Patrick McHenryChairman

These programs come at a cost that is overlooked in the public debate: They make housing relatively cheaper and other goods relatively more expensive. This, in turn, leads to more consumption of housing, more investment in housing and construction, but less business investment and less consumption of non-housing goods and services. The consensus among economists is that investment in residential real estate is substantially less productive (at the margin) than is capital investment by businesses outside the real estate sector (e.g., plant, equipment, inventories), investment in social infrastructure capital (e.g., highways, bridges, airports, water and sewage systems), or human capital (e.g., more and better education and training). In other words, every additional dollar that is spent on residential construction instead of on business or other investment reduces economic growth.

The difference between Germany and Spain, when you get down to it, is that Germans work for companies which provide goods and services that the rest of the world wants. In doing so, they make good money, which they save up. That’s how they became rich. The Spanish, by contrast, have massive unemployment, and most of the country’s GDP growth in recent years has come from the construction industry. Their main export is tourism, if that counts as an export, and the main way that Spaniards have become rich in recent years is by sitting back and watching the value of their real estate grow exponentially.

House Financial Services Committee Republicans have spent the past five years battering the administration for failing to produce a formal proposal without presenting one of their own. But under Chairman Jeb Hensarling (R-Texas), the committee is making progress on its own plans and is expected to introduce legislation that aims to reduce the government’s role in the housing market and scales down the FHA, which insures loans for lower-income and first-time home buyers.

The majority of academics pointed out that while there is no ideal housing finance system, most developed countries have proven that private capital can fund the vast majority of demand for housing finance, as it did in this nation before the credit crisis. The comments should come as no surprise. Chair Jeb Hensarling (R-TX) is a noted conservative known for pushing limits on government involvement in the nation's financial actives.

According to Jeb Hensarling (R-TX), committee chairman, "The hearing will examine the mortgage finance systems of other countries to determine whether a sustainable system of housing finance is possible that does not rely on government-sponsored enterprises or government subsidies."

In his opening statement, committee chairman Jeb Hensarling (R-TX) claimed that Fannie and Freddie had not “propelled” the county to home ownership “nirvana,” saying that the guarantees had increased home prices and pushed millions of Americans into loans that were bound for foreclosure. Fixed rate mortgages are a “gold standard” for some, but a “rusty tin standard” for others, he said.

“The U.S. is practically alone in the modern industrialized world in having GSEs,” Hensarling said.

It’s the rare example of a Republican claiming the United States should be more like Europe. A higher share of people in Singapore, Italy, the United Kingdom and Canada own homes than in the United States, where the rate is 65 percent, according to the Census Bureau.

Hensarling has made no secret of his desire to end the guarantee. At an April hearing, Hensarling said his first goal is to “gradually reduce and eventually eliminate the government guarantee of Fannie and Freddie.”

According to committee staff, “much work remains” on finalizing “sustainable” reforms for housing finance legislation that would eventually come out of the House.

The hearing was the 1oth so far this year for the full committee or subcommittees that have explored housing policy reform, Chairman Jeb Hensarling (R-Texas) said in his opening remarks. 

 

"Notwithstanding the damage they have caused in their checkered past, many cannot conceive of a housing finance market without a government-guaranteed Fannie and Freddie,” Hensarling said.

He said that while the U.S. is practically alone in the modern industrialized world in having GSEs directly guarantee mortgage securities and the level of government subsidy and intervention in the housing market, the U.S. leads the world in foreclosure rates. “In other words, only in America can you find a government that subsidizes housing more, so that we the people can get less,” he said.

Hensarling has been publicly vocal with his desire to privatize at least part of the secondary mortgage market. In April, he said the first step to a sustainable housing policy would be the elimination of Fannie and Freddie government guarantees. Wednesday, he urged his fellow lawmakers to consider alternative models for GSEs.

“We shouldn’t preserve Fannie and Freddie’s federal guarantee just because we have done so in the past. We shouldn’t preserve the federal guarantee just because those who believe they profit from the status quo urge us to continue doing so,” he said.

Proponents of the GSE model of housing finance often assert that the costs of that model are justified because it provides benefits that no other countries enjoy. In fact, before the collapse of the GSEs in 2008, their supporters often argued that “American housing finance is the envy of the world.” But the reality is that for all of the resources and subsidies that the GSEs directed (we would say “mis-directed”) towards housing finance, compared to the rest of the world, the U.S. ranks in the middle of the pack on any number of criteria.

Home Ownership

GSE proponents often argue that the GSE model has given the U.S. higher rates of home ownership than other countries that do not use the GSE model for housing finance. But the reality is that even though the U.S. has a relatively high rate of home ownership, it is not among the highest major developed countries. The U.S. home ownership rate is 65 percent, and it rates 17th in the world, after Australia, Ireland, Spain, and the United Kingdom, all of which provide far less government support for home ownership than does the United States. 

Professors at the New York University’s Stern School of Business have concluded that:

Despite their substantially lower level of government involvement, other countries have been as successful as the U.S. in promoting home ownership and affordable housing. Based on the cross-country evidence, it seems fair to conclude that there is no obvious link between the extent of government support and key indicators of success in housing policy, such as the home ownership rate and housing affordability.

The most dramatic difference between western Europe and the United States is in the foreclosure rate. The U.S. foreclosure rate at year-end 2009 was 4.58 percent for all mortgages and 3.31 percent for prime mortgages—not to mention 15.58 percent for subprime mortgages. In contrast, Spain and the United Kingdom are two of the most distressed countries, but their foreclosure rates are 0.24 percent and 0.19 percent respectively.

On Wednesday the House will consider H.R. 1256, the Swap Jurisdiction Certainty Act.

The Problem:

Swaps are uniquely tailored financial products traded globally (cross-border) by a variety of industries to manage risk. Under the Dodd-Frank Act, the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) are responsible for regulating swaps trades in which a U.S. person is a party to the transaction.

But while Dodd-Frank’s plain language makes clear that Congress intended new swaps regulations to apply outside the U.S. only in certain limited circumstances, the comments and actions of U.S. regulators – particularly the CFTC – indicate they are considering regulations that would result in new swaps rules being applied more broadly than Congress intended.

The Consequence: 

Action by the CTFC or SEC to unilaterally enforce uncoordinated regulations on cross-border swaps would put U.S.-based companies at a needless disadvantage to their international competitors.

The Solution: 

H.R. 1256 calls for the SEC and the CFTC to work together and harmonize their rules relating to swaps transacted between those in the U.S. and those abroad while ensuring regulators employ a thorough and deliberate process in determining when to apply U.S. swaps rules in foreign markets and to foreign firms.

Wall Street Journal: The Hidden Jobless Disaster

At the present slow pace of job growth, it will require more than a decade to get back to full employment defined by pre-recession standards.

Bloomberg: Can the Fed Make Up Its Mind on QE?

When the Federal Reserve first introduced its either/or stance on quantitative easing, I wasn’t sure if it was a PR ploy or a serious plan.

Heritage: Will FHA Require the Next Round of Housing Bailouts from the Taxpayer?

The FHA has deviated from its mission of providing support to low- and moderate income and first-time homebuyers with sound underwriting standards. The FHA should eliminate its current practice of supporting homeownership among high-income individuals and setting lending standards that undermine sustainable homeownership for creditworthy low- and moderate-income and first-time homebuyers.

Automotive News: Auto lending: Regulator must be reined in

Congress must rein in the Consumer Financial Protection Bureau, which has overstepped its mandate by squeezing banks and finance companies to limit dealership profits, apparently based on questionable assumptions of widespread discrimination in auto lending.

Birmingham News: Savers have nowhere to run, nowhere to hide

For four-and-a-half years now, the Federal Reserve, under Ben Bernanke’s guidance, has embraced a “near zero” interest rate policy and they intend to keep interest rates near zero through the end of 2014 and maybe longer.  Fed officials have embarked on three “quantitative easing” programs, the third of which – QE3 – pours $85 billion per month into the economy to prop up the mortgage market.

New York Times: Behind the Rise of House Prices, Wall Street Buyers

The last time the housing market was this hot in Phoenix and Las Vegas, the buyers pushing up prices were mostly small time.  Nowawdays, they are big time – Wall Street big.  Large investment firms have spent billions of dollars over the last year buying homes in some of the nation’s most depressed markets.  The influx has been so great, and the resulting price gains so big, that ordinary buyers are feeling squeezed out.

Forbes: 'Greedy Speculators' Don't Cause Inflation, But Greedy Princes Do

It is a basic fact of economics that price inflation is caused by excess monetary expansion. It is a fact in the same sense that the idea that the earth revolves around the sun is a fact, in that it is simply the only way to explain the data without reverting to massive distortions in order to save appearances.

Los Angeles Times: UCLA Anderson Forecast paints dismal picture of economic recovery

The country’s tepid growth in its gross domestic product isn’t creating enough good jobs to build a strong middle class, according to a UCLA report released Wednesday.  “It’s not a recovery.  It’s not even normal growth.  It’s bad,” UCLA economist Edward Leamer says. 

The council’s move puts taxpayers at “greater risk of being forced to fund yet another Wall Street bailout,” Jeb Hensarling, a Texas Republican, said in a statement. “Designating any company as ‘too big to fail’ is bad policy and even worse economics.”

AIG Chief Executive Officer Robert Benmosche told the council in November that the insurer wouldn’t oppose designation.

Critics of the risk council's process, on the other hand, argue that regulators have not sufficiently explained why they believe the nonbank companies under consideration would destabilize financial markets if they were to fail.

Others say tagging some companies systemically important could send a message to markets that those companies would be bailed out in a crisis because regulators believe they are "too big to fail."

"Designating any company as 'too big to fail' is bad policy and even worse economics," said Rep. Jeb Hensarling, a Texas Republican who is the chairman of the House of Representatives Financial Services Committee, in a statement.

But Jeb Hensarling, R-Texas, chairman of the House Financial Services Committee, said Monday that branding firms "too big to fail" gives them "market advantages over their competitors, helping to make them even bigger and riskier than they otherwise would be."

Hensarling, a vocal opponent of the financial overhaul law, said the designation of firms will become "a self-fulfilling prophecy" by giving them market advantages over their competitors.

Phil Gramm and Steve McMillin: The Debt Problem Hasn’t Vanished

President Obama has raised the national debt by nearly $6.2 trillion, the equivalent of $78,385 per family of four. It is true that projected deficits recently have been reduced…But unless the economy soars, or a significant budget agreement is reached, the most lasting legacy of the Obama presidency will be a $10 trillion increase in the national debt—a burden that bodes ill for the nation's future.

George Will: Appeals court limits labor board’s lawlessness

Early in an opinion issued recently by a unanimous three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit, Judge A. Raymond Randolph said: “Although the parties have not raised it, one issue needs to be resolved before we turn to the merits of the case.” The issue he raised but could not resolve — that is up to the Supreme Court — illuminates the Obama administration’s George Wallace-like lawlessness. It also demonstrates the judiciary’s duty to restrain presidents who forget the oath they swear to “preserve, protect and defend the Constitution.”

Quartz: Five words from Bernanke have Wall Street running scared

It was too good to last forever. For most of 2013, the effortless stride of the US stock market has coaxed more and more investors—both retail and pros—into stocks. Before yesterday’s stumble, US stocks were up about 17% year-to-date, making them one of the best-performing asset classes in the world.  And then Federal Reserve chairman Ben Bernanke had to go and upset the apple cart by uttering five little words: “In the next few meetings.”

Time: The Next Real Estate Bubble Has Already Begun (But It’s Not What You Think)

The American public is, for obvious reasons, a bit gun-shy when it comes to asset bubbles. Ever since the financial crisis, market watchers have worried about bubbles in the stock market, in high yield debt, and even the reinflation of the real estate bubble. The latest asset class to receive worried attention from policy makers? Farmland.

CNBC: Wagging the Dog: Why the Fed Fears Wall Street

The stock market has long been the mistress in the marriage between the Federal Reserve and the economy...The mere mention from Chairman Bernanke that the Fed was contemplating an exit from its monthly asset purchases sent global markets into a tizzy.

Peters Schiff: The Biggest Loser Win

While the world's economies jockey one another for the lead in the currency devaluation derby, it's worth considering the value of the prize they are seeking. They believe a weak currency opens the door to trade dominance, by allowing manufacturers to undercut foreign rivals, and to economic growth, by fighting deflation. On the other side of the coin, they believe a strong currency is an economic albatross that leads to stagnation. But the demonstrable effects of currency strength and weakness reveal the emptiness of their theory.

This year’s budget deficit = $642 billion

In 2023, the budget deficit = $895 billion

Total deficits over the next decade = $6.34 trillion

Gross federal debt in 2023 = $25.2 trillion

“Federal debt held by the public is projected to remain historically high relative to the size of the economy for the next decade…Such high and rising debt would have serious negative consequences…such a large debt would increase the risk of a fiscal crisis…”