Ignorance or Arrogance That’s Par for the Course

by Don Boudreaux on September 7, 2011

in Housing, Hubris and humility, Other People's Money, Regulation

Here’s a letter to the New York Times:

What does Rep. John Conyers (D-MI) have against homeowners?

By proposing “a federal law allowing homeowners to reduce their mortgage debt to no more than the current value of their property” (Letters, Sept. 5), Mr. Conyers would effectively force homeowners to purchase property-value insurance from mortgage companies.  That is, by obliging mortgage lenders to compensate borrowers for certain declines in the value of borrowers’ properties – compensation paid in the form of reduced principals on outstanding mortgages – Mr. Conyers would prohibit homeowners from assuming the risk of such declines in their homes’ values.

Mortgage companies would willingly sell such insurance to homeowners; indeed, they’re free to do so now.  But the fact that such insurance is very rare reveals that homeowners find the value of such insurance to be less than the price that mortgage lenders would charge for it.

Why does Mr. Conyers want to force homeowners to buy something that they show by their actions they don’t wish to buy?

Sincerely,
Donald J. Boudreaux

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{ 44 comments }

John V September 7, 2011 at 1:00 pm

Well intended, myopic and childish. Par for the course indeed in the world of public policy and legislation.

Methinks1776 September 7, 2011 at 2:43 pm

Well intended? I don’t think so. This pig wants to go back to his district and slur out a speech about how he stole from the rich banksters and gave to his district. Robin Hood delivers. Vote for him. Who knows what else he’ll steal for you next session!

John V September 7, 2011 at 5:56 pm

Well, Methinks,

When I say “well-intended”, I’m putting the thought process in the best possible light whereby I envision a “reality sucks” scenario that a dense social democrat looks at and immediately deciphers something wrong with it and then suggests a short-sighted, nice-sounding (as long as one ignores economics) solution that appears to address what’s “wrong”.

It’s not unlike someone seeing a poor heartbroken kid’s birthday party at the pool get rained out and sympathetically saying “I wish no kid ever had to have his birthday party rained out” and then trying to act on it. We’d never have any rain if that power existed! The consequences of which are not even on this sympathizer’s radar.

Methinks1776 September 7, 2011 at 7:20 pm

Oh, you are way to kind to these thugs, John V.

They see a kid getting rained on and wonder how they can use it to their advantage. I’ve dealt with enough politicians to be thoroughly disabused of the notion that all but a tiny minority give two shakes of a rat’s tail about your kid and his birthday party. The vast majority will sell their mother into slavery if there’s even a small chance it’ll even slightly increase their power.

morganovich September 7, 2011 at 3:39 pm

don-

if you think that’s a mess, take a look at this:

http://businesslawdaily.net/2011/08/17/california-ballot-proposal-would-ban-home-foreclosures/

SACRAMENTO, Calif. — California could ban lender-initiated home foreclosures, under a proposed amendment to the state’s constitution that would make home ownership a fundamental right.

Initiative 11-0014 could appear on the ballot in November 2012, if supporters submit more than 800,000 voter signatures necessary to qualify the measure.

The Foreclosure Modification Act, a proposed citizen’s initiative, would ban mortgagees from foreclosing on owner-occupied dwellings in the Golden State. It would further require banks and other lenders to help mortgage borrowers struggling amid financial hardship or illness.

Additionally, lenders would be required to reduce loan principal amounts to reflect a drop in local property values of at least 10 percent. Payments would be adjusted without a new credit review, the proposal states.

Lending institutions would have 45 days — from a borrower’s requests — to refinance a loan maintained for at least three years, the proposal seeks to mandate.

If enacted, the initiative would state a finding that “foreclosure has become a method of increasing a lending institution, loan servicer, mortgagee, trustee and beneficiary’s bottom line and profits by turning borrowers out of their homes.”

Surfisto September 7, 2011 at 1:18 pm

Are property taxes based on the purchase price? What about the government allowing people to adjust their taxes, has this happened? Would this fly?

vikingvista September 7, 2011 at 4:40 pm

You don’t need this to try to get your property taxes lowered. You can usually bring a list of comps in to your county office and argue for lower tax rates. Our county did it automatically when the housing market fell.

However, counties commonly play a game where they use a nominal appraised value that is less than the sale price (compensated of course by a higher tax rate), so that when you go to argue that your property value went down, they can then claim that it merely fell more in line with the assessed value the county was using all along.

Counties play these games with rates and assessed values all the time. Another game they play in areas with escalating property values is to lower the rates disproportionately so that your dollar tax burden still grows. But they can claim they lowered property taxes.

tdp September 7, 2011 at 1:25 pm

In other news, a 17-year old has publicly challenged Paul Krugman to a 15-minute debate on economics.

JS September 7, 2011 at 6:36 pm

All he needs to prevail is an upright gait and to have shed his fur and tail.

purplefox September 7, 2011 at 1:25 pm

Unless more of a downpayment required, everyone will try to put 0% down, too. After all, why put more down? If values fall, you’ll just have to pay less each month.

I think property taxes are determined by either the county or state. From my understanding, yes, (In IN) they are partially determined by property values. Great for me, who bought a bank owned foreclosure, bad for the gov’t who won’t have as much of my money to waste.

David Driver September 7, 2011 at 1:30 pm

Many of your readers have no doubt seen this quote before; but as T.S. Eliot so aptly stated,

“Half the harm that is done in this world is due to people who want to feel important. They don’t mean to do harm– but the harm does not interest them. Or they do not see it, or they justify it because they are absorbed in the endless struggle to think well of themselves.”

Invisible Backhand September 7, 2011 at 2:08 pm

Here’s a link for people without a NYT subscription:

http://www.nytimes.com/2011/09/05/opinion/from-rep-john-conyers-easing-homeowners-debt.html

I did a Ctrl-F on the bill text and it didn’t find the word “insurance”.

Don Boudreaux September 7, 2011 at 2:25 pm

I’m not saying that Conyers calls it “insurance.” (Of course he doesn’t; he likely doesn’t even understand what the full consequences of his bill would be. As far as I can tell, he’s an imbecile.) I’m saying, instead, that the forced purchase of such insurance would be the actual consequence of Conyers’s proposal.

It’s called unintended consequences. They’re all over – which is a principal reason why judging legislation by the words used to describe it is inappropriate.

That the word “insurance” doesn’t appear in Conyers’s bill no more negates the validity of my argument than does the fact that the failure of the words “mass starvation” to appear in any of Mao’s official proclamations of the Great Leap Forward means that no one was starved to death by that policy.

Dick Fitzwell September 7, 2011 at 2:27 pm

Who said anything about the bill containing anything about insurance?

vikingvista September 7, 2011 at 4:41 pm

Cripes you’re dense.

Methinks1776 September 7, 2011 at 5:28 pm

Shhh…he’s the perfect customer for my government subsidized “shit on a brick” restaurant. I’ll call it “chocolate cake” and he’ll ask for another slice. Watch.

Methinks1776 September 7, 2011 at 2:23 pm

http://www.youtube.com/watch?v=t32ckkdlcao&feature=related

This John Conyers? Maybe he didn’t read the bill, Don.

Stone Glasgow September 7, 2011 at 4:54 pm

Holy crap.

Chris H September 7, 2011 at 2:37 pm

Even if such an explicit insurance scheme isn’t offered to/required of homeowners, wouldn’t interest rates shoot upwards to compensate lenders for the increased risk?

Jim September 7, 2011 at 3:04 pm

Don, you don’t understand:)

John Conyers is only pointing out that if the Fed is going to inject over $12 trillion of printed money into the economy, transfer Grandma’s fixed income to banks through low interest rates, and bail out banks who made ill conceived loans without receiving any kind of equity commensurate with the risk, the least we can do is ask the banks to spend some of those trillions in printed money to write-off their bad loans.

Besides, if you’re going to artificially stagnate the country by shoring up foolhardy bankers, you might as well shore up the fool hardy demand side as well. That way you have ALL the special interest bases covered (in the interest of compassion).

And the Fed is more than willing to print more money. Unlike Greece, we’re the world’s currency. We can do whatever we want. After all, it is only paper, and economists say it is the smart thing to do.

Now, cynics might wonder why the Fed didn’t just send the $40,000 for every American man, woman and child they printed to each citizen, only requiring them to use such funds to retire any debt they had to their banks, and therefore restarting a much less indebted economy on their renewed aggregate demand binge. Such cynics might argue that doing so would have been far more effective than giving it to bankrupt banker millionaires. Unfortunately, such cynics do not understand the inner workings of economics and printing money:)

John Galt September 7, 2011 at 3:42 pm

Like Gloria Wandrous in Butterfield 8, this is day we write “No Sale” on the mirror of our capitalist oppressors. The Great Gatsbies will be shown who’s boss and Conyers is just the guy to let em have it, and to take their best mink and liquor with him to boot.

It always par ’76 on the people’s Imperial Worldwide Course with alternating red flags, white flags, and blue flags at each military alliance hole.

All good patriots will put their mortgages under the pillow tonight. It’s the law. While Americans enjoy their designated sleeping time, a few brave heroes will be given wings and freshly minted trillion dollar gold pieces. Each night, if you put a nicely written letter next to your mortgage, you just may awaken to find a voucher indicating your mortgage has been paid down to its fair market price by the Central Bank Fairies.

Your duty as freemen is to debate which teams the heroes come from and to give the equalization stimulus swat team your alarm code, so they can make their nightly rounds and have access to your bedrooms.

There are always the few noncompliant malcontents, don’t be one of them so we don’t have to shoot your dogs and manhandle your wife and kids so we feel safe while conducting our sacred national mission.

JS September 7, 2011 at 5:02 pm

Nietzsche would ask of Galt: Why respect contracts if you don’t have to?

vikingvista September 7, 2011 at 5:17 pm

Galt would reply, “Because you want to.”

JS September 7, 2011 at 6:27 pm

That would be because it was in his best interest, but what if it weren’t?

vikingvista September 7, 2011 at 7:29 pm

Then he wouldn’t. What do you suppose a contract is?

John Galt September 7, 2011 at 7:02 pm

The more laws of individual men and of nature are obeyed, the more stable and beneficial our society. The technology exists for every household to have a unique contract with the government. You don’t expect your neighbors to drive the same car, wear the same clothes, and got to the same church as you, why the cookie cutter approach to social contracts? The most legitimate monopoly force construct is the one most voluntarily accepted by the most individuals.

Atlas Shrugged Condensed Version:

“It sure is hard to find good men nowdays. I wonder what the hell is going on,” Dagny smirked to herself as she entered the towering monolith to capitalism that was the headquarters of Taggart Transcontinental. “There are so few men like Hank Rearden, the man who single handedly invented a new metal that is far stronger than steel,” she said bursting in on her brother. “There are too many like you, Jim,” she mocked.

“Well, if that’s the case, why don’t you go redeem yourself by sleeping with him. You’ll serve the cause of capitalism far better that way than you have,” Jim mocked.

Dagny smirked in her mocking way. Yes, she thought, she had tried that with another man, and it seemed so right until he, gasp, went to the other side. He became a slacker. Hank. Hank, Hank, Hank. Don’t you know you’re all I dream about though I don’t actually do anything about it until page five-hundred? “I know what I want Jim, but what do you want?”

“Who is John Galt?”

“Don’t say that! It’s people asking that question that leads me to believe something sinister is happening in society. I think he’s the destroyer.” She mocked herself silently inside. How could a grown woman think such a thing? Oh, who was she kidding? She knew that women weren’t much better than children anyway. Everyone knew that. It was a fluke she had any position in the railroad at all.

“It is I, Francisco d’Anconia, of the oldest most wealthy copper fortune this side of the Atlantic, and don’t I want you to know that I’m pissing it all away for a grand reason that I won’t tell you!” His perfect physique burst through the door in a mocking manner few could achieve but which he achieved perfectly. Others failed at the act, yet after a single try at six months old, he was better at mockingly bursting through doors than anyone on the planet.

“Slacker,” Dagny screamed with indignation and a pointed finger.

“Yes Dagny, I may seem a slacker to you, but after ten pages of explanation you will know that it is you who slack and it is I who serve a higher cause which will not be explained for another seven hundred pages. Remember, I am a d’Anconia which goes without saying that I know what I am doing,” he mocked. He was so perfect at mocking. No man mocked like Francisco. How she wanted to be back in his arms. Were it not for… no! He was a slacker! The very embodiment of slack yet… yet he slacked with purpose. Even that was perfect. No man slacked like Francisco.

“What in capitalism’s name is going on here,” Hank yelled with bursting anger from the bottom of his manly lungs as he lunged through the door. It wasn’t as perfect as Francisco’s mockery, no man could touch that, but it was with the kind of power only a capitalist could muster. Dagny fluttered with lust.

“What the hell are you all doing in my office,” Jim demanded weakly, the only way a socialist could demand.

Dagny screamed with indignation, “Please, I want Hank to take me and show me what a weak little girl I really am! That’s what all women want!” Hank looked torn.

“Hey everybody,” said a quiet voice from behind Hank. Hank took up most of the doorway with his manly capitalistic bulk. The crowd parted like the sea and a well groomed handsome man with a shock of boyish blond hair stood at the foot of it.

“John, you’re not supposed to show up for eight-hundred more pages,” Francisco said mockingly.

“Well, I got bored with the wait and figured what the hell. So… who wants to know what this is all about?” John smiled and every man’s heart in the room melted. Dagny felt the overwhelming urge to become his servant and to clean up after him. That’s what all women wanted after all, she figured.

“I do,” Rearden capitalisticly demanded.

“Well, I couldn’t deal with any government intervention in business and think that any kind of socialist tendency is kind of a bad idea, so me and my buddies, who all just happen to be rich, powerful, and industrial, went on strike to bring the world to its knees.” John said as he tossed back his blond hair with a light twitch of his head.

“For what purpose,” Jim nearly cried. Socialists are such babies, thought John mockingly.

“Well, I don’t like having to pay taxes or think about anything other than business. And, because I’m such an inexplicably charismatic guy, I figured I’d just get my industrialist buddies to back me,” John said with a hint of mockery.
“Well, once it completely collapses, we’ll get back to work but until then, who’s up for some skiing in Colorado?”

Economiser September 7, 2011 at 10:34 pm

That saves about 1,500 pages worth of reading. Good job.

L. F. File September 7, 2011 at 3:44 pm

Haven’t the premiums on this insurance already been paid with the TARP and the trillions of dollars already expended by the USG in supporting the banking industry? Wasn’t that USG support necessary because the banks could not maintain cash flow – i.e.borrow commercially in order pay their creditors – due to the bad mortgages the had/have on their books? The mortgage security holders (banks) have essentially been given money to cover their losses on the mortgages so why do they now seek to get that money again from the mortgage payers?

lff

Methinks1776 September 7, 2011 at 4:37 pm

In a word? No.

Slocum September 7, 2011 at 3:54 pm

Meanwhile, in John Conyer’s district there’s this fascinating story:

http://detnews.com/article/20110907/METRO01/109070383/Owners-escape-tax-debt-by-rebuying-foreclosed-homes

Notice the ‘solution’ to the problem (proposed by State Sen Tupac Hunter) — namely, a law that would ban people who owe any back taxes from bidding on properties at auction. Want to guess at the unintended consequences? Consider this example:

Landlord Allen Shifman…owed $35,300 on three properties owned by one business in which he has an interest, but bought them back under another affiliated business for $3,500.

Now, does anybody think if he was banned from buying back the properties at auction that he would have decided to fork over $35,300 in order to hold on to houses with a total market value of $3500? Not unless he’s a complete idiot–no, he’d have walked away and those houses would have been added to the huge stock of abandoned, dangerous, falling-down properties owned by the city.

kyle8 September 7, 2011 at 3:59 pm

Because he is a stupid socialist?

vikingvista September 7, 2011 at 4:42 pm

What’s with the redundancy?

Pom-Pom September 7, 2011 at 5:07 pm

but it is irresistable!

Scott September 7, 2011 at 4:03 pm

My vote is arrogance. 99% of politicians (these days) do not obtain power based on what grants citizens liberty. They profit from tyranny.

Hopefully, with the arrival of Ron Paul, there will be less people like him and more people like Ron Paul.

vikingvista September 7, 2011 at 4:45 pm

Politicians are pirates for hire.

Chucklehead September 8, 2011 at 10:45 am

Politeers?

vikingvista September 8, 2011 at 2:52 pm

I like it!

kyle8 September 7, 2011 at 4:50 pm

Ron Paul is a libertarian, he is not a very popular person, and he has some very flawed statements in his past to live down. Plus he is very old.

I say this not because I dislike Ron Paul, I say it so that you don’t get your hopes up to high for one individual. Libertarian ideas are on the upswing, and are being discussed daily, that is what is important.

Stone Glasgow September 7, 2011 at 4:56 pm

Politicians are basically lawyers for large corporations.

vikingvista September 7, 2011 at 5:19 pm

How so?

Boudreaux Fan September 7, 2011 at 4:52 pm

Does such insurance even exist now?

Methinks1776 September 7, 2011 at 4:59 pm

Yes. It’s called not giving you a mortgage.

Unless, of course, it’s an FHA mortgage or some other flavour of taxpayer backstopped loan. Then, you get a house and, if things don’t go your way, the taxpayers will pick up the tab. What could go wrong?

ennuigogo September 7, 2011 at 5:35 pm

Don,

I applaud your tireless and patient efforts on behalf of simple clear thinking. It’s almost as if you can create a template letter to the editor to update on a daily basis to address the specific economic illiteracy du jour.

Do you sometimes despair that your relentlessness amounts to so many pearls before swine? I hope not. As kyle8 said, it seems to me that just maybe these simple ideas can invade the general consciousness.

jorod September 7, 2011 at 10:01 pm

If mortgages go down when values fall, do they go up when values increase?

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