed to the other sick people with whom we huddle indoors in winter (if it were the temperature, individuals stranded by themselves in the Arctic would surely catch it, but while frostbite is a very real risk, no people = no colds).  It doesn’t stand up to scrutiny, but the solution is not to scrutinize it.

Take Barney Frank.  In general, Barney is one of the good guys, and one of the few congressmen willing to speak in anything other than the bland platitudes of a football press conference or the lunatic ramblings of Michele Bachmann or Virginia Foxx.  But this:

Barney Frank, the Massachusetts Democrat who is chairman of the House Financial Services Committee, said in an interview that the defaults were, in essence, worth it.

“I don’t think it’s a bad thing that the bad loans occurred,” he said. “It was an effort to keep prices from falling too fast. That’s a policy.”

If that is what passes for policy, no wonder we are in such dire circumstances.

Think of what it would mean if supporting the price of residential housing were a government policy.  It would mean that taxpayers were spending money to make it more expensive for people to buy houses, and then spending more money – through the mortgage interest deduction – to help people pay for the houses rendered otherwise unaffordable.  That’s not a policy, that’s stupid.

A policy would be building more houses.  I happen to doubt that additional housing is particularly needed – our homeless population is largely the result of our shameful refusal to provide mental health services, not a lack of lumber and joists – but if the government decided to play developer it would create more units and drive down the cost of units.  This would get more people into quality housing, at the cost of probably not receiving an economic return on the units (if there were such a return, people would be building the houses without government intervention).  That’s the sort of thing that can be debated.

A policy would be federal intervention in zoning policies or traditional municipal planning, to remove legal restrictions to development and reduce the hurdles to additional construction.  It would be clumsy and would result in high-density development in what are currently beautiful areas, and that flies in the face of preservation efforts, but it would increase housing where people want to be.

Goosing the secondary housing market is not a policy.  It is a transfer of wealth from taxpayers in general to owners of housing (note that in many cases the effective owner of housing is the bank that holds the mortgage, not the guy running around thinking he is the king of his castle) and housing intermediaries (every marginal dollar is taxed 6% by the realtors).  Why are these people more worthy than the general population?  Surely not for any economic multiplier; short of building missiles and parking them in silos, it’s hard to come up with a better example of waste than spending money to end up with the same number of houses occupied by the same number of people.

The simple answer – and, I suspect, the closest to the truth – is just that banks and realtors are powerful groups in Washington, and they have an easy time feeding at the public trough.  Barney should know better.  It seems he does not, and we will soon enough learn the same lesson we learned with Fannie and Freddie – the government has no business subsidizing the broad real estate market:

In a sense, the agency is bulking up and giving as many loans as it can to qualified buyers as a way to diminish the relative size of the pool of problem loans. It guaranteed more than $360 billion in mortgages in the last year, four times the amount of 2007.

Critics say this is only increasing the size of the ultimate peril.

“They keep saying they’re going to outrun their problems, but some way, somehow, the taxpayer is going to end up on the hook,” said Edward Pinto, a former executive with Fannie Mae.

We deserve better from our government.