Wednesday, June 24, 2009

Conspicuous Missing Legislation

A lot of top-down financial legislation is in arrears, but there is nothing relating to actual home buyers. That is, the quaint 20% down on a home purchase? The Income-to-debt levels? In crazy times those things weren't verified, and there were non-profits organizations receiving money from the Federal Government that paid for down payments so that everyone was happy. To blame this on 'derivatives' is absurd.

That's the front end of the mortgage meltdown, the prime mover. David Reilly of Bloomberg asks why not require 'borrowers have some of their own money on the line?' Or as a Saturday Night Live parody notes, a profound but counterintuitive bankruptcy advice is merely Don't buy things you can't afford. Indeed, the government still (ie, today!) has a prominent 3% down homebuyer initiative. Given home volatility, a 3% down no-recourse mortgage is a giveaway given the option value (keep upside, lose 3% if wrong). But that's related to hard-working people as opposed to abstract caricatures like 'bankers' and such.

The obvious answer is this would have disproportionate impact on the poor, which does not play well when grandstanding new legislative initiatives. By logical extension, this would disproportionately affect NonAsian-Minorities (NAMs). Better to blame this on the greed of rich people, mathematical mistakes by quants, anyone but actual people instigating the necessary instruments for this boondoggle, or their 'well intentioned' legislators. This urge to blame the wealthy for anything that goes wrong clearly plays well to the median voter. Perhaps I should pitch a book for a new 'grass-roots' movement against the plutocracy: 'My Struggle: How Smart, but Greedy and Rich, Bankers Screwed Us.' I just have to find a comp to convince my publisher this kind of work has a natural audience...

This is why Plato hated democracy. Popular means crap, as in public golf course, school, bathroom, recreation center. It means placating the mob unrelated to the weight of their opinions. Our founding fathers fought to establish a republican democracy, but now all we see are democracy fetishes, indeed, legislators go out of their way to emphasize their low origins and how their legislation helps the lowest levels of society (ignoring illegal immigrants, of course). So current rectifications conveniently exclude actual home buyers who got us into this mess, because, they aren't empathetic to the median voter.


J said...

My Struggle: How Smart, but Greedy and Rich, Bankers Screwed Us.
You write too well to be credible as one of the screwed. And the screwed read no books. Keep writing for the greedy and the rich.

Anonymous said...

You really shouldn't include public golf courses when identifying weaknesses with the public sector. Many, even most, public golf courses are quite nice.

Eric Falkenstein said...

Good point. There are many nice public golf courses. But the really nice ones are private. Especially the 19th hole.