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How does one regulate "well" ?


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2006 Sep 21, 8:44am   19,889 views  195 comments

by HARM   ➕follow (0)   💰tip   ignore  

over-regulation

We've had numerous debates on this blog over the past year on what constitutes "appropriate" levels of government, uh, "involvement" in the RE market. Individual views run a wide gamut, but can be roughly categorized and described thusly:

1. Extreme (capital "L") Libertarianism/market-fundamentalism: basically hands-off/no government regulation of or involvement in capital/credit markets whatsoever. Critics have derided this as "cowboy"/robber-baron capitalism and point out that NO regulation of any kind is basically impossible, and leads to all sorts of socially (and economically) undesirable outcomes. Such as: formation of monopolies/cartels that engage in anti-competitive price-fixing (think OPEC/NAR), abusive labor practices (think child labor before the 1930s) and unrestrained/excessive pollution (think "Tragedy of the Commons" and pre-1970 air/water quality).

  • Practical example as it applies to housing:
    As a sub-prime lender, you loaned the money to Mr. F@cked Borrower, disclosing the minimum information required by law in the RESPA statements and fine print (where all the critical loan details were buried). If he didn't want to bother to take the time to read/question the paperwork or have a competent RE attorney review them on his behalf, then tough titties! You made out like a bandit and sold the loan (and risk) upstream to some sucker pension/hedge fund as a MBS. Too bad/so sad the MBS holders actually believed that "implicit taxpayer guarantee" when they bought your loan at an extremely low risk premium --caveat emptor!!
  • 2. Limited government/minarchist (small "l") libertarianism: advocates the minimum level of government involvement necessary to limit socially undesirable outcomes resulting from completely unfettered capitalism (aka "externalities"/Tragedy of the Commons). Emphasizes practical, pragmatic, well considered forms of regulation that does not attempt to artificially fix the price of labor/commodities, engage in arbitrary subsidies favoring one asset class over another, and generally avoids what can be termed "social engineering" regulation. Favors developing solutions to socially undesirable "externalities" that the market itself appears incapable of solving with the least amount of government involvement/cost possible. Attempts to regulate in an "asset class neutral" manner (not to pick market "winners" and "losers"). A strong emphasis is placed on aligning risk and reward without dictating what specific levels of risk/reward are appropriate for the consumer/lender.

  • Practical example as it applies to housing:
    As a sub-prime lender, you loaned the money Mr. F@cked Borrower and took your (way above standard) fees and profits knowing that the borrower could not possibly repay the mortgage. You also buried all the critical details in the fine print, while glossing over/minimizing all this during your hard-ball sales pitch favoring the NAAVLP. Then you packaged the loan and (mis)represented it to investors as a supposedly "safe" MBS with a very low risk premium, all the while implying that the taxpayer was on the hook if it went bad. Tell me why YOU shouldn't eat the loan vs. the U.S. taxpayer? Oh, and by the way, where's Alan Greenspan, Franklin Raines and David Lereah hiding out these days? We're overdue for another "perp walk".
  • 3. DS-style "Fabian socialism": government heavily regulates capital/credit markets and the means of production/distribution, and may even directly control/fix the prices of labor and commodities directly. Government itself may even be a producer and large-scale consumer of housing stock ("projects"/publicly subsidized housing). Generally regards consumers as too ignorant and/or weak to be able to choose for themselves; essentially views them as victims of capitalist hegemony/exploitation, to be rescued by a predominantly benevolent and wise powerful central government.

  • Practical example as it applies to housing:
    As a sub-prime lender (aka loan predator), you have already proven yourself a danger and menace to society. You are a disgusting profiteer and should be permanently barred from doing business --and should go to "re-education" camp. Our Wise and Benevolent Supreme Leader will provide Affordable Housing for all the Impoverished Masses. It will favor high density, discourage mobility/private transport, encourage spartan living and require massive taxation --all for the greater good, of course. Most of the largest contracts to build this Affordable Housing will be awarded to personal friends and family members of Dear Leader, of course (who will keep his lavish lakeside villa far outside the city). All hail Dear Leader! (*cue rousing patriotic socialist anthem*).
  • Which form of regulation do you prefer? Based on the descriptions above, which one do you think the author (your truly) prefers? :-) What would be "good" examples of housing/mortgage market regulation (if any)? What would be some especially "bad" examples?

    Discuss, enjoy...
    HARM

    #housing

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    76   astrid   2006 Sep 22, 4:38am  

    Yeah, I know, not very popular. Half of my friends are Jews, so I usually keep that particular opinion quiet. But come on, the Brits who gave Palestine to the Jews never expected them to survive more than a year or two and certainly never expected them to become the focal point of Middleeastern conflict for the past 60 years.

    I think if the Brits gave and the Jews accepted some piece of lush, sparsely populated (which Palestine certainly was not) hunk of land in the new world, the Jews would have done great things to it and there would be no need to continuously fight the same old wars with the same old enemies.

    77   HARM   2006 Sep 22, 4:42am  

    @George,

    I hear you loud & clear, buddy! Maybe in 20 years we'll be seeing ads about how Boomers are "redefining death".

    78   DinOR   2006 Sep 22, 4:42am  

    It's a shame though that no one's told Ameriprise that boomer is in effect........ broke. Maybe they should have done a little research before launching expensive (and repulsive) ad campaigns.

    I for one intend to continue to live my life in the same sensible and boring fashion with which I have always lead it. I'm O.K with shuffleboard. Hell I might even throw caution to the wind and sign up for ballroom dancing classes but I AM NOT going rock climbing, base jumping or cross country cycling with the like of you Dennis! Sorry.

    79   DinOR   2006 Sep 22, 4:46am  

    HARM,

    Someone here had a great article that exposed all of this much vaunted "boomer wealth" as nothing more than an urban myth. Does anyone recall the source? I think it actually came from the GAO or DOL or other gub'mental agency? It may be almost as invaluable as the "boomer death clock".

    One thing is for sure. Don't look for me to bail out any FB's (regardless of age!).

    80   Randy H   2006 Sep 22, 4:47am  

    SFWoman,

    I am not ideological, and I am always willing to incorporate new information into my opinions.

    I simply want to know why the German media -- not particularly friendly to the US hegemony of late -- seems to be "mistranslating" Iran's Farsi language output worse than we are.

    If you can answer that, I am more willing to believe there is some kind of systematic, Orwellian phenomenon afoot. I also have questions vis-a-vis Farsi-Russian translations, but since I don't speak or read Russian and the info comes from my Sister-in-law, who is a native Russian, I except that as second-hand.

    81   astrid   2006 Sep 22, 4:50am  

    SFWoman,

    That proposal does have a wonder symmetry to it. I guess my point was that I don't understand what the Zionists were thinking, when they thought eeking out a living in a slim strip of parched desert land amid hostile neighbors was conducive to long term security.

    82   OO   2006 Sep 22, 4:50am  

    NO HILLARY. Hillary is the only candidate out there I consider worse than Bush. I would rather have a Bush 3rd term than Hillary the uberbitch.

    83   Glen   2006 Sep 22, 4:51am  

    People with real talent and vision do not go into politics. You need to look outside the pool of professional politicians.

    Someone like Jack Welch may have the brains, determination and moxie to be a half-decent president. I don't know his politics, but I admire his toughness and executive abilities. (Yes, I know, he was scandalously overpaid. But he also built a lot of great businesses and made a lot of money for his shareholders.)

    84   astrid   2006 Sep 22, 4:52am  

    speedingpullet,

    You might want to pull the left of Stalin quote. Stalin is not a leftist, certainly not in 1927 Russia. That prize, as always, goes to Trotsky.

    85   OO   2006 Sep 22, 4:53am  

    Hillary is the only candidate that will get all GOPs, conservatives and perhaps some democrats themselves on an united opposing front again. Any other candidate from the democrats may persuade the GOPs to stay home on the voting day.

    86   astrid   2006 Sep 22, 4:54am  

    I don't think Hillary would be a particularly bad president. She's shrewd and capable, as her senate record thus far indicates. She's just too compromised as a candidate from both the left and the right, and she appears to have no moral convictions or vision of her own.

    87   Randy H   2006 Sep 22, 4:55am  

    I have always thought that Germany should have given a LARGE chunk of its territory to the Jews after WWII. Even that wouldn’t have repaid them for the atrocities committed against them, but it would have been, not just, but sort of right. Any German who complained about being displaced, well…

    Hmmm. We're championing ethnic cleansing based upon historical atrocities now, are we? Does that include "The Trail of Tears"? Manifest Destiny? Don't forget those wonderful ethnic migrations at the barrel of a Russian gun. Oh, and shall we go back to Imperial Europe? I think there are entire volumes on that subject (and one regular here who I'll bet can recite them from rote).

    88   HARM   2006 Sep 22, 4:58am  

    Someone here had a great article that exposed all of this much vaunted “boomer wealth” as nothing more than an urban myth. Does anyone recall the source?

    DinOR,

    I don't recall that exact article, but here are some related links that might be useful:
    http://globaleconomicanalysis.blogspot.com/2006/01/baby-boomer-time-bombs.html
    http://www.forbes.com/businesswire/feeds/businesswire/2005/11/15/businesswire20051115005619r1.html
    http://www.efficientfrontier.com/ef/103/hell4.htm

    89   skibum   2006 Sep 22, 4:59am  

    Rumors in the MSM suggested recently that Hillary may not want to run for Pres anyway - her prize may be "first female Senate majority leader." Sorry i don't have the source at hand.

    Either way, the dems are screwed. They have no apparent party leadership, direction, or message. I'll plan to go back to voting republican if and when they ever free themselves from the death grip of the religious right and stop spending like there's no tomorrow.

    90   Randy H   2006 Sep 22, 4:59am  

    Astrid,

    That proposal does have a wonder symmetry to it.

    Sure, if you choose to ignore the complicity of about 15 other nations, especially Russia. I'm thinking that the Nuremberg solution wasn't so hastily planned in context after all.

    91   speedingpullet   2006 Sep 22, 5:00am  

    astrid

    ..point taken (LOL)...Trotsky it is. Lets hope I have better luck with icepicks!

    I suppose what I was trying to say, so awkwardly ,was that I realise I represent a very small percentage of potential voters, as I believe in socia-list dreams like cheap affordable housing for the masses, free or almost free universal healthcare and income taxed tiered to income, etc....in other words, anathema for many Americans.

    And as Glen says, anybody who actively seeks the political life is deeply suspect.
    BTW: has anyone else seen the new Robin Williams trailer, for the comedian who runs for President. No doubt, it will turn out to be a mare, but its an interesting premise.

    92   astrid   2006 Sep 22, 5:04am  

    Randy,

    Come on! The Germans were pretty displaced by the war they started. And Poland did get a big chunk of Germany after WWII (to compensate them for their land loss to the Russians) and in East Germany, the Germans were displaced out of their homes and factories anyways, just by slightly different machinations.

    I don't like ethnic cleansing (arguably, the Jews can move into a sparsely populated part of Germany without moving the inhabitants) but I think done in a quick way, after the trauma of a major war, would be much less traumatizing than being the Jewish agent of America in a sea of Muslim/Arabs.

    I still like my Latin American Jewish homeland idea the best. It would have made hunting for ex-Nazis easier.

    93   astrid   2006 Sep 22, 5:10am  

    FRIFY,

    No, I don't have a problem with Hillary's image. My problem is with her senate record, where she repeated voted against her conscience and for short sighted political expediency.

    I personally find Laura Bush to be much more loathsome a first lady than Hillary Clinton.

    94   Randy H   2006 Sep 22, 5:10am  

    SFWoman,

    Yes. I buy all of that, and agree. But again, the German press, reflective of the people and culture, is very pacifist. Many believe to a fault. Why are they apparently warmongering, by your definitional assertion, also? They source their own media, do their own translations, and when they pick up US English language media it is usually to mock us and show how stupid, greedy, or warhungry we are.

    95   astrid   2006 Sep 22, 5:17am  

    I don't understand all this fuss with Ahmadinejad's words. They were pretty obviously spoken to the Iranians and the rest of the Muslim world, and meant to increase Iran's stature vis a vis the US. But they're also sentiments that are ingrained throughout the Middleeast. Did anything really change with the speech, regardless of the wording? The threats to Israel are empty threats. The Death to America speeches are also empty threats (unless accompanied by support or money for anti-American terrorists). Can we go back to focus on Iran's real threat to the US, not in words but in an active nuclear program and involvement in Iraq?

    96   skibum   2006 Sep 22, 5:22am  

    FRIFY,
    I agree with your post re: dismissiveness towards Hillary's record. However, this was all as first lady. As anyone who has been put in the spotlight knows (giving a speech, put in a position of high scrutiny), the things you do when you're "in charge" are very different from when your're in the background. It could be very well possible that as first lady, Hillary acted on her conscience (best case scenario) or to shore up her own political career (worst case). Now as senator, her record speaks for itself - grandstanding, politically expedient, without a clear unified agenda. However, this pretty well describes just about everyone else in Washington.

    97   speedingpullet   2006 Sep 22, 5:29am  

    Amen, skibum.

    "All mouth and no trousers".
    I just wish there was someone (lunatic right-wing fundlmentalists excluded) who had the courage of thier convictions. If any of them had the cojones, man, woman, or lady-boy, to stand up and say "I'm as mad as hell and i'm not going to take it any more!" then I'd vote for them.

    98   Randy H   2006 Sep 22, 5:30am  

    SFWoman,

    Fair enough. For the record, I agree on your view of the US media. I only consume financial media that is US-sourced, though I prefer British for even that.

    I don't think there are any good answers to the mid-east problems for the US. Perhaps the only high-road we can hope to take is to return to isolationism, close up shop overseas, and let things run their coarse, wars, genocide, and all. Eventually they'll either work it out for better or worse, or things will break out into expanding global wars that eventually pull us in. At least we'd be the good guys again in that case.

    99   astrid   2006 Sep 22, 5:33am  

    Randy,

    I think there's a midway between isolationism and belligerantly rearranging the fate of other nations. Clinton actually made a serious effort, especially early on, to broker peace and international cooperation. That, and the post-9/11 gush of international goodwill, is now completely squandered.

    100   astrid   2006 Sep 22, 5:36am  

    Hey, I still can't forgive the Democrats for passing on Howard Dean.

    101   skibum   2006 Sep 22, 5:39am  

    SFWoman Says:

    Unless you have a few hundred million dollars of your own you’d never make it past the primaries. Even then, didn’t Ross Perot try it and get slammed?

    Exactly. The US political system meticulously stamps out any aspirant who has conviction, original ideas, and is unwilling to pander to special interests. It's a truly disheartening situation. How did we get this way? Maybe history has a kind retrospecto-scope, but this phenomenon seems pretty recent. Presidents on both sides of the fence seemed a lot more individualistic and genuine - Teddy Roosevelt, FDR, JFK, Reagan, even Nixon at least had his own agenda! Now we have a republican president who doesn't act republican, and probably one of the most republican of viable candidates, John McCain, who got his ass whupped in 2000 by the Rove machine learning his lesson and now cattle-prodded into submission to the republican special interests. The dems are no better. Truly sad.

    102   astrid   2006 Sep 22, 5:42am  

    Well, you people who are pissed off at the system. Go out and make some political contributions (in time and money) to candidates you do like and agree with. They don't have to be local. Your dollars are best spent on battle ground states or places with a horrid incumbant.

    103   skibum   2006 Sep 22, 5:43am  

    FRIFY,

    I won't argue with your complaints about the Shrub administration. They're pathetic. But the "I’ll take Hillary over this mess anyday" attitude is the problem - take the perceived least horrific option available. It speaks to the dems' lack of any vision at all. They have yet to come up with any agenda other than, "vote for us, we're NOT Bush!"

    104   astrid   2006 Sep 22, 5:43am  

    FRIFY,

    Compared to Bush, almost anybody could look good. But surely the Dems (and the Republicans) can do better than Hillary, especially since she needs to get elected before she can do anything.

    105   speedingpullet   2006 Sep 22, 5:51am  

    Yes, Randy H, I tend agree with you.

    I know its an extreme view (and expect to get flamed mightliy for it), but if Iran wants nuclear 'energy', then...let them. Surely the fight is between the UN, Iran and the IAEA and nothing whatsoever to do with the US?

    Am I the only one who sees the flagrant hypocracy within this year's US foreign relations re:
    India (a nuclear power) - Bush goes to celebrate 60th anniversary
    Pakistan (nuclear power) - talks today with Mussarraf
    North Korea (nuclear power) - ignoring the test missiles.

    Yet, despite Ahmedinajhad being not only in the same city, but in the same building, the Prez cannnot bring himself to talk to him?

    It seems that the US has declared itself the "Nanny State of the World", leaping in to impose its political views on anyone who isn't strong enough to stand up to them.
    How many more wars do we need to be involved in before the US falls apart? Why aren't people as up in arms about whats happeining in their own country, rather than gearing up for the Hatrick War against Iran?

    I agree with you Randy H, in the fact that things will happen as they happen, no matter how much time, money and lives the US Govt pours into its beefs overseas.
    As the 'most powerful country in the world', surely the US govt should be leading by example - ie creating a healthy, affluent, educated population leading the world in technology, business, education and medicine - rather than wading in wherever they see a percieved lack of 'freedom and democracy' in other countries, thousands of miles away.

    Anyway, I realise mine is an extreme view. Appols to all.

    106   FRIFY   2006 Sep 22, 5:53am  

    Astrid and Skibum
    They have yet to come up with any agenda other than, “vote for us, we’re NOT Bush!”

    Go out and make some political contributions (in time and money) to candidates you do like and agree with.

    No argument that the Dems are seriously lacking leaders. There's only one seat in California that's competitive - out in the east Bay. The sitting Republican (Pombo) is listed in the top 10 most corrupt (google "Pombo corrupt")

    The Dem challenger is a renewable energy Engineer:

    https://www.jerrymcnerney.org/contribute.asp

    He's received my only campaign contribution this year.

    107   skibum   2006 Sep 22, 5:58am  

    FRIFY,

    Isn't Pombo that asswipe from Tracy who wants to basically repeal the Endagered Species Act and pave California with developments?

    I think his campaign theme song is "Big Yellow Taxi"...

    108   astrid   2006 Sep 22, 6:28am  

    moderate infidel,

    It really doesn't matter whether the Jews committed all the atrocities, some of the atrocities, or none of the atrocities. The reality of the situation is that Israel is a small Jewish state in a sea of hostile Arab neighbors (all of whom scapegoat Israel for their own internal problems) who want them out. The Israeli political establishment has long reached this conclusion and is constantly trying to get peace by anyway they can.

    Even if you could demonstrate that Israel had some sort of right to some or all their land, does that really change the situation to one more favorable of Israel or US supporters of Israel? Israel is not going to outlive their irrational Arab neighbors and the smart Israelis are already moving out of the country.

    My original point, and I think that of SFWoman, wasn't to blame the Zionists for everything that happened in the Middle east since Israel took over Palestine. It was merely to point out the illogical and untenable nature of the continual Israeli occupation of the area.

    109   astrid   2006 Sep 22, 6:31am  

    SFWoman and FRIFY,

    That's good to hear! The internet has the potential to shift the electoral process back in favor of intelligent individual partipants. Thank you!

    110   astrid   2006 Sep 22, 6:40am  

    SFGuy,

    I agree. And the punishment should be jail sentences, large fines and closing down misbehaving companies. The realty and mortgage brokerage industry has shown an inability to self-regulate, so it's time for federal and state police action to intervene.

    111   astrid   2006 Sep 22, 6:49am  

    SFGuy,

    If your current neighborhood turns into a drug infested ghetto, would you continue to inhabit there?

    112   astrid   2006 Sep 22, 6:58am  

    International law is a pragmatic exercise of form backed by firepower. All this talk of rights and courtesies is all good and dandy, but at the end of the day, fighting an endless war of attrition is not good for either the Palestinians or the Israelis, and it sure as hell is not good for Muslim perception of Americans.

    Add to Israel rather weak real claim on Palestine. They claimed the area based on occupation back in Roman times. In recent years, the Israeli government has punished its Palestinian population for the terrorist action of some, which backfired with a more radicalized populace. Nobody's hands are clean and everybody is playing some version of means justifying the ends. So hell, I don't see anything wrong with an outsider interjecting some pragmaticism into the ordeal.

    113   astrid   2006 Sep 22, 7:04am  

    SFGuy,

    Did the Muslims even give a damn about the Jews in the thousand or so years between the 900 AD and 1900 AD? Not really. Move Israel and the Muslims will have no one but themselves to blame. All the attempts to peacefully reconcil Israel to its neighbors have failed and a generation of radicalized Muslims have made Israel and the US their ultimate enemy. I'd say time to move out. (But the psychological reality is that such a move will not happen, and so the world will continue to get worse until it start hopefully getting better).

    Your strategy appears to involve the US getting entangled in the business of reorganizing hostile SOVERIGN NATIONS. My pragmaticism forces me to decline such a strategy.

    114   Randy H   2006 Sep 22, 7:18am  

    Or are you saying I don’t dislike them enough to think we should do anything about them (i.e. we should let them have nukes if that’s what they want) - I think the latter seems to be Randy’s position.

    I'm not sure that accurately describes my position. I was simply commenting on the practical reality of the situation today. Not what could have been. Not what should have been.

    It is no longer practical for the US to act as global nation builder. We've lost honest broker status. We won't get it back for a long long time. I'm sorry many people will be left to struggle, suffer and die. I'm sorry our leaders weren't, and we blew it. But it's time to take care of ourselves and keep our guns polished for a coming time when we'll need them in a really big way. It seems the US is increasingly hated around the world. Perhaps we're largely to blame for that ourselves. Fine. I say, "here's the keys, we've got some work to do at home. oh, and good luck. Don't call us, we'll call you."

    --of course that means we can't import oil, which means we'll need to burn corn, which means millions will starve in africa, which means civil wars will sweep the continent, which means no more US consumers of imports, which means china will need to deal with their inflation, which means they'll use military expansionism to avoid internal collapse, which means ... maybe all that wouldn't be bad either, in the very long run. It certainly will be worse for that other hemisphere than this one.

    115   astrid   2006 Sep 22, 7:33am  

    SFGuy,

    Let's not kid ourselves. Without US support, Israel would not persist.

    Let me backtrack a bit though, since I think you misunderstand my positions somewhat. I was originally posing a what-if back to the establishment of Israel in British Palestine. In that situation, I would have supported moving a Zionist state elsewhere, where the religious and ethnic tension would be much lower. I don't advocate the US or anybody else forcibily moving Israel anywhere now - that's a gordian knot I have no desire to untangle or even touch.

    As for realpolitiks in international diplomacy. Yep, I think domestic expediency and access to power (be it influence, military or economic) governs diplomacy. And ultimately power, correctly applied, wins. Absent power, well, there are millions of displaced persons in Africa but I don't see anyone starting jihads for them.

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