No, unfortunately that is not a joke. The Washington Post devoted a major article to explaining to readers how a foreclosure moratorium is actually bad for homeowners. The article explains that for government workers with security clearance, the ambiguous debt status of a mortgage facing foreclosure may raise issues, since being behind in one’s debts can be grounds for revoking a security clearance. (The logic is that if you can’t manage your finances you might be susceptible to blackmail.)
There are two serious problems with the Post’s piece. First, it is unlikely that someone stands in a better position with their security clearance after their house has been foreclosed than before. There may be some uncertainty while the process is in limbo, but the uncertainty is better than having the foreclosure actually take place.
Second, it is not true as the Post asserts that:
“Foreclosure delays started when Ally Financial, formerly GMAC, suspended evictions last month after concerns arose about flaws in court documents used to seize homes.”
Actually, the flood of defaults has created a huge backlog as banks try to catch up with the huge number of people who are behind in their mortgages and also in many cases consider loan modifications. In other words, it is not new that many homeowners who are behind in their mortgages would find themselves in an uncertain status on foreclosure. So, there really is no story here.
No, unfortunately that is not a joke. The Washington Post devoted a major article to explaining to readers how a foreclosure moratorium is actually bad for homeowners. The article explains that for government workers with security clearance, the ambiguous debt status of a mortgage facing foreclosure may raise issues, since being behind in one’s debts can be grounds for revoking a security clearance. (The logic is that if you can’t manage your finances you might be susceptible to blackmail.)
There are two serious problems with the Post’s piece. First, it is unlikely that someone stands in a better position with their security clearance after their house has been foreclosed than before. There may be some uncertainty while the process is in limbo, but the uncertainty is better than having the foreclosure actually take place.
Second, it is not true as the Post asserts that:
“Foreclosure delays started when Ally Financial, formerly GMAC, suspended evictions last month after concerns arose about flaws in court documents used to seize homes.”
Actually, the flood of defaults has created a huge backlog as banks try to catch up with the huge number of people who are behind in their mortgages and also in many cases consider loan modifications. In other words, it is not new that many homeowners who are behind in their mortgages would find themselves in an uncertain status on foreclosure. So, there really is no story here.
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The NYT had an interesting piece this morning on how insurers are trying to reduce the cost of treating cancer. While the piece notes that much of the cost is related to the high price of new cancer drugs it would have been worth mentioning that this is the result of government granted patent monopolies. If the government used a different mechanism for financing drug development and allowed drugs to be sold at the free market price, all of these treatments would be relatively low cost. The doctors would be able to choose the one that they viewed as best for their patient without worrying about the cost.
The NYT had an interesting piece this morning on how insurers are trying to reduce the cost of treating cancer. While the piece notes that much of the cost is related to the high price of new cancer drugs it would have been worth mentioning that this is the result of government granted patent monopolies. If the government used a different mechanism for financing drug development and allowed drugs to be sold at the free market price, all of these treatments would be relatively low cost. The doctors would be able to choose the one that they viewed as best for their patient without worrying about the cost.
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David Leonhardt outlines an interesting proposal to reduce the cost of Medicare. He challenges readers to come up with alternatives.
There is an easy and simple one that health care reformers appear unwilling to consider. Let Medicare patients buy into the more efficient health care systems in other countries and split the savings. According to the Congressional Budget Office’s projections, these savings will rise into the tens of thousands per beneficiary per year.
David Leonhardt outlines an interesting proposal to reduce the cost of Medicare. He challenges readers to come up with alternatives.
There is an easy and simple one that health care reformers appear unwilling to consider. Let Medicare patients buy into the more efficient health care systems in other countries and split the savings. According to the Congressional Budget Office’s projections, these savings will rise into the tens of thousands per beneficiary per year.
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A Washington Post editorial expressing doubts about the Federal Reserve Board’s plan to boost the economy with additional quantitative easing told readers:
“it’s not clear how the Fed will sop up all the extra liquidity it’s creating once growth resumes.”
Actually, it is clear. The Fed has several tools to reduce the money supply and prevent inflation. It can raise the federal funds rate that banks pay for borrowing reserves overnight, it can increase the reserve requirement, forcing banks to hold more reserves, and it can raise the interest rate it pays on reserves encouraging banks to hold more reserves. One would hope that the Post’s editors would be familiar with these mechanisms.
The piece then goes on to express its real concern:
“The deeper fear is that QE2 is a cyclical solution to a structural problem. Many corporations are flush with cash already but simply don’t see enough opportunities for profitable investment within the United States. The list of reasons include households with too much debt; political and policy uncertainty; a growing mismatch between the skills of unemployed U.S. workers and the available work; and a broader shift in economic dynamism from the developed to emerging markets.”
This is an interesting story. All the evidence, including what appears in the Washington Post news section, suggests that we have a cyclical (i.e. not structural) problem. In other words, unemployment as soared because the economy lacks demand.
The problem is that the economy was driven by an $8 trillion housing bubble. Now that this source of demand has disappeared, the economy needs a new source of demand. In the short-term this demand can only come from the government and from very stimulatory monetary policy. In the longer term, a lower dollar is needed to move the trade deficit closer to balance.
There is zero evidence to support the Post’s claim of, “a growing mismatch between the skills of unemployed U.S. workers and the available work.” It would be an important news item if it uncovers any evidence of this phenomenon.
A Washington Post editorial expressing doubts about the Federal Reserve Board’s plan to boost the economy with additional quantitative easing told readers:
“it’s not clear how the Fed will sop up all the extra liquidity it’s creating once growth resumes.”
Actually, it is clear. The Fed has several tools to reduce the money supply and prevent inflation. It can raise the federal funds rate that banks pay for borrowing reserves overnight, it can increase the reserve requirement, forcing banks to hold more reserves, and it can raise the interest rate it pays on reserves encouraging banks to hold more reserves. One would hope that the Post’s editors would be familiar with these mechanisms.
The piece then goes on to express its real concern:
“The deeper fear is that QE2 is a cyclical solution to a structural problem. Many corporations are flush with cash already but simply don’t see enough opportunities for profitable investment within the United States. The list of reasons include households with too much debt; political and policy uncertainty; a growing mismatch between the skills of unemployed U.S. workers and the available work; and a broader shift in economic dynamism from the developed to emerging markets.”
This is an interesting story. All the evidence, including what appears in the Washington Post news section, suggests that we have a cyclical (i.e. not structural) problem. In other words, unemployment as soared because the economy lacks demand.
The problem is that the economy was driven by an $8 trillion housing bubble. Now that this source of demand has disappeared, the economy needs a new source of demand. In the short-term this demand can only come from the government and from very stimulatory monetary policy. In the longer term, a lower dollar is needed to move the trade deficit closer to balance.
There is zero evidence to support the Post’s claim of, “a growing mismatch between the skills of unemployed U.S. workers and the available work.” It would be an important news item if it uncovers any evidence of this phenomenon.
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If you asked people what the retirement age is for Social Security most people would probably say 66, or perhaps age 65 if they missed the fact that the age for full benefits has been increased. However, workers can qualify for early benefits at age 62 and most workers do in fact start collecting benefits shortly after reaching this age.
This is why it is very disturbing to see the NYT and other reports on France routinely refer to President Sarkozy’s plan to raise the retirement age in France from age 60 to 62. This refers to the early retirement age. The normal retirement age is already age 65 and would rise to age 67 under Sarkozy’s proposal.
In the same vein, the article refers to a plan by Germany to raise its retirement age to 63 without noting that this refers to the early retirement age. The age for full benefits in Germany is currently 67.
The article also points out projections for declining ratios of workers to retirees, which will put pressure on retirement systems. It would have been helpful to point out that real wages are projected to increase at the rate of approximately 1 percent annually. This would allow workers to spend a larger portion of their life in retirement if they opt to take a portion of this gain in longer retirements with somewhat smaller pay gains.
If you asked people what the retirement age is for Social Security most people would probably say 66, or perhaps age 65 if they missed the fact that the age for full benefits has been increased. However, workers can qualify for early benefits at age 62 and most workers do in fact start collecting benefits shortly after reaching this age.
This is why it is very disturbing to see the NYT and other reports on France routinely refer to President Sarkozy’s plan to raise the retirement age in France from age 60 to 62. This refers to the early retirement age. The normal retirement age is already age 65 and would rise to age 67 under Sarkozy’s proposal.
In the same vein, the article refers to a plan by Germany to raise its retirement age to 63 without noting that this refers to the early retirement age. The age for full benefits in Germany is currently 67.
The article also points out projections for declining ratios of workers to retirees, which will put pressure on retirement systems. It would have been helpful to point out that real wages are projected to increase at the rate of approximately 1 percent annually. This would allow workers to spend a larger portion of their life in retirement if they opt to take a portion of this gain in longer retirements with somewhat smaller pay gains.
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The Washington Post appears to have outdone itself in a discussion of the politics surrounding the foreclosure crisis. For beginners, it told readers that:
“Reviving the economy requires repairing the housing market.”
What does the Post possibly think it means by this statement? Does it mean that reviving the economy means re-inflating the housing bubble? That’s a novel economic theory. Maybe they should find an economist who won’t laugh at it.
Does it mean that reviving the economy means allowing the bubble to complete its process of deflation. This would arguably be a good thing, because then people stop throwing money in the toilet buying homes at bubble-inflated prices. The further deflation of the bubble also means that homeowners would recognize how little equity they actually have so they can adjust their savings accordingly. But, this means a higher saving rate (i.e. less consumption), which would slow the economy, so it is difficult to understand how that promotes economic revival.
This great sentence continues:
“which won’t happen until foreclosed properties and delinquent mortgages are dealt with.”
The rest of the paragraph explains to readers that:
“So the White House, which is looking past the midterm elections, has been restrained. Housing and Urban Development Secretary Shaun Donovan wrote over the weekend that ‘a national, blanket moratorium on all foreclosure sales would do far more harm than good, hurting homeowners and home buyers alike.'”
Okay, it’s fun with logic time. Secretary Donovan wants more foreclosures, presumably to further depress prices. Nevermind that the impact is likely to be very limited at the moment, since banks already have a huge inventory of foreclosed homes that they are holding off the market.
If Donovan thinks it is good to speed up the foreclosure process then why is the administration pushing HAMP? According to Treasury Secretary Timothy Geithner, one of the main purposes of HAMP was to slow down the foreclosure process. So the administration thinks that it is very important to both speed up and slow down the foreclosure process? That may make sense to the Washington Post, but probably not to anyone else.
We should probably also mention the homebuyers’ tax credits. These credits also temporarily supported the market. This allowed many homeowners to dump their homes at bubble-inflated prices. It also allowed banks to get out of mortgages that might otherwise have gone underwater, or in many cases, further underwater.
The article then gives us a quote from a Democratic consultant without a name:
“But shutting down foreclosures has the potential of shutting down the whole housing market, which isn’t helpful to anybody.”
Let’s see, we have how many hundreds of thousands of homes that non-foreclosed sellers are putting on the market each month, plus a backlog of several hundred thousand foreclosed homes already in the banks’ possession. How exactly does a moratorium on foreclosures shut down the whole housing market?
Then we have the orphan and widow sob story:
“A freeze in foreclosure sales also hurts private investors – including endowments, pension funds and mutual funds – who in good times greased the wheels of the real estate market by buying mortgage securities.”
Yes, some endowments, pension funds and mutual funds made bad investments because their highly paid investment advisers were too incompetent to see an $8 trillion housing bubble. What does that have to do with an insistence that the law be followed when houses are foreclosed. Endowments, pension funds and mutual funds also lost money when companies in which they held stock were hurt by trade agreements. The Post has never mentioned this fact prominently. In any case, this is the way a capitalist economy works. Almost anything the government does or does not do will cause endowments, pension funds and mutual funds to lose money on some of their holdings.
The Post concludes by giving us a tirade from a Virginia realtor who “upset that deadbeat borrowers may get a break.” Of course the issue here is simply making sure that the law is followed — a fact that the Post managed to obscure very effectively in this article. Presumably even the Virginia realtor would agree that banks should not be able to throw people out of their home without going through the normal legal process.
The Washington Post appears to have outdone itself in a discussion of the politics surrounding the foreclosure crisis. For beginners, it told readers that:
“Reviving the economy requires repairing the housing market.”
What does the Post possibly think it means by this statement? Does it mean that reviving the economy means re-inflating the housing bubble? That’s a novel economic theory. Maybe they should find an economist who won’t laugh at it.
Does it mean that reviving the economy means allowing the bubble to complete its process of deflation. This would arguably be a good thing, because then people stop throwing money in the toilet buying homes at bubble-inflated prices. The further deflation of the bubble also means that homeowners would recognize how little equity they actually have so they can adjust their savings accordingly. But, this means a higher saving rate (i.e. less consumption), which would slow the economy, so it is difficult to understand how that promotes economic revival.
This great sentence continues:
“which won’t happen until foreclosed properties and delinquent mortgages are dealt with.”
The rest of the paragraph explains to readers that:
“So the White House, which is looking past the midterm elections, has been restrained. Housing and Urban Development Secretary Shaun Donovan wrote over the weekend that ‘a national, blanket moratorium on all foreclosure sales would do far more harm than good, hurting homeowners and home buyers alike.'”
Okay, it’s fun with logic time. Secretary Donovan wants more foreclosures, presumably to further depress prices. Nevermind that the impact is likely to be very limited at the moment, since banks already have a huge inventory of foreclosed homes that they are holding off the market.
If Donovan thinks it is good to speed up the foreclosure process then why is the administration pushing HAMP? According to Treasury Secretary Timothy Geithner, one of the main purposes of HAMP was to slow down the foreclosure process. So the administration thinks that it is very important to both speed up and slow down the foreclosure process? That may make sense to the Washington Post, but probably not to anyone else.
We should probably also mention the homebuyers’ tax credits. These credits also temporarily supported the market. This allowed many homeowners to dump their homes at bubble-inflated prices. It also allowed banks to get out of mortgages that might otherwise have gone underwater, or in many cases, further underwater.
The article then gives us a quote from a Democratic consultant without a name:
“But shutting down foreclosures has the potential of shutting down the whole housing market, which isn’t helpful to anybody.”
Let’s see, we have how many hundreds of thousands of homes that non-foreclosed sellers are putting on the market each month, plus a backlog of several hundred thousand foreclosed homes already in the banks’ possession. How exactly does a moratorium on foreclosures shut down the whole housing market?
Then we have the orphan and widow sob story:
“A freeze in foreclosure sales also hurts private investors – including endowments, pension funds and mutual funds – who in good times greased the wheels of the real estate market by buying mortgage securities.”
Yes, some endowments, pension funds and mutual funds made bad investments because their highly paid investment advisers were too incompetent to see an $8 trillion housing bubble. What does that have to do with an insistence that the law be followed when houses are foreclosed. Endowments, pension funds and mutual funds also lost money when companies in which they held stock were hurt by trade agreements. The Post has never mentioned this fact prominently. In any case, this is the way a capitalist economy works. Almost anything the government does or does not do will cause endowments, pension funds and mutual funds to lose money on some of their holdings.
The Post concludes by giving us a tirade from a Virginia realtor who “upset that deadbeat borrowers may get a break.” Of course the issue here is simply making sure that the law is followed — a fact that the Post managed to obscure very effectively in this article. Presumably even the Virginia realtor would agree that banks should not be able to throw people out of their home without going through the normal legal process.
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Eric Schurenberg is upset about Social Security and Medicare benefits because the federal government spends 7 times as much on each senior as it does on each child. This is taken from a paper that came out from the Brookings Institution.
Let’s use the Schurenberg-Brookings methodology to see the ratio of average federal spending on the country’s 400 billionaires to spending per child. For convenience let’s say that federal spending averages $5,000 per child.
How much does the federal government spend on each billionaire? Most wealthy people hold some amount of their wealth in government bonds. Let’s conservatively assume that our 400 billionaires hold an average of $1 billion worth of government bonds. Let’s assume that these bonds pay an average interest rate of 4 percent. This means that the government is paying our billionaires an average of $40 million a year in interest. This is about 8,000 times what we spend on children on average. How’s that for fairness?
Okay, everyone is jumping up and down saying that our billionaires paid for these bonds and this interest is just a return on that payment. This is true, but guess what? Our seniors paid Social Security and Medicare taxes to cover their benefits. In other words, they paid for these benefits much like the billionaires paid for their bonds, except of course that the seniors had no choice in the matter.
Ignoring the fact that Social Security and Medicare were paid for with designated taxes is dishonest, just as it would be dishonest to comment on the interest payments going to the billionaires without noting that they had paid for their bonds. But hey, this is the state of public debate in Washington.
Eric Schurenberg is upset about Social Security and Medicare benefits because the federal government spends 7 times as much on each senior as it does on each child. This is taken from a paper that came out from the Brookings Institution.
Let’s use the Schurenberg-Brookings methodology to see the ratio of average federal spending on the country’s 400 billionaires to spending per child. For convenience let’s say that federal spending averages $5,000 per child.
How much does the federal government spend on each billionaire? Most wealthy people hold some amount of their wealth in government bonds. Let’s conservatively assume that our 400 billionaires hold an average of $1 billion worth of government bonds. Let’s assume that these bonds pay an average interest rate of 4 percent. This means that the government is paying our billionaires an average of $40 million a year in interest. This is about 8,000 times what we spend on children on average. How’s that for fairness?
Okay, everyone is jumping up and down saying that our billionaires paid for these bonds and this interest is just a return on that payment. This is true, but guess what? Our seniors paid Social Security and Medicare taxes to cover their benefits. In other words, they paid for these benefits much like the billionaires paid for their bonds, except of course that the seniors had no choice in the matter.
Ignoring the fact that Social Security and Medicare were paid for with designated taxes is dishonest, just as it would be dishonest to comment on the interest payments going to the billionaires without noting that they had paid for their bonds. But hey, this is the state of public debate in Washington.
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The mind readers at the NYT told readers that:
“The Obama administration has resisted calls for a more forceful response, worried that added pressure might spook the banks and hobble the broader economy [emphasis added].”
It is easy to see how a foreclosure moratorium might hurt bank profits. After all, the banks could be forced to follow the same laws on mortgages and property transfers as the rest of us. This would raise their costs and reduce their profits, which is why they had been taking short-cuts instead of following the law.
However it is not easy to see the chain of events whereby a foreclosure moratorium hurts the broader economy. Certainly Housing Secretary Shaun Donovan couldn’t produce a credible story in the piece in the Huffington Post cited in this article.
Donovan uses the absurd story of a young woman who just bought a foreclosed property who he claims would have been unable to achieve her dream of homeownership if a foreclosure moratorium were in place.
Huh? Doesn’t the housing secretary know that there is a huge inventory of foreclosed homes that banks are holding off the market waiting for better times? If the pipeline of newly foreclosed homes was temporarily stopped by a moratorium, this inventory would easily keep the market well-supplied with foreclosed properties for long into the future.
And, wasn’t one of the main purposes of HAMP to slow the process of foreclosure? The argument was that this slowing was necessary to stabilize the market. Does the Obama administration want to slow or speed up the process of foreclosure, or both? And are both essential for the housing market?
This is what a reporter would be asking after seeing Secretary Donovan’s piece. (Btw, yes both HAMP and blocking a foreclosure moratorium helps banks.)
The mind readers at the NYT told readers that:
“The Obama administration has resisted calls for a more forceful response, worried that added pressure might spook the banks and hobble the broader economy [emphasis added].”
It is easy to see how a foreclosure moratorium might hurt bank profits. After all, the banks could be forced to follow the same laws on mortgages and property transfers as the rest of us. This would raise their costs and reduce their profits, which is why they had been taking short-cuts instead of following the law.
However it is not easy to see the chain of events whereby a foreclosure moratorium hurts the broader economy. Certainly Housing Secretary Shaun Donovan couldn’t produce a credible story in the piece in the Huffington Post cited in this article.
Donovan uses the absurd story of a young woman who just bought a foreclosed property who he claims would have been unable to achieve her dream of homeownership if a foreclosure moratorium were in place.
Huh? Doesn’t the housing secretary know that there is a huge inventory of foreclosed homes that banks are holding off the market waiting for better times? If the pipeline of newly foreclosed homes was temporarily stopped by a moratorium, this inventory would easily keep the market well-supplied with foreclosed properties for long into the future.
And, wasn’t one of the main purposes of HAMP to slow the process of foreclosure? The argument was that this slowing was necessary to stabilize the market. Does the Obama administration want to slow or speed up the process of foreclosure, or both? And are both essential for the housing market?
This is what a reporter would be asking after seeing Secretary Donovan’s piece. (Btw, yes both HAMP and blocking a foreclosure moratorium helps banks.)
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The Washington Post apparently thinks that banks have a fixed number of employees. This is the only meaning that can be attached to their warning in an editorial arguing a foreclosure moratorium that:
“An ironic consequence of diverting staff to fixing affidavits now is that it leaves fewer people to modify salvageable loans.”
See, the way this would work is the banks would realize that they need more workers to handle the foreclosure process in a way that complies with the law. (You know, the law, what the rest of us have to obey.) The banks would run help wanted ads, maybe even in the Post, and employ some of the millions of people who have lost their jobs in the downturn. Hiring more workers would of course lower bank profits and dip into executive bonuses, but that is the way things are supposed to work in a market economy.
The Washington Post apparently thinks that banks have a fixed number of employees. This is the only meaning that can be attached to their warning in an editorial arguing a foreclosure moratorium that:
“An ironic consequence of diverting staff to fixing affidavits now is that it leaves fewer people to modify salvageable loans.”
See, the way this would work is the banks would realize that they need more workers to handle the foreclosure process in a way that complies with the law. (You know, the law, what the rest of us have to obey.) The banks would run help wanted ads, maybe even in the Post, and employ some of the millions of people who have lost their jobs in the downturn. Hiring more workers would of course lower bank profits and dip into executive bonuses, but that is the way things are supposed to work in a market economy.
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I’m not kidding, read it for yourself. Samuelson notes Fed plans to buy more Treasury bonds. He then warns of the “dangers.” He comments that the policy may prove ineffective — the Fed may be pushing on a string:
“But if all the cheap money spurs much higher economic growth, many of these reserves will turn into loans and raise the specter of higher inflation — ‘too much money chasing too few goods.’ The Fed would then have to withdraw or neutralize the added money through higher interest rates.”
That’s great, we’re sitting here in the most prolonged downturn since the Great Depression, with the inflation rate closing in on zero, and Samuelson is worried that we may get a burst of growth that could lead to higher inflation. Only in the Washington Post.
I’m not kidding, read it for yourself. Samuelson notes Fed plans to buy more Treasury bonds. He then warns of the “dangers.” He comments that the policy may prove ineffective — the Fed may be pushing on a string:
“But if all the cheap money spurs much higher economic growth, many of these reserves will turn into loans and raise the specter of higher inflation — ‘too much money chasing too few goods.’ The Fed would then have to withdraw or neutralize the added money through higher interest rates.”
That’s great, we’re sitting here in the most prolonged downturn since the Great Depression, with the inflation rate closing in on zero, and Samuelson is worried that we may get a burst of growth that could lead to higher inflation. Only in the Washington Post.
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