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How does one regulate "well" ?


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2006 Sep 21, 8:44am   19,863 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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    44   Randy H   2006 Sep 22, 2:10am  

    Glen

    I certainly agree that Bush is a much greater disappointment in proportion to the damage caused. I was referring to the tendency people have to drawing moral equivalency to character. I also don't think that comparing people across time/eras is at all relevant.

    But Bush has given us all the legacy of decades of global instability, when he had a golden opportunity of unprecedented global solidarity laid before his feet. Bush & his team continually compare the situation now to WWII. Ok. Compare Bush's leadership to the heroic leaders of WWII. That's the difference: how a leader responds to crisis and how a politician responds to crisis. One engages in strategy, plans for victory, builds solidarity across partisan divides, strengthens alliances, and does what is in the interest of the people. The other figures out how to win the next election, grabs for more power, and tries to get more of his own party entrenched, all while driving a stake of fear through any hope of broad cooperation.

    Who are our alternatives? I see absolutely no one on the horizon for 08. McCain? He is too principled, and will get eaten alive by his own party. Didn't they run the anti-McCain-because-he-has-a-black-love-child ads during the 00 primary? Hillary? Give me a break. Is it even worth it to vote anymore anyway? Unless you live in one of 2-3 states, your vote is mathematically and statistically irrelevant.

    45   skibum   2006 Sep 22, 3:05am  

    Sellers are bitchin' and moanin' about "pushy" buyers. Waah, waah!

    http://www.forbes.com/business/commerce/feeds/ap/2006/09/19/ap3028315.html

    46   Different Sean   2006 Sep 22, 3:08am  

    When I was in school in Japan I literally had Japanese students laugh and say very derisively “Clinton is your President!”

    what about the outgoing japanese president!!?? he loved elvis....

    47   skibum   2006 Sep 22, 3:10am  

    Different Sean Says:

    what about the outgoing japanese president!!?? he loved elvis….

    What do you mean? Did you see Koizumi's Elvis impersonation when he visited Graceland? That guy is cool! The shrub is just a dork.

    48   Randy H   2006 Sep 22, 3:12am  

    SFWoman,

    I believe there are ample mistranslations to both extremes. I try to cross-compare US & UK reported stories with what I read in the Frankfurter Allgemeine Zeitung and on FAZ.net. There has been no shortage of outrageous "missed translations" which were picked up in Farsi - German translations but ignored by Farsi - English translations. Of course, the Germans are a bit keen to counter any Holocaust deniers, for obvious reason.

    You'd think that US/UK MSM would at least pick up mainstream Euro reports of stuff Amadinejahd has said, especially since it would help Bush's "cause". But the 20-odd times he's proposed rounding up all the Jews (note, not all the Israelis, but all Jews) and relocating them to Germany have been all but missed in English MSM. He also has stated that every Jew is a Zionist, all Zionists should be killed, and anyone who doesn't actively work to exterminate Zionism and Zionist peoples is "Satanic" (no direct translation). Oh yea, everyone in the US and Europe is either a Zionist or a Muslim, except surprisingly, the Russians.

    Iran imposed a ban on the network and its reporters Monday after CNN misquoted the president as speaking of developing "nuclear weapons" when he actually referred to "nuclear energy."

    Funny. It was directly translated in German press as Kernteilmaterialien, which roughly means "nuclear component materials".

    Is Farsi that ambiguous?

    49   Different Sean   2006 Sep 22, 3:16am  

    This precisely why we do not want to give the government more power. It is odd that you justify adding more economic power to the government by using examples of a government abusing its existing power.

    i am suggesting govt should deliver affordable housing through a variety of means. the measure of their success woudl clearly be that they deliver housing at much less than market rates. this would be very easy to measure, i would think. if they couldn't do it, then it would be obvious and self-defeating.

    once, under the new deal, this would have been possible. given the way fema responds to crises like new orleans, perhaps it's not possible any more -- perhaps too many americans are too corrupt and indifferent and economically self-interested to deliver a workable solution... altho NYC has committed to creating 165,000 affordable places over the next 10 years...

    50   skibum   2006 Sep 22, 3:22am  

    Another MSM pity story about sellers unable to unload - talk about deer in the headlights!

    http://money.cnn.com/2006/09/22/real_estate/help_home_for_sale_young_ballanco/index.htm?postversion=2006092212

    51   Glen   2006 Sep 22, 3:32am  

    The MSM routinely portrays disfavored foreign leaders as loopy or dangerous if they meet two criteria: (1) leader of a country with large oil reserves; and (2) openly hostile to the US.

    I am not saying that Amadinejad, Chavez or Saddam Hussein, for that matter, deserve our respect. But we should at least think critically about the views spoonfed to us by the MSM.

    Why do dangerous and oppressive regimes like Musharef in Pakistan, the Saudi royals and Putin get a pass from the MSM? They are apparently just much better than Chavez and Amadinejad at playing us for fools. And Bush and his cronies fall right into the trap every time. Amateurs.

    52   Different Sean   2006 Sep 22, 3:38am  

    "We're planning on starting a family someday," says the 30-year-old Young, who builds simulation software for a defense contractor. "We wanted a bigger home - with a pool."

    The new house cost $562,000 so they were really counting on profits from the old place to help. They had paid $167,000 for their current four bedroom, two-and-a-half bath, 2,861 square foot contemporary that they bought new, on the last day of 2002.

    i see, this 30 year old is 'planning on starting a family someday' (nothing happening yet), so he, right now, needs a much bigger house than his current 4 br, 2½ bathroom mcmansion, one that costs 4 x his original house. you see, each and every new infant will require at least 3 bedrooms to spread out in... that's assuming he survives the economic darwinism test first... what a wanker...

    53   requiem   2006 Sep 22, 3:38am  

    DS:

    Culture often comes from the top of an organization, and works its way downward. Maybe it's just a case of "like hires like", but it's a very real phenomena. An administration that is interested only in profits and playing soldier is not going to be effective on the domestic front.

    At the root of the issues most have with "big business" and others have with "big government" is usually corruption. That makes it easy for defenders on either side to say "it's only a few bad apples, the system itself is fine". (Or is that used only for communism?)

    Hence, regulations, the bandaid solution. It means that we don't /need/ to punish the guilty, because now there's a Regulation. Eventually, enough regulations add up that people can say "look at how much all these unnecessary regulations are costing us", and then deregulation happens. (Wonders when SNL will run their old "we're the phone company" skit again.)

    The solution to regulation is proper enforcement of existing laws, which mean tackling corruption on the government side. My suspicion is that this is best done by placing competing interests in a position to police each other. (Wait... isn't that a recipe for gridlock?)

    54   Randy H   2006 Sep 22, 3:38am  

    Why do dangerous and oppressive regimes like Musharef in Pakistan, the Saudi royals and Putin get a pass from the MSM?

    a) Threat of escalation of nuclear war over Kashmir.
    b) Threat of loss of 90% of Europe's and Japan's crude, probably resulting in very unfavorable results.
    c) How can you threaten Russia, the only nuclear, modern military with largely self-sufficient resources other than the US? Didn't that scenario already play out the last half of the past century?

    I don't think Bush's cronies are dumb, or amateurs. To the contrary. I think they are overconfident professionals who've lost touch of pragmatic reality. Most of their strategy looks stellar on paper. Just doesn't work out so well in practice.

    55   Different Sean   2006 Sep 22, 3:40am  

    Is Farsi that ambiguous?

    i dunno. i had dinner with two iranian women tonight, i'll ask them ;)

    56   requiem   2006 Sep 22, 3:44am  

    Re: Young & Ballanco

    I wonder who took the photos for the article? The way he included the backyard fencing and neighbor's house in the koi pond pic, and the way the garage snout blocks out the front entrance just makes the place look oh-so-appetizing.

    57   skibum   2006 Sep 22, 3:47am  

    DS and requiem,

    So true! Reading that article, especially with that smarmy "couples" shot of the two of them, it seemed like a weird cross between a real estate add and one of those Jerry's kids telethon-like pleas for help.

    58   Different Sean   2006 Sep 22, 3:47am  

    they both need a good slapping....

    59   astrid   2006 Sep 22, 3:49am  

    Randy,

    There are choices beyond Hillary (Lieberman Lite and way too polarizing, her alleged suitability mainly pushed by the DNC and GOP operatives) and McCain (sold out in 2004, too old). I’m actually quite hopeful about the long term prospect of the Democratic Party. They’re working to build grass root organizations and pushing for a lot of moderate well intended people into office. I like Mark Warner for ’08 so far, but I’m open to any pragmatic results-oriented Progressive who hasn’t yet sold out.

    I’m with Glen on this. Different countries will produce different kinds of leaders. Sometimes there will be a significant deviation towards the good (TR and FDR) and sometimes there will be deviations towards the awful (Pol Pot). Iran and Venezuela has a pair of poor leaders, but Bush is a standard deviation further out on the wrong side than those two. Furthermore, as a leader of a far larger and much more powerful country, he is capable of doing much more damage.

    60   DinOR   2006 Sep 22, 3:50am  

    "Talk about deer in the headlights"

    skibum, you mean putting a koi pond with a little Japanese style bridge leading to a 12 sq. ft. area where the fences meet in the corner of your lot DON'T "add vale"?

    I love this stuff! Let's keep it coming. Sellers were SO abusive on the way up, let's see how well they handle the downturn. Paul McCulley (PIMCO) was just on CNBC and seemed to feel we could see rates trending down as early a Q1/07? Whatever. It should be obvious now that there will be sellers pain. They know that. It's unavoidable. Rate reductions in 07 will be too little too late for many FB's.

    61   astrid   2006 Sep 22, 3:50am  

    SQT,

    Considering that the Japanese had been voting the same (increasingly corrupt) LDP into power for 50 years and its PMs still visit a racist shrine every year, I’d say that’s the kettle calling the pot black. I think you were also there when there were some wrangling over US bases in Japan.

    62   astrid   2006 Sep 22, 3:54am  

    SFWoman,

    Great article. I don't know what's with young people nowadays. If you want to have kids you should be: living as frugally as possible, upgrade your job skills as much as you can and save as much money as possible. Not buy a McMansion you can't really afford on for the non-existent infants.

    63   Different Sean   2006 Sep 22, 3:58am  

    let's see some pics of their new $562,000 place, poor little saps... i think they probably traded up to something like this to get the pool and extra rooms for the nonexistent urchins...

    64   DinOR   2006 Sep 22, 3:58am  

    For most FB's (fascinating pol. discussion btw) it boils down to DTI and appraisal value. Some might have enough income (but not the "right" appraisal) others will have the appraisal (but simply not enough income) to support ANY further debt. Cash out? Forget it.

    So when the F A N T A S Y is over and the re-sets and attendant damage control PPT measures are implemented just who is it exactly they will be saving? Who was it that described it like a neutron bomb? The houses will be left standing but all the people will be dead.

    65   skibum   2006 Sep 22, 3:58am  

    DinOR,

    Yeah, that koi pond really gives one a sense of zen serenity...as you meditate in front of your neighbor's McMansion! Did you read that other link I posted a bit earlier? Just as bad.

    66   astrid   2006 Sep 22, 4:02am  

    Anyhow, what kind of family were these people planning to start, so that it can't housed in a 2,861 sqft home? The wife has got to be close to 30, so she's only got 10 good breeding years even if she starts now.

    67   Different Sean   2006 Sep 22, 4:04am  

    iranians are sharp, sophisticated, and excellent chess players...

    68   OO   2006 Sep 22, 4:11am  

    Bush is a history major from Yale, I believe. Did Yale teach him anything about the definition of a sovereign nation? Oh, I forogt I saw a footage on youtube when he was struggling to explain what a sovereign entity was to a panel.

    Perhaps in Bush's mind, the US of A is the only sovereign nation on earth, oh I stand corrected, the Bush admin is the only sovereign admin on earth, we the people of US of A are his subjects.

    69   astrid   2006 Sep 22, 4:13am  

    I don't really care what Ahmadinejad said in the UN. At worst, Ahmadinejad is openly stating his long standing position on Israel and using the speech to shore up his domestic stature. Iran is a long distance away from Israel and Israel is in no real danger of extermination.

    The Iranian regime is also plenty oppressive to its Muslim citizenry. Young women are still being killed for premarital sex, even when that premarital sex was coerced or outright rape.

    But what I mainly care about is what Iran is doing with nuclear program. Unfortunately, the news there is also quite bad.

    70   DinOR   2006 Sep 22, 4:24am  

    skibum,

    You're kidding right? Of course I read it and I'll go you one better!

    "Home Buyers Getting Pushy" should be the sub-title to patrick.net!

    (You know that is one way Patrick could generate some revenue)

    Unlike most RE guru programs and seminars that cost thousands and are the product of ONE mind; get the collective bargaining skills from thousands for ONE DOLLAR! (Click Here for Ultimate House Buying Bargaining Skills Now!)

    71   astrid   2006 Sep 22, 4:27am  

    So this might be an acceptable time to voice my long held opinion that the world would be a better place if the Jews were given a small Latin American country as a homeland instead of Israel.

    72   Glen   2006 Sep 22, 4:28am  

    Speaking of excellent chess players, I think Musharef just declared "checkmate" on Bush. Very clever.

    In 2001, Musharef was a pariah. He had overthrown a democratic regime in a military coup. He was potentially a danger to India. Etc. The world community condemned the coup and sanctions were in place on Pakistan. Then 9/11 happened and Bush decided he needed to strong-arm Musharef for help in the "war on terror." Musharef goes along with it publicly, without mentioning the Bush bullying tactics. Bush makes public appearances with Musharef and gives him an implicit endorsement.

    Bush was hoping to be discreet about his strong-arm tactics. But by now, five years later, the whole world knows that the Bush admin. is a bunch of bullies. After securing Bush's public support, Musharef chooses to make a very public statement (true or not--probably true) about Bush's backroom bullying. Now Bush needs to backpedal.

    It is very hard for Bush to deny Musharef's accusation because Bush has very little credibility--especially when it comes to being a bully. But if Bush admits it, then he just further shows that he is every bit as much of a bully as everyone already thinks he is.

    73   Glen   2006 Sep 22, 4:30am  

    That koi pond article is priceless, by the way.

    74   DinOR   2006 Sep 22, 4:37am  

    George,

    I only saw the ad once but if ever there was a person that embodied all things boomer Dennis Hopper is it! From a free spirit in "Easy Rider" to corporate sell-out (combined with much drugs and random sexual partners he's the perfect pitch-man for Ameriprise!)

    75   HARM   2006 Sep 22, 4:37am  

    Wow, UN speeches, foreign translations, Presidential comparisons, petro-dollar diplomacy and nuclear proliferation. We're all over the topic map today!

    This just about summed it up for me:
    We are living in a time with absolutely no leaders. That’s the real problem.

    I have yet to see one "likely" Presidential candidate for '08 that has real character and I would actually want to vote for (which is pretty much the true aim of our Beloved Two-Party system I suppose). Hillary has zero credibility thanks to caving/pandering on Iraq, BK bill, Patriot Act, etc. McCain? Much the same --plus shilling for the guy who smeared his reputation in '00. Perhaps Badnarik or Feingold will consider running. of course if they do, they'll probably get swift-boated if the polls show either has a chance of winning.

    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.)

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