That’s what Neil Irwin tells us in his column today. Irwin says the Fed is divided:
“There has been a long-simmering battle within the central bank over this basic question: Should they still be focused all-out on fixing the economic damage wrought by the last crisis? Or should they worry more about risks building in the financial system that could contribute to a future crisis?”
The idea that the Fed should be worried about bubbles in the price of platinum or Twiiter stock is just silly. In a market economy people will always be making bets. Some will pay off and some won’t. The correct answer at the Fed to the prospect of some people making losing bets is “so what?”
The issue that the Fed should concern itself with is a bubble that actually moves the economy as the stock bubble did in the 1990s and the housing bubble did in the last decade. It wasn’t necessary to have complex computer programs and super-sophisticated economic knowledge to see the impact of these bubbles on the economy. Intro econ and third grade arithmetic were pretty much adequate for the job.
In both cases the wealth generated by the bubbles led consumption to soar and savings rates to plummet. In the former case, the ability to sell shares of stock in Garbage.com for billions of dollars led to a boom in investment by nonsense Internet based companies. In the latter case we got a clearly unsustainable construction boom. Both of these booms predictably collapsed when the bubbles burst.
There is no comparable story in the economy today as should be readily apparent to anyone who reads the data. The Fed’s hawks are looking to crack down on phantom bubbles and to keep millions of people out of work as the cost of their war.
Addendum:
As some folks have pointed out — the housing market was getting into worrying ground. My guess is that the interest rate hike spurred by Bernanke’s taper talk headed off that bubble. We will know as more data comes in over the next few months.
That’s what Neil Irwin tells us in his column today. Irwin says the Fed is divided:
“There has been a long-simmering battle within the central bank over this basic question: Should they still be focused all-out on fixing the economic damage wrought by the last crisis? Or should they worry more about risks building in the financial system that could contribute to a future crisis?”
The idea that the Fed should be worried about bubbles in the price of platinum or Twiiter stock is just silly. In a market economy people will always be making bets. Some will pay off and some won’t. The correct answer at the Fed to the prospect of some people making losing bets is “so what?”
The issue that the Fed should concern itself with is a bubble that actually moves the economy as the stock bubble did in the 1990s and the housing bubble did in the last decade. It wasn’t necessary to have complex computer programs and super-sophisticated economic knowledge to see the impact of these bubbles on the economy. Intro econ and third grade arithmetic were pretty much adequate for the job.
In both cases the wealth generated by the bubbles led consumption to soar and savings rates to plummet. In the former case, the ability to sell shares of stock in Garbage.com for billions of dollars led to a boom in investment by nonsense Internet based companies. In the latter case we got a clearly unsustainable construction boom. Both of these booms predictably collapsed when the bubbles burst.
There is no comparable story in the economy today as should be readily apparent to anyone who reads the data. The Fed’s hawks are looking to crack down on phantom bubbles and to keep millions of people out of work as the cost of their war.
Addendum:
As some folks have pointed out — the housing market was getting into worrying ground. My guess is that the interest rate hike spurred by Bernanke’s taper talk headed off that bubble. We will know as more data comes in over the next few months.
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If the economy were humming along at 3.0 percent growth and 4.0 percent unemployment it would be reasonable for economists and economics reporters to worry about strange and unlikely state of affairs with little consequence. But at a time when the economy is down almost 9 million jobs from its trend level, wages are going nowhere, and growth is not much above zero, worrying about the Fed losing money on its bond purchases is more than a bit bizarre. But apparently this is the concern that occupies the Los Angeles Times business section and apparently some members of Congress.
The basic idea is that if interest rates suddenly soar then the bonds held by the Fed will be worth less, so the Fed will take a loss on its bond holdings. If the losses are large enough and the Fed realizes its losses by selling its bonds, then it could actually be insolvent.
The idea that long-term bonds fall in value when interest rates rise is not exactly new. Some of us suggested taking advantage of this fact to get around the nutty debt cult that controls Washington these days.
But what would these mean for the Fed? First, we should ask under what circumstances would interest rates rise suddenly? Presumably this would be the result of a rapid recovery of the economy. If that happened, and we suddenly get back the 9 million jobs we lost, a shortfall at the Fed would be a pretty silly thing to worry about.
Alternatively, we get a sudden spike of interest rates because aliens dump their bonds in huge amounts, even though the economy is still weak. Guess what the Fed could do then? That’s right, if the economy is still weak, it can buy up those bonds and keep interest rates low and bond prices high. Are you scared yet?
Alright, but one of these days the economy will recover and the Fed will want to take reserves out of the system to prevent inflation. If it felt it had to sell off its bonds quickly, and then take a loss, it could face insolvency.
There are two points on this one. First, this is pure and simply an accounting issue. Congress could change the law and allow the Fed to have a negative balance. The consequence for the government and the economy would be precisely zero. The other possibility, for those who find the first solution to be too simple, would be to have the Fed slow the economy by raising bank reserve requirements. This would accomplish the same result. It is also a simple and old-fashioned mechanism.
So put the insolvency of the Fed off the list of things to worry about in your lifetime. Unfortunately we do have real world problems to deal with.
If the economy were humming along at 3.0 percent growth and 4.0 percent unemployment it would be reasonable for economists and economics reporters to worry about strange and unlikely state of affairs with little consequence. But at a time when the economy is down almost 9 million jobs from its trend level, wages are going nowhere, and growth is not much above zero, worrying about the Fed losing money on its bond purchases is more than a bit bizarre. But apparently this is the concern that occupies the Los Angeles Times business section and apparently some members of Congress.
The basic idea is that if interest rates suddenly soar then the bonds held by the Fed will be worth less, so the Fed will take a loss on its bond holdings. If the losses are large enough and the Fed realizes its losses by selling its bonds, then it could actually be insolvent.
The idea that long-term bonds fall in value when interest rates rise is not exactly new. Some of us suggested taking advantage of this fact to get around the nutty debt cult that controls Washington these days.
But what would these mean for the Fed? First, we should ask under what circumstances would interest rates rise suddenly? Presumably this would be the result of a rapid recovery of the economy. If that happened, and we suddenly get back the 9 million jobs we lost, a shortfall at the Fed would be a pretty silly thing to worry about.
Alternatively, we get a sudden spike of interest rates because aliens dump their bonds in huge amounts, even though the economy is still weak. Guess what the Fed could do then? That’s right, if the economy is still weak, it can buy up those bonds and keep interest rates low and bond prices high. Are you scared yet?
Alright, but one of these days the economy will recover and the Fed will want to take reserves out of the system to prevent inflation. If it felt it had to sell off its bonds quickly, and then take a loss, it could face insolvency.
There are two points on this one. First, this is pure and simply an accounting issue. Congress could change the law and allow the Fed to have a negative balance. The consequence for the government and the economy would be precisely zero. The other possibility, for those who find the first solution to be too simple, would be to have the Fed slow the economy by raising bank reserve requirements. This would accomplish the same result. It is also a simple and old-fashioned mechanism.
So put the insolvency of the Fed off the list of things to worry about in your lifetime. Unfortunately we do have real world problems to deal with.
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That’s what readers of the paper’s Review and Outlook column would discover today. The basic point is that a large part of the $13 billion settlement that JP Morgan reached with the Justice Department involves payments to Fannie Mae and Freddie Mac over misrepresentations about the quality of mortgages in mortgage backed securities sold at the peak of the bubble. The WSJ rightly points out that Fannie Mae and Freddie Mac are really big actors, who should have known what they were doing.
Unfortunately, if recent history has taught us anything it is that highly paid big businesspeople often don’t have a clue what they are doing. For example, Gerald Levin, who was CEO of Time-Warner in 2000, essentially gave the company away for almost nothing when he agreed to a merger in which Time-Warner was sold for shares of AOL stock. Hewlett-Packard made a big investment to get into the tablet computer business, which it then abandoned almost immediately after its product came on the market. And, it seems almost no one on Wall Street saw the housing crash coming.
In short, big actors like Fannie Mae and Freddie Mac should know what they are doing, but often don’t. This lack of competence on the part of people being paid tens of millions of dollars a year (yes, there is a serious skills shortage), does not excuse acts of fraud by others. JP Morgan is accused of making deliberate misrepresentations in its selling of mortgage backed securities. (In many cases, the misrepresentations were made by banks it acquired.)
If the charges of misrepresentation were not true then presumably Jamie Dimon, JP Morgan’s CEO, would have been prepared to go to trial and show that the Justice Department was wrong. It seems unlikely that he would have given away $13 billion of the bank’s money if he did not think there was a serious case.
It is also worth noting that Fannie Mae and Freddie Mac were buying these subprime MBS because they hoped to make money. They were losing market share and were getting pressure from the markets to get into a market that at the time was dominated by private investment banks like Citigroup and Goldman Sachs.
This assessment by Moody’s of Freddie Mac in December of 2006 tells the story very clearly. Moody’s indicated that it would have been concerned about Freddie’s future prospects had it not made the decision to get more deeply involved in the subprime market. The idea that that Fannie and Freddie got into subprime to help poor people get homes is nonsense.
One final point which I should not miss an opportunity to belittle is the idea that Barney Frank was in anyway responsible for Fannie and Freddie’s behavior. Barney Frank was a minority member of Congress until January of 2007. At that point, almost all the bad loans already had gone out the door. Minority members of Congress have as much influence over the actions of Fannie and Freddie as the average shoe salesperson. The folks who want to blame Barney Frank for the housing bubble obviously have no clue of what they are talking about or are making up stories to push an agenda.
That’s what readers of the paper’s Review and Outlook column would discover today. The basic point is that a large part of the $13 billion settlement that JP Morgan reached with the Justice Department involves payments to Fannie Mae and Freddie Mac over misrepresentations about the quality of mortgages in mortgage backed securities sold at the peak of the bubble. The WSJ rightly points out that Fannie Mae and Freddie Mac are really big actors, who should have known what they were doing.
Unfortunately, if recent history has taught us anything it is that highly paid big businesspeople often don’t have a clue what they are doing. For example, Gerald Levin, who was CEO of Time-Warner in 2000, essentially gave the company away for almost nothing when he agreed to a merger in which Time-Warner was sold for shares of AOL stock. Hewlett-Packard made a big investment to get into the tablet computer business, which it then abandoned almost immediately after its product came on the market. And, it seems almost no one on Wall Street saw the housing crash coming.
In short, big actors like Fannie Mae and Freddie Mac should know what they are doing, but often don’t. This lack of competence on the part of people being paid tens of millions of dollars a year (yes, there is a serious skills shortage), does not excuse acts of fraud by others. JP Morgan is accused of making deliberate misrepresentations in its selling of mortgage backed securities. (In many cases, the misrepresentations were made by banks it acquired.)
If the charges of misrepresentation were not true then presumably Jamie Dimon, JP Morgan’s CEO, would have been prepared to go to trial and show that the Justice Department was wrong. It seems unlikely that he would have given away $13 billion of the bank’s money if he did not think there was a serious case.
It is also worth noting that Fannie Mae and Freddie Mac were buying these subprime MBS because they hoped to make money. They were losing market share and were getting pressure from the markets to get into a market that at the time was dominated by private investment banks like Citigroup and Goldman Sachs.
This assessment by Moody’s of Freddie Mac in December of 2006 tells the story very clearly. Moody’s indicated that it would have been concerned about Freddie’s future prospects had it not made the decision to get more deeply involved in the subprime market. The idea that that Fannie and Freddie got into subprime to help poor people get homes is nonsense.
One final point which I should not miss an opportunity to belittle is the idea that Barney Frank was in anyway responsible for Fannie and Freddie’s behavior. Barney Frank was a minority member of Congress until January of 2007. At that point, almost all the bad loans already had gone out the door. Minority members of Congress have as much influence over the actions of Fannie and Freddie as the average shoe salesperson. The folks who want to blame Barney Frank for the housing bubble obviously have no clue of what they are talking about or are making up stories to push an agenda.
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It’s always fun to see conservatives arguing for the preservation of big government, especially when they don’t even seem to understand this as their position. Ross Douthat gave us a great example of such an argument as he warned that squeezing costs in the U.S. health care system might not just damage the quality of the U.S. health care system, but the quality of health care worldwide.
The story is that without government guaranteed patent monopolies, drug companies and medical device companies would not do all the wonderful research they are now doing into developing better drugs and devices. Of course granting these companies monopolies is a form of big government. That doesn’t get changed just because people like Douthat like the beneficiaries or think the purpose is good.
If the government allows drug companies to pull in an extra $300 billion a year (@1.8 percent of GDP), by threatening to arrest anyone who competes with them, it is pretty much the same thing as if the government were to raise taxes by $300 billion and hand it to the drug companies. The biggest difference is that in the latter case there would be more public control over what happened to their tax dollars.
There are other more efficient and more market oriented mechanisms for financing drug research. It is striking that people like Douthat seem unable to even conceive of alternatives to a grotesquely inefficient and corrupt system. (Ask any economist what they would expect to see if we had a tariff of 2000 percent in a market. That’s the story with prescription drugs.)
Of course we also could have enormous savings from freer immigration for doctors bringing their wages in line with doctors in other countries. That would come to around $1 trillion (@$7,000 per household) over the next decade. But again, conservatives seem to have little interest in the free market. Perhaps they have too many friends and family members who are doctors.
Addendum:
I have a few quick thoughts in response to comments below.
Yes, around 25 percent of our doctors were trained abroad, and the point is what? If 25 percent of our shirts were manufactured overseas, this would be evidence of huge protectionist barriers. That is the story with doctors as well.
We’re supposed to believe that more doctors won’t lower their wages. Really? So if we double the number of doctors in the country we would double what we pay for doctors? Sorry, I don’t think the world works that way and the doctors’ lobbies that fight for protection agree with me.
No, excessive pay for doctors is not the only source of waste in health care, but $1 trillion over the course of a decade (@ 2.5 percent of federal spending) is real money no matter how you slice it.
Could we bring down doctors’ pay by other mechanisms? Sure, but none of those seem very likely right now and this one has the beauty (to me) that we can make conservatives argue against the market and free trade. Perhaps there is some huge force for radical change that I haven’t seen, but until that force shows up, I can see few better options than to show that the professed advocates of free markets and free trade are harsh opponents of freedom when it might hurt the income of their friends.
We must recognize that the only ideology these people support is that the ideology that the wealthy should have more money.
It’s always fun to see conservatives arguing for the preservation of big government, especially when they don’t even seem to understand this as their position. Ross Douthat gave us a great example of such an argument as he warned that squeezing costs in the U.S. health care system might not just damage the quality of the U.S. health care system, but the quality of health care worldwide.
The story is that without government guaranteed patent monopolies, drug companies and medical device companies would not do all the wonderful research they are now doing into developing better drugs and devices. Of course granting these companies monopolies is a form of big government. That doesn’t get changed just because people like Douthat like the beneficiaries or think the purpose is good.
If the government allows drug companies to pull in an extra $300 billion a year (@1.8 percent of GDP), by threatening to arrest anyone who competes with them, it is pretty much the same thing as if the government were to raise taxes by $300 billion and hand it to the drug companies. The biggest difference is that in the latter case there would be more public control over what happened to their tax dollars.
There are other more efficient and more market oriented mechanisms for financing drug research. It is striking that people like Douthat seem unable to even conceive of alternatives to a grotesquely inefficient and corrupt system. (Ask any economist what they would expect to see if we had a tariff of 2000 percent in a market. That’s the story with prescription drugs.)
Of course we also could have enormous savings from freer immigration for doctors bringing their wages in line with doctors in other countries. That would come to around $1 trillion (@$7,000 per household) over the next decade. But again, conservatives seem to have little interest in the free market. Perhaps they have too many friends and family members who are doctors.
Addendum:
I have a few quick thoughts in response to comments below.
Yes, around 25 percent of our doctors were trained abroad, and the point is what? If 25 percent of our shirts were manufactured overseas, this would be evidence of huge protectionist barriers. That is the story with doctors as well.
We’re supposed to believe that more doctors won’t lower their wages. Really? So if we double the number of doctors in the country we would double what we pay for doctors? Sorry, I don’t think the world works that way and the doctors’ lobbies that fight for protection agree with me.
No, excessive pay for doctors is not the only source of waste in health care, but $1 trillion over the course of a decade (@ 2.5 percent of federal spending) is real money no matter how you slice it.
Could we bring down doctors’ pay by other mechanisms? Sure, but none of those seem very likely right now and this one has the beauty (to me) that we can make conservatives argue against the market and free trade. Perhaps there is some huge force for radical change that I haven’t seen, but until that force shows up, I can see few better options than to show that the professed advocates of free markets and free trade are harsh opponents of freedom when it might hurt the income of their friends.
We must recognize that the only ideology these people support is that the ideology that the wealthy should have more money.
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For some bizarre reason there is an obsession in the media about Obamacare needing young healthy people to sign up for the program to work (e.g. see Ezra Klein today). Actually, the program needs healthy people to sign up regardless of their age.
The logic is that healthy people who get little care are in effect subsidizing the care of the less healthy. This is every bit as much true for older healthy people as it is for younger ones. In fact, the subsidies are considerably larger in the case of older healthy people since people in the 55 to 64 age group will pay roughly three times as much for their insurance as people in the youngest age groups.
The likelihood of someone being in good health gets smaller as they age, but there are still millions of people in this older age group who will use very little health care over the course of a year. Their money will help support the program every bit as much as the money of younger people.
For some bizarre reason there is an obsession in the media about Obamacare needing young healthy people to sign up for the program to work (e.g. see Ezra Klein today). Actually, the program needs healthy people to sign up regardless of their age.
The logic is that healthy people who get little care are in effect subsidizing the care of the less healthy. This is every bit as much true for older healthy people as it is for younger ones. In fact, the subsidies are considerably larger in the case of older healthy people since people in the 55 to 64 age group will pay roughly three times as much for their insurance as people in the youngest age groups.
The likelihood of someone being in good health gets smaller as they age, but there are still millions of people in this older age group who will use very little health care over the course of a year. Their money will help support the program every bit as much as the money of younger people.
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The Washington Post continues to be very upset that the government is spending time going after Wall Street banks. Its editorial today complained again about the Justice Department’s lawsuit against JP Morgan.
Among other things, the piece complained that the homeowners who benefit from write-downs of mortgages ($4 billion of the $13 billion settlement) were not the victims of the bank’s misrepresentations of mortgages sold in mortgage backed securities. It also argued that these write-downs could hurt the investors who were the victims of this misrepresentation.
Both parts of this story are not accurate. The misrepresentations were part of the wave of bad financing that pushed up house prices. As a result, many homebuyers bought homes at bubble inflated prices, paying far more than fundamentals of the market would dictate. On the other side, write-downs will often be in the interest of investors, since banks are virtually guaranteed to lose money on homes that go through the foreclosure process, which will happen with many underwater homes.
The piece is also wrong in complaining that this sort of suit does nothing to prevent future bubbles. It does provide some sanction against banks that were breaking the law in issuing and reselling fraudulent mortgages in their exuberance over the bubble. The lesson for banks in the future should be to follow the law. Of course criminal sanctions, with bank executives facing prison time, would be far more effective in accomplishing this goal.
Also, if we want to prevent bubbles in the future, it would be desirable to have intelligent life at the Fed. It would be good to have a chair and governors who were prepared to use the Fed’s weight to counter the impact of a bubble, rather than cheer it on as Alan Greenspan did. This would mean documenting the fact that prices were out of line with fundamentals with Fed research and using its bully pulpit to publicize this research so that even the Washington Post editorial board would know about it.
The Fed could also use its substantial regulatory power to crack down on the abuses in the mortgage industry that were quite evident at the time (except to Alan Greenspan). And, it could convene meetings with other federal and state regulators to pressure them to similarly crack down on the abuses at the financial institutions under their jurisdiction.
The failure to pursue criminal actions against bank executives, and the continuing treatment of Alan Greenspan as a great authority on the economy, should raise concerns about the extent to which we are prepared to counter future bubbles.
The Washington Post continues to be very upset that the government is spending time going after Wall Street banks. Its editorial today complained again about the Justice Department’s lawsuit against JP Morgan.
Among other things, the piece complained that the homeowners who benefit from write-downs of mortgages ($4 billion of the $13 billion settlement) were not the victims of the bank’s misrepresentations of mortgages sold in mortgage backed securities. It also argued that these write-downs could hurt the investors who were the victims of this misrepresentation.
Both parts of this story are not accurate. The misrepresentations were part of the wave of bad financing that pushed up house prices. As a result, many homebuyers bought homes at bubble inflated prices, paying far more than fundamentals of the market would dictate. On the other side, write-downs will often be in the interest of investors, since banks are virtually guaranteed to lose money on homes that go through the foreclosure process, which will happen with many underwater homes.
The piece is also wrong in complaining that this sort of suit does nothing to prevent future bubbles. It does provide some sanction against banks that were breaking the law in issuing and reselling fraudulent mortgages in their exuberance over the bubble. The lesson for banks in the future should be to follow the law. Of course criminal sanctions, with bank executives facing prison time, would be far more effective in accomplishing this goal.
Also, if we want to prevent bubbles in the future, it would be desirable to have intelligent life at the Fed. It would be good to have a chair and governors who were prepared to use the Fed’s weight to counter the impact of a bubble, rather than cheer it on as Alan Greenspan did. This would mean documenting the fact that prices were out of line with fundamentals with Fed research and using its bully pulpit to publicize this research so that even the Washington Post editorial board would know about it.
The Fed could also use its substantial regulatory power to crack down on the abuses in the mortgage industry that were quite evident at the time (except to Alan Greenspan). And, it could convene meetings with other federal and state regulators to pressure them to similarly crack down on the abuses at the financial institutions under their jurisdiction.
The failure to pursue criminal actions against bank executives, and the continuing treatment of Alan Greenspan as a great authority on the economy, should raise concerns about the extent to which we are prepared to counter future bubbles.
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Robert Samuelson thinks that he has news for Obamacare supporters. He tells readers:
“Obamacare supposedly makes insurance more affordable. Not really. Health costs are simply shifted. To subsidize insurance for some means raising taxes for others, cutting other programs or accepting larger deficits. Only reducing costs or increasing efficiency can make health care more affordable.”
Apparently Samuelson didn’t realize that “affordable” is in reference to the person buying the insurance. The idea of Obamacare is to make insurance more affordable for the people who need it most. That would be people with pre-existing conditions who could not otherwise buy insurance in the individual market or would have to pay an exorbitant price for it if they did.
By requiring that insurers charge everyone in an age group the same rate regardless of their health, the law will make insurance far more affordable for people with serious health conditions. This obviously does raise the cost for people who are healthy, and for taxpayers insofar as there are subsidies. Most Obamacare supporters knew this.
Samuelson is right that the law does relatively little to control costs. Unfortunately public debate on health care is dominated by protectionists who do their best to shield doctors, drug companies, and other providers from international and domestic competition. This is the reason that people in the United States pay more than twice as much per person as people in other wealthy countries for our health care. Unfortunately neither Samuelson nor anyone else at the Post seems very interested in opening up these markets.
Robert Samuelson thinks that he has news for Obamacare supporters. He tells readers:
“Obamacare supposedly makes insurance more affordable. Not really. Health costs are simply shifted. To subsidize insurance for some means raising taxes for others, cutting other programs or accepting larger deficits. Only reducing costs or increasing efficiency can make health care more affordable.”
Apparently Samuelson didn’t realize that “affordable” is in reference to the person buying the insurance. The idea of Obamacare is to make insurance more affordable for the people who need it most. That would be people with pre-existing conditions who could not otherwise buy insurance in the individual market or would have to pay an exorbitant price for it if they did.
By requiring that insurers charge everyone in an age group the same rate regardless of their health, the law will make insurance far more affordable for people with serious health conditions. This obviously does raise the cost for people who are healthy, and for taxpayers insofar as there are subsidies. Most Obamacare supporters knew this.
Samuelson is right that the law does relatively little to control costs. Unfortunately public debate on health care is dominated by protectionists who do their best to shield doctors, drug companies, and other providers from international and domestic competition. This is the reason that people in the United States pay more than twice as much per person as people in other wealthy countries for our health care. Unfortunately neither Samuelson nor anyone else at the Post seems very interested in opening up these markets.
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A New York Times piece profiling Senator Ted Cruz’s wife, Heidi Nelson Cruz, allowed an erroneous comment from the Senator’s staff go uncorrected. The piece noted that Senator Cruz is on his wife’s health care plan which it reported as costing $20,000 a year. It then presented a statement from a spokesperson for Mr. Cruz:
“The senator is on his wife’s plan, which comes at no cost to the taxpayer and reflects a personal decision about what works best for their family.”
The cost of health insurance is tax deductible. Assuming the Cruz’s are in the highest tax bracket, the tax deduction for Senator Cruz’s health care plan would be more than $8,000 a year. This is far larger than the subsidy that most people would receive in the exchanges.
Thanks to Samuel Adenbaum for calling this one to my attention.
A New York Times piece profiling Senator Ted Cruz’s wife, Heidi Nelson Cruz, allowed an erroneous comment from the Senator’s staff go uncorrected. The piece noted that Senator Cruz is on his wife’s health care plan which it reported as costing $20,000 a year. It then presented a statement from a spokesperson for Mr. Cruz:
“The senator is on his wife’s plan, which comes at no cost to the taxpayer and reflects a personal decision about what works best for their family.”
The cost of health insurance is tax deductible. Assuming the Cruz’s are in the highest tax bracket, the tax deduction for Senator Cruz’s health care plan would be more than $8,000 a year. This is far larger than the subsidy that most people would receive in the exchanges.
Thanks to Samuel Adenbaum for calling this one to my attention.
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Much recent housing data suggest that the jump in mortgage interest rates following Ben Bernanke’s taper talk in June had the effect of curbing demand in the market. This slowing is generally viewed as unfortunate in reporting on the economy, as in this Post piece. In fact, house prices were growing at an unsustainable rate, with the nationwide rate of growth in double digits and many markets seeing annual increases of 20-30 percent.
If this pace of growth had continued for much longer, it would have pushed prices back into bubble territory. This means that homebuyers would likely take substantial losses when they sell their homes and many people making plans for retirement would discover that they had considerably less equity than they expected.
It is difficult to see how anyone can view this as an acceptable way to boost the economy. Bubbles inevitably burst and if a new bubble were to develop in the housing market, its eventual collapse would bring back the same sort of pain that we are experiencing as a result of the collapse of the last bubble.
Much recent housing data suggest that the jump in mortgage interest rates following Ben Bernanke’s taper talk in June had the effect of curbing demand in the market. This slowing is generally viewed as unfortunate in reporting on the economy, as in this Post piece. In fact, house prices were growing at an unsustainable rate, with the nationwide rate of growth in double digits and many markets seeing annual increases of 20-30 percent.
If this pace of growth had continued for much longer, it would have pushed prices back into bubble territory. This means that homebuyers would likely take substantial losses when they sell their homes and many people making plans for retirement would discover that they had considerably less equity than they expected.
It is difficult to see how anyone can view this as an acceptable way to boost the economy. Bubbles inevitably burst and if a new bubble were to develop in the housing market, its eventual collapse would bring back the same sort of pain that we are experiencing as a result of the collapse of the last bubble.
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