frankhagan.com

While the New York Times blames President Bush, a reaction that is fully expected, others are making a more detailed and non-partisan analysis of the mortgage crisis. What changed to cause the rapid rise in home prices that, in turn, increased speculation in the housing market?

Speculative real estate crashes in the past have usually hurt the investor class; income property suddenly can’t be “flipped” and the investors lose their shirts. This time the investor class was not the only victim. We find ourselves in a mortgage default crisis for owner-occupied single family homes, even in an era of low interest rates. That’s a new phenomenon.

Part of the issue has to be the government-forced expansion of home lending rules to allow more to qualify for home loans. In essence, this practice made single family home owners speculators, people betting that they could hang on to the home they could not afford under the old rules based on prices rising and interest rates falling. The Belmont Club quotes a report on this at The March of Folly:

This report concludes that, in an attempt to increase home ownership, particularly by minorities and the less affluent, virtually every branch of the government undertook an attack on underwriting standards starting in the early 1990s. Regulators, academic specialists, GSEs, and housing activists universally praised the decline in mortgage-underwriting standards as an “innovation” in mortgage lending. This weakening of underwriting standards succeeded in increasing home ownership and also the price of housing, helping to lead to a housing price bubble. The price bubble, along with relaxed lending standards, allowed speculators to purchase homes without putting their own money at risk.

Its easy to see the free market at work here; by increasing the pool of potential buyers, you increase demand. The price goes up. At some point, saturation is reached, and the prices soften. Those who are over-leveraged and cannot ride out the storm default. Prices go down.

But this is no ordinary market-based cycle. Because the government established rules that forced lenders to take more risk than they would have before, the natural brake for lenders was no longer there.

Bailout money is flowing from Washington as fast as they can print it. But we should pause and ask ourselves just what is being bailed out. If a person put zero down on a home they ultimately cannot afford, what financial damage have they really incurred? They haven’t lost their down payment. If they are in default, they have not made three or four monthly payments that, probably, makes up for the difference between renting and buying over a 12 month period. If they have to rent again, they simply return to the same position they were in prior to the “housing bubble”.

That’s not to say there isn’t a lot of emotional trauma involved. People who thought they had a shot at home ownership see it slipping away. They struggle to move payments, work a second job, fight with their spouse over minor purchases, etc. But from a financial standpoint, those in this situation are not really harmed and should not be compensated by other hard working Americans.

It is not the lack of government oversight or regulation that was the problem but rather new regulations that ignored market realities. Instead of realizing that, I fear we will simply add more layers of regulation on top of the ones there now. That doesn’t bode well for actually correcting the underlying problem: kind social policy is often no substitute for clear-eyed market realities.

And in the end, the market always wins.

Politics

Douglas Farah continues to impress with his concise analysis of why we find terrorist organizations resurgent after we vanquish them and move on. Case in point, a Washington Post Outlook story on how the Taliban is resurgent in Afghanistan.

The point made is that the Taliban is resurgent, and somewhat accepted, because the government offers nothing better, or at least is perceived to be corrupt beyond redemption.

I think this is somewhat simplistic and misses some important issues (the Taliban’s ability to finance itself through opium etc.), but people living through the current Afghanistan situation say the current level of corruption and abuse by those in power has made a mockery of the government and stripped it of all legitimacy. Perhaps the difference is that government drug traffickers and warlords work only for themselves while the Taliban sends at least some of its illicit proceeds on upgrading the fighting capabilities of its forces.

From The CounterTerrorismBlog

Democracy works only when the rule of law is present to check the excesses that more freedom brings. There’s some truth to the adage that a powerful dictatorship only has one criminal (the dictator) but many more crimes (freedom denied for all). But a market-based economy without the rule of law leads to something nearly as bad: many criminals and freedom denied for most.

If the government we support and pour billions of dollars into, cannot come off in the minds of the vast majority of citizens as clearly better, then the efforts are worth little.

Farah’s analysis resonates with me. The reaction to it is what matters. Should we simply retreat behind our borders and try to take a solely defensive posture against the tide of Radical Islam? The problem with that approach is that we must then invoke more and more restrictive measures here at home.

When Ben Franklin said “They who can give up essential liberty to obtain a little temporary safety, deserve neither liberty nor safety”, he wasn’t taking a position similar to the 21st century peaceniks who quote him. Instead, his message was to those that advocated isolationism and accommodation of those trying to deny liberty. Franklin’s admonition, cited by the left so often, speaks to the need for armed intervention when liberty is threatened. It was a call to arms, not to pacifism. One of our longest wars ensued after that quote.

Success against the terrorists is good news/bad news. We can kill them, but they keep coming back. Our military is great at their mission: killing the bad guys. But combing military action with “nation building” is usually a failure. It may succeed in Iraq (we hope and pray), but it appears to be headed for failure in Afghanistan. It rarely succeeds anywhere outside of western culture; our Christian values lend themselves to the rule of law and individual rights.

Post-war Japan is one shining example of when “nation building” did work, but the ingredients for that recipe included the complete and utter devastation of that country and unconditional surrender, de-deification of their emperor and an iron-fisted occupation by an army General.

And that recipe may be too harsh for the modern American diet.

Politics

While civil libertarians decried the special handling of enemy combatants in our facility at Guantanamo Bay, we are about to see the unintended consequences of changing our policies. Strike that … we about to see the intended consequences, even if we did not intend for things to work out this way.

Dr. Walid Phares, Director of the Future Terrorism Project at the Foundation for the Defense of Democracies and a frequent contributor to the excellent CounterTerrorism Blog, predicted the recent attempt by the mastermind of 9/11 and his followers to plead guilty to all charges:

As predicted, almost to the letter in my analysis in June, the men charged with plotting the September 11 attacks have declared their readiness to make confessions. According to Associated Press the military judge assigned to their war crimes trial at Guantanamo Bay read aloud a letter in which the five co-defendants said they request an immediate hearing session “to announce our confessions.” The AP report added that Khalid Sheikh Mohammed (aka KSM) has already told interrogators he was the mastermind of the attacks. “Now he’s telling the judge that he and the others want to make confessions at the trial.” The judge at the pre-trial hearing, Army Col. Stephen Henley, is asking each defendant if they are prepared to enter a plea. Three have agreed to do so.

From Guantanamos’ Jihad – Let the Show Begin.

For the western mind, this might seem like a good thing. After all, they are admitting guilt. But Dr. Phares has seen this behavior before:

First, Khalid Sheikh Mohammed and his comrades will use the so-called confessions deal to build a psychological environment for a martyrdom case: “istishaad.” They aren’t interested in saving their lives (at first, although they think they could) but in providing a maximum damage to their enemy through the tribunal proceedings. They will claim the court is not legitimate, the entire Guantanamo process as illegal and that they are ready to die as Jihadis in the path to Allah. Their first target is to grant themselves, in the eyes of millions of militants around the world the status of “Shuhada,” martyrs, even though they could survive it.

Dr. Phares continues his analysis, and it is like reading history in advance. What he doesn’t say is that the tactic he outlines will not only find sympathetic ears among the Muslim world, but will also resonate with the American left. They are all too eager to validate their criticism, and anything short of acquittal for these men will be seen as American cultural imperialism.

Only granting terror suspects access to our full legal system will satisfy the left. That’s the same legal system that allowed OJ Simpson to brutally murder Nicole Brown and Ron Goldman and walk free, yet reacted with undue harshness over theft of sports memorabilia. 3,000 people killed on 9/11 may be too horrible for us to punish; perhaps if we find out that Khalid Sheikh Mohammed also cheated at dominoes we can find the stomach to punish him.

Politics