The Federal Reserve until recently has jealously guarded its independence from politics by focusing attention exclusively on monetary policy. Wisely, it has sought to distance itself from fiscal policy which is a central responsibility of the political process.
No longer! Federal Reserve Governors and senior Federal Reserve policy-makers are now actively urging the fiscal authorities to advance socialism through redistribution policies.
“William Dudley, president of the Federal Reserve Bank of New York, said on Friday that taxpayers and mortgage bond investors should shoulder the cost of reducing borrowers’ loan principal. Sarah Bloom Raskin, a member of the Federal Reserve’s board of governors, added on Saturday that forcing leading banks to cut mortgage principal as a penalty for poor practices was an option ‘that should stay on the table’ …according to Federal reserve policymakers, the US Congress and the Obama administration should adopt new programmes that make it easier for troubled borrowers to keep their homes and potential homebuyers to obtain loans.” Shahien Nasipour, ‘Call for US taxpayers to help borrowers’, Financial Times, January 9, 2012
The Federal Reserve confronts a problem in trying to resuscitate the US housing market (and construction industry) via monetary policy. Its interest rates are already near-zero, leaving the Fed with few options. An explicit policy of driving up inflation would contravene its own mandate and provoke a political backlash from creditos across the nation. So the Federal Reserve falls back on crude socialism to put the housing market on life support.
In so doing, the Federal Reserve takes a wrong fork in the road. The US housing market suffers not from a deficiency, but from an excess, of political intervention. A sequence of vote-seeking US presidents and of vote-seeking US congressmen have intervened shamelessly over four decades to drive up the rate of home ownership among households unfitted by reason of income or imprudence from assuming additional debt. The 2007-8 bubble burst exposed such shameless chicanery. Since then attempts to prop up house prices by government intervention have slowed the rate of market adjustment. That is why the housing market remains in the doldrums.
The medicine required to clear the market is simply to allow average US house prices to fall to clearing levels as some 4 million excess homeowners are returned to a newly-vibrant rental market. The Federal Reserve has no role to play in this market process, which lies outside its mandate and (evidently) outside the competence of its Governors.
Why should US taxpayers be on the hook for imprudent decisions by would-be homeowners who entered into non-sustainable contracts and for selfish interventions by corrupt politicians who garnered votes by pressuring government agencies to extend loans to the indigent and the reckless.
Tags: Federal reserve, housing market, Sarah Bloom Raskin, socialism, William Dudley
January 9, 2012 at 2:28 pm |
from http://www.newyorkfed.org/newsevents/speeches/2012/dud120106.html
“Monetary policy and housing policy are much more complements than substitutes.
As I hope I have convinced you today, while the Fed has will do all it can to achieve our dual mandate of maximum sustainable employment in the context of price stability, we have to recognize that there is more to economic policy than just monetary policy. Low interest rates help housing, but cannot resolve the problems in that sector that are pressing on wider economic activity. With additional housing policy interventions, we could achieve a better set of economic outcomes than with just monetary policy alone.”
Man this pisses me off. Who the hell put the Fed in charge of “…housing policy interventions…”? How did these banksters come to rule the country? Remember what Andrew Jackson said:
“The bank is, in fact, but one of the fruits of a system at war with the genius of all our institutions — a system founded upon a political creed the fundamental principle of which is a distrust of the popular will as a safe regulator of political power, and whose great ultimate object and inevitable result, should it prevail, is the consolidation of all power in our system in one central government. Lavish public disbursements and corporations with exclusive privileges would be its substitutes for the original and as yet sound checks and balances of the Constitution — the means by whose silent and secret operation a control would be exercised by the few over the political conduct of the many by first acquiring that control over the labor and earnings of the great body of the people. Wherever this spirit has effected an alliance with political power, tyranny and despotism have been the fruit. If it is ever used for the ends of government, it has to be incessantly watched, or it corrupts the sources of the public virtue and agitates the country with questions unfavorable to the harmonious and steady pursuit of its true interests.
-Andrew Jackson, 7th Annual Address to Congress 1835
God I hope Ryan gets on the ballot.
January 13, 2012 at 5:16 am |
Why doesn’t Big Mouth Warren Buffet start a bank and buy up all those foreclosed mortgages and rewrite them with less principal and lower interest rates for the dispossessed owners? Let Big Warren put his money where his mouth is. Stop bleeding the taxpayers.
January 13, 2012 at 9:29 pm |
Why doesn’t Big Mouth Warren Buffet start a bank, you say?
He did when he dumped a bunch on B of A
January 19, 2012 at 10:33 pm |
Ultimately I would put the blame on banks/government for driving up prices between periods 1999 – 2008. Before that time the poor were able to afford a house in a low income neighborhood and were able to pay off their mortgage. Now, even poor or low income neighborhoods are unaffordable to the middle class.