Privatize It

by Don Boudreaux on September 14, 2007

in The Profit Motive

Here’s a letter appearing in today’s New York Times; it’s written by Alphonso Jackson, Secretary of Housing and Urban Development:

Re “B Is for Bailout, C Is for …” (editorial, Sept. 10):

When is the definition of a bailout not a definition of a bailout? When your editorial defines the term.

efforts to help homeowners in trouble through the Federal Housing
Administration are financed by insurance premiums that borrowers
themselves pay. This is not a bailout, nor a handout.

The new
FHASecure product is designed for homeowners who were steered into
exotic mortgages they couldn’t afford when their original rates doubled
or tripled.

To qualify for the product, borrowers must have a
strong credit history and have made on-time mortgage payments before
their loans suddenly reset. We also require that they be capable of
repaying: no “no-doc” or “liar loans” here.

The premiums that
F.H.A.-backed homeowners pay go directly into our insurance fund, which
allows us to be self-sustaining. This ensures that borrowers, not the
government, remain responsible for the loans they sign.

Alphonso Jackson
Secretary, Department of Housing and Urban Development

I strongly suspect that there are costs that Mr. Jackson overlooks, but let me grant him the benefit of the doubt.  If he’s correct — if the Federal Housing Administration truly is self-sustaining — it can be privatized.  If it were privatized, its customers would continue to be served.

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kfoster September 14, 2007 at 10:01 am

"The new FHASecure product is designed for homeowners who were steered into exotic mortgages they couldn’t afford when their original rates doubled or tripled."

These poor impressionable slobs have been "duped" into buying more home than they could afford. I could be wrong – but i detect a hint of condescension in that statement.

muirgeo September 14, 2007 at 1:53 pm

Once again we seem to be focused on the $1 billion dollar handout to the little guy while ignoring the $50 billion going to shore up the hedge fund manager. Why? What is the equivalent of privatization of the Federal Reserve? of corporate charters?

Also the past 6 years have shown us example after example of how disastrous "privatization" of government services can be.

If you want something privatized please be sure that none of the public treasury is involved.

See Naomi Klein's article
for more details.

Nathan Benedict September 14, 2007 at 2:18 pm

Muirgeo–what, pray tell, has been privatized to disastrous consequences over the last 6 years? I don't have time to read all of Ms. Klein's screed–the one paragraph I skimmed mentioned that the anthrax attacks should make us rethink Bush's plan to privatize the post office.

1) The post office should be privatized, as Spooner tried to do over a century ago;
2) If Bush had such a plan, I never heard of it, and he certainly didn't publicize it;
3) Somehow, the use of the U.S. mails to successfully kill people with anthrax is evidence that things should stay exactly as they are, rather than change?!
4) I suppose we should force UPS, DHL, and Fedex out of business, since they too could be used to send anthrax. Except, of course, that they weren't–the monopoly USPS was!

That single paragraph alone was enough to make my head spin. If Ms. Klein makes bette points elsewhere, please repeat them directly in this thread rather than linking to an article.

And for the record, I would like to disband the fed and eliminate corporate charters.

Ray G September 14, 2007 at 7:03 pm

The overlooked costs are of course certain, but I do appreciate Boudreaux's even treatment in not claiming something without appropriate research first.

Al Jackson would no doubt say that he didn't mean that they were self-sustaining to the extent that they could be privatized, but just kind of self-sustaining, . . . you know, like being kinda pregnant.

As for Muirgeo, as is typical he doesn't address the crux of the matter but instead shifts his focus. More to the point though, more privatization would make handouts to anyone far more difficult. Period.

Nasikabatrachus September 14, 2007 at 7:50 pm

Klein is hilarious. Check out this paragraph:

"But far from shaking their determination to weaken the public sphere, the security failures of 9/11 reaffirmed in Bush and his inner circle their deepest ideological (and self-interested) beliefs – that only private firms possessed the intelligence and innovation to meet the new security challenge. Although it was true that the White House was on the verge of spending huge amounts of taxpayer money to launch a new deal, it would be exclusively with corporate America, a straight-up transfer of hundreds of billions of public dollars a year into private hands. The deal would take the form of contracts, many offered secretively, with no competition and scarcely any oversight, to a sprawling network of industries: technology, media, communications, incarceration, engineering, education, healthcare."

In other words, Bush is an anti-state radical, a free marketeer, dedicated to the cause of trimming back the federal government…who also wants to dole out billions in no-compete government contracts.

Puh-leaze. I note that she misses out on the fact that Enron is a prime example of corporatism–it received loads of subsidies and used its political connections to manipulate environmental regulations in its favor. That she has the nerve to insult anyone's intelligence by calling this an indictment of the free market is the worst part.

muirgeo September 14, 2007 at 8:49 pm


Klein never mentions the free market except once when talking about "free market ideologues".

I quite agree what we have is NOT a free market. I'm just tired of people telling us that any success in this econnomy is because of free market principels when in fact most of the "success" is a result of the productivity of the real working people who make things and produce things only to loose the profits of their productivity to the paper pushers and the so-called capitalist who steal from are treasury and use all sorts of complex finanicial tools to leverage their wealth against the common mans toil.

muirgeo September 14, 2007 at 8:52 pm

I can't think of any failures from privatization, but if you come up with any, I can bet that they will have the government's fingerprints all over it…

Isaac Crawford

I can't think of any industries that are privatized.

Nasikabatrachus September 14, 2007 at 9:19 pm


Care to rewrite that? It's not very clear. I had to think about your response several times, and I'm not quite sure what you were trying to say to me.

The Dirty Mac September 15, 2007 at 8:37 am

The Klein article reminds me of arguments I used to have after Regulation Q was repealed. For younger viewers, Reg Q capped the interest rate banks were allowed to pay on deposits. My socialist friends opposed the "deregulation" even though the primary result was that consumers were paid higher interest rates on bank deposits. The problem to them was not the effect (it was essentially irrelevant), but that something that was once regulated government was now not regulated.

muirgeo September 15, 2007 at 10:01 am

I can't think of any industries that are privatized.

Posted by: muirgeo | Sep 14, 2007 8:52:49 PM


Care to rewrite that? It's not very clear. I had to think about your response several times, and I'm not quite sure what you were trying to say to me.

Posted by: Nasikabatrachus

Sure I can try to re-write it.
I can not think of any industries that would exist in the absence of or without the support of the U.S. government.

muirgeo September 15, 2007 at 3:11 pm

You still haven't come up with an example of a "disastrous" privatization of a former government service.


Hey, chill on the name calling. If your points are superior they'll stand on their own merit.

Anyway…Blackwater, Enron, Worldcom, the Prison system….Iraq rebuilding.

Go ahead

vidyohs September 15, 2007 at 10:45 pm

Isaac C.
Notice muirgeo uses the word "privatized" and creates his own unique definition of that word, which incidentlally is entirely different than what it actually means.

A business that has been privatized must have once been owned and operated by a government.

You see there is a vast difference between "private" and privatized", and muirgeo uses his little talent of trying to slip and slide, direct answers to questions that haven't been asked, and ask closed ended question that are designed to elict only one answer.

"Anyway…Blackwater, Enron, Worldcom, the Prison system….Iraq rebuilding."

Let's take a look at that, muirgeo's own list of "privatized businesses".

At what point did any government own Blackwater Security, and then sell it to a competitive bidder, "privatize" it in other words.

Enron, what government owned ENRON and then sold it to a competitive bidder, or into any "private" hands?

Worldcom, what government owned Worldcom and then sold it to a competitive bidder, or into any "priovate" hands.

The prison system, vague and ambiguous, since there is more than one prison system and I know that some private contracts have been given out to build and operate some prisons, I know that it is entirely incorrect to state inclusively that "the prison system" has been privatized.

Iraq rebuilding, when did our government own Iraq or even claim it as a territory? Further more, tell the many thousands of troops over there that they are working for a "privatized" army, and then let's see muirgeo explain to the group just who bought the U.S. Army. Are there private companies under contract engaged in the rebuilding effort, of course there are, but utilizing them hardly "privatizes" the rebuilding effort.

What is interesting is that the contracting of private or publicly owned corporations to perform tasks that once were performed by the Army Engineer Corp and the Navy SeeBees can be laid directly at the feet of the efforts of socialist/communist labor unions agitating after WWII to compel the Armed Services to contract civilian labor to build and provision outside of combat zones. Custom over years and continued pressure from socialist union lackeys has evolved the system we have today with private firms doing their work in the combat zones as well. You see Isaac C., when you study their techniques and methodology you learn that socialist work their butts off creating the circumstances for negative things to happen, and then when those negative things happen they (with the backing and aid of their MSM) scream, stamp their little booties, try to blame everyone else for the disasters they created, and demand that government step in and seize control.

So in summation, I think we could agree that muirgeo is stupid if he actually believed what he wrote. But, I do not think he believed it when he wrote it, he was just hoping you wouldn't know. You see he thinks all of us are stupid for not following the same socialist faith he does.

Russ Nelson September 16, 2007 at 9:42 am

Typical worthless trolling by muirgeo. Don't bother replying. Muirgeo gets refuted again and again and NEVER LEARNS ANYTHING.

vidyohs September 16, 2007 at 2:15 pm

Russ N.,
Oh I agree wholeheartedly with you and have said so myself, but still it is fun and takes no real talent to rip his BS apart and point out his attempts at duplicity…..or should I say outright lies.

For instance here is one to point out that came on the last post of Cafe Hayek, "Stossel on Moore" muigeo has tried over and over to use this quote from Hayek to obscure the issue for libertarians or other free thinkers.

"AAAASSSSSS usual muirgeo draws the wrong conclusion from his source material.

"the case for the state's helping to organize a comprehensive system of social insurance is very strong." Hayek.

There is a vast difference between "helping to organize" and "being the organization".

The state can "help" to organize a comprehensive system of social insurance that is entirely privatized and/or is entirely private charity based.

But, what else do we expect from those stuck in religious faith to the extent a true socialist is.

Posted by: vidyohs | Sep 15, 2007 10:13:03 PM"

Not only was what I said in the quote correct, we can take it farther and add that prior to 1913 the state stayed pretty much out of the welfare picture; but, once the income tax and federal reserve was created the state helped the organization of strong support systems by making all charitable donations tax deductible. And, that is what Hayek was getting at, help, not be.

That worked very well but didn't buy enough votes for the democrats so Johnson came up with his "Great society" and the state became the support system, which created probably the single most diasterous policy every passed through congress.

The "great society" programs had one single positive result. That is that it proved that no matter what nation, what people, socialism causes rot in the character and morality of the people.

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