Wednesday, April 22, 2009
Elizabeth Warren Grills Geithner
During a Congressional hearing yesterday Elizabeth Warren pointedly asked Treasury Secretary Tim Geithner about the plan for assisting homeowners who have substantially negative value in their homes. So, their mortgage is worth $400k, their house worth $300K, and supposedly the government has to help the 'homeowner'. At the very least, this suggests a $100K writedown so the owner has some option value. She also made a statement, that simultaneously called for banks reducing interest rates and increasing lending, which nicely highlights her naive view of business and economics.
She's an unqualified advocate for the little guy in the most direct way. So, anything that would cost such individuals more, or take away their power in a negotiation, is considered bad. Such thinking is antithetical to economics, because good economics looks at the unseen as well as the seen, indirect effects, which are often effects on future behavior via the incentives of the rules. Her arguments always have the flavor of intelligent but ignorant earnest students in High School sociology classes: businesses should be forced to lower prices and raise wages and benefits. I guess her template is India or Venezuela. She is a caricature of a simple minded do-gooder because the solution to every problem as merely having a large organization write a check or give stuff away. She takes the size of the economy, its production of goods and services, as a given.
She's on TV shows all the time because journalists and left-wingers agree with her conclusions, and she's from Harvard, so she can make an absurd statement and get away with it because we all know Harvard contains only the Best of the Best in thought. She contributed to John Edward's book, Ending Poverty in America published in early 2007, which argued for more home ownership in America via what came to be known as NINJA loans. The consequence of that objective, in her mind, is merely another random opportunity for the government to help the little guy.