The Collected Works of Author and Blogger Larry Roberts

Archive for January, 2013

Apportioning blame for the housing bubble has become a polarized political issue. The Left wants to portray the evil banks as taking advantage of hapless borrowers thus entitling these borrowers mortgage relief or absolution for strategic default. The Right points out the responsibility borrowers have for their own behavior and wants to bail out the banks for completely self-serving reasons. As with most political issues, the polarized and generally self-serving positions of each side fail to capture the truth of the matter. Nobody wants to admit or take responsibility. Politicians are masters of deflecting responsibility, and now borrowers are deflecting responsibility in unprecedented numbers. Behaving like children who get to play but refuse to do their homework, borrowers are throwing…[READ MORE]

Just like the expansion of the FHA program, now the US government wants to expand the role of Fannie Mae and Freddie Mac.  This would be the second major expansion of their influence in mortgage refinancing.  If you refinance your house there is an 75% chance that it is guaranteed by Fannie Mae or Freddie Mac. Freddie Mac and Fannie Mae so dominate the mortgage industry right now that it would barely exist without them; however, this comes at a great taxpayer expense because they had loses in the hundreds of billions. After the housing crash, many of these Fannie and Freddie loans had balances greater than homes were worth.  Many of these underwater loans were affordability products with some…[READ MORE]

The housing bubble was inflated by private lenders giving nearly unlimited money to eager borrowers to bid up real estate prices to levels not sustainable by the real incomes of the borrowers. I have pointed out that lenders are more culpable than borrowers, but it took two to tango. Under intense political pressure to make restitution to the sheeple and to limit future lawsuits on the matter, the major banks agreed to investigate themselves and determine by their own standards if borrowers were treated unfairly. Since the review process wasn't placating former loanowners, the politicians and the banks negotiated a settlement agreement that will provide loanowners a few pennies to offset their perceived losses and injustice. The guilt payments won't…[READ MORE]

Yesterday, with special thanks to Matt138, I introduced the writings of Frédéric Bastiat, a 19th century French economist. I always find it interesting when writings from many years ago resonate through the ages as if they were written yesterday. If you've never read Plato's Republic, it has a similar resonance. Plato's critique of the shortcomings of democracy are still just as valid today as they were 2,500 years ago when he wrote it. Usually, I feature recent news articles less than a few weeks old. Today, I am featuring an essay written more than 160 years ago. The fact that it resonates so well today shows just how farsighted his vision was. Our obscure French economist understood the workings of…[READ MORE]

Many times over the last six years, I made the argument that lower debt service burdens are the key to a sustained economic recovery. Bankers and the federal reserve want to see an expansion of credit for completely self-serving reasons. They point to times in the past when an expansion of credit fueled economic growth as evidence of its necessity for a vibrant economy. Perhaps it's partially true. An expansion of asset-backed debt is good for the economy, but most credit expansions involve the populace taking on huge amounts of signatory debt, and expansions of signatory debt invariably lead to personal Ponzi schemes, HELOC abuse, and a contraction of credit when debtors have to pay the bills. A sustained economic…[READ MORE]

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