Archive for the 'Housing' Category

Live Free and Let the Landlord Die

June 8, 2012

by Mario Rizzo

By now most of you know of the latest Mayor Bloomberg stupidity, that is, the proposed banning of sugary sodas in cups too big for his taste.

But you may not know of the latest in New York State housing law. If the loft you live in has not been brought up to various housing codes, you can live there free. Read the rest of this entry »

Bo as Emblem of State Capitalism

April 19, 2012

by Chidem Kurdas

The fallen Chinese political chieftain Bo Xilai and his wife are starting to sound like a bizarre combination of Macbeth and his Lady, the US Department of Housing and Urban Development and Fannie Mae—yes, the government created and backed housing finance entity.

Under the leadership of the Mao-admiring “new left” Mr. Bo, the fast-growing city of Chongqing built extensive public housing. Apparently the local government  created investment vehicles to finance its various projects, issuing bonds with land as collateral. The WSJ reports that analysts regard this debt as increasingly riskyRead the rest of this entry »

Fannie, Dodd-Frank and Barney Frank

December 1, 2011

by Chidem Kurdas

Barney Frank  won’t run for Congress after his present term expires.  This May there were news stories about his  ex-lover getting a high-paying job at mortgage finance giant Fannie Mae while he sat on the Congressional committee that oversaw the government-sponsored entity.  Read the rest of this entry »

Fannie Freddie Lawsuit and Risk Arbitrage

September 6, 2011

by Chidem Kurdas

Last week the Federal Housing Finance Agency filed suits against 17 major banks and mortgage businesses for misleading Fannie Mae and Freddie Mac regarding the risks of mortgage securities sold to these government-sponsored enterprises.  Though it targets banks, the litigation shows the mode of operation of Fannie and Freddie.

This development is best understood against the background provided by a revealing new book,  Guaranteed to Fail: Fannie Mae, Freddie Mac and the Debacle of Mortgage Finance, by V. Acharya, M. Richardson, S. van Nieuwerburgh and L. White, professors at New York University’s Stern School of Business. Here’s a quote taken from a decade-old American Enterprise Institute compilation of warnings regarding GSEs from free marketers and left-wingers alike. This is from a Fannie Mae executive:

“We’re not casual about managing our political risk.” 

By contrast, they were casual about managing their credit risk, Read the rest of this entry »

Resource Allocation Distortions in the Great Recession: Empirical Evidence

July 18, 2011

by Mario Rizzo

The recent annual report of the Bank for International Settlements (BIS) has focused attention on the sectoral imbalances in the previous boom that resulted in the Great Recession. This is a refreshing change from the excessively aggregative analyses of the Keynesian-stimulus crowd.   Read the rest of this entry »

Policy Makers and Irrational Exuberance

June 16, 2011

by Chidem Kurdas

Robert Shiller says the speculative bubble in real estate was driven by “a contagion of optimism” that pushed up prices and expectations in a feed-back loop. This epidemic apparently engulfed regulators as well.  “Government policy makers breathed in the same optimism, which no doubt encouraged them to be lax on regulatory restraint,” he writes in a NYT column.

This is a plausible explanation of the psychological mechanism that operates in any bubble. It eventually collapsed and led to the property slump that underpins the current economic malaise And Professor Shiller is right that public officials are not immune. But federal entities breathing in heady fumes is different from anybody else breathing in the same. Read the rest of this entry »


September 26, 2010

by Jerry O’Driscoll  

The New York Times reports that GMAC (now a subsidiary of Ally Financial) has admitted that it filed “dubious” financial documents.

The problem goes beyond GMAC. A Florida circuit judge is quoted as saying some of the documents filed by lenders are “incompetent,” some “just sloppy,” and he suggests “there could be a fraudulent element.”

In boom times, lenders cut many corners including loan documentation.  In the 1980s Texas banking crisis, regulators taking over failed banks often found it challenging to find loan documents.  Even if found, they could be defective.

Securitization has greatly complicated the problem.  Mortgages are sliced and diced into separate tranches of securities.  It can difficult to prove ownership of the mortgage. If the originator was sloppy in preparing the underlying loan documents, it can be an impossible task. Read the rest of this entry »

Prices Must Be Free To Tell The Truth

September 8, 2010

by Mario Rizzo

According to an article in the September 6th issue of the New York Times, more and more “experts” are now saying that the government should not try to prop up the housing market but should let prices adjust to their correct levels as rapidly as possible.

Well, you read that here as early as November, 2008 and then again in March 2009. It is part of the continuing myopic harping on aggregate demand which ignores all of the relative price adjustments that a post-bubble economy must experience. The Keynesian habit of ignoring the causes of depressions and dealing only with the analytically-secondary phenomena of aggregate expenditure is or should be unacceptable among intelligent economists.

I repeat what I said in 2008: Let the housing market collapse — fast.

Fannie, Freddie and Mortgage Addiction

August 25, 2010

By Chidem Kurdas

In the first inning of what looks to be an intricate political game, the Obama administration and its financial industry allies suggested that the economy needs the federal government full force in the mortgage market.

The case was pithily made  by bond honcho Bill Gross,  who oversees more than $1 trillion of investments as head of giant bond shop PIMCO and was a speaker at the Treasury Department’s conference on the future of Fannie Mae and Freddie Mac.

“Having grown accustomed to a housing market aided and abetted by Uncle Sam, the habit cannot be broken by going cold turkey into the camp of private lending,” he wrote in a recap of his talk.

It’s an argument  that is at once practical and yet nightmarish. Heroin dealer has his customers hooked. They can’t do without him. Therefore they will have to make sure he stays in business and continues ministering to their needs. Read the rest of this entry »

Econ. 101

August 24, 2010

by Jerry O’Driscoll

The AP reports today that sales of existing homes plunged 27 percent, despite the lowest mortgage interest rates in history.  How could this happen?

Part of the Obama stimulus package was a tax credit for homeowners who purchased homes within a stated time frame.  The credit has now expired.  Economic theory predicted the program would be a failure on its own terms and it was.

Housing is a durable good and the stimulus in effect was a one-time income transfer program. What does economics tell us that individuals do with transitory additions to income? They save most of it.  Because of the way this particular program was structured, the saved in the form of a durable good, that is, housing.   Read the rest of this entry »