Paralysis By Analysis

I know the title is not original but then there aren’t very many things that are new under the Sun as the Good Book teaches us.  We should try to remember that more often when we peruse the day’s headlines about our economy.  One day it is housing that it topic one, then another it is GM or AIG, then it floats the Fed and what they are pondering.  With the economy as messed up as they can make it from Washington it is no wonder that the topics exceed the ability for cogent comments.

The last few days the topic as been on Fannie and Freddie again.  Woe is me, what to do, what to do.  The smartest guys in the room say we need to make changes.  But that Government, Inc. MUST have a continuing role in the housing/mortgage sector or the roof will fall.   Again it is a classic example of top down planning and manipulation of the private markets and political crony capitalism.   We need to start with the reminder that real estate law is and has always been the purview of the  individual states, not the Federal Government.  Article One, does not give the Feds the power to control the laws of real estate ownership or rental laws.  Some States are what are called Deed of Trusts states for taking a lien against real estate others are mortgage states.  The phrase “mortgage” is used loosely in the press but that it not quite accurate for numerous states.   How to sell and take good title to real estate is a state matter and likewise the perfection of a lien against real estate is a matter of state law. 

You can go back a really long way and find that under our Anglo-Saxon common law people have taken liens against real estate.  People usually didn’t have enough cash on hand to build a house or commercial building in London or Boston in 1700.  They had to borrow money to build it and then repay the loan over time.  The money came from private sources or from the early banks.  It is amazing how our country managed to survive and thrive for about 175 years after its founding without government involvement in what were private transactions.   Use any measure you like, economic growth, total wealth, jobs created, industry creation, standard of living,etc, and it is without argument that we had a remarkable run of prosperity and growth during all that time.  That even included the War Between the States and Reconstruction.   But then the Big Government gurus got power and decided to start taking over the housing sector.  They knew what was best.  It began roughly 60 or so years ago. 

All the early mortgages were private, they came from banks who would loan you the money and then collect on that loan with interest until you paid it off.  The bank had a strong interest in your ability to repay the loan. They checked you out.   That method worked wonderfully well for a very long time.  Then the social engineering started.  Fannie and Freddie along with FHA became bigger and bigger players in the mortgage game.  What if they no longer existed?  Would that mean the end of new housing, the end of selling your house, the end of finding financing to build or buy a house?  The answer is no.  There is money to be made lending for housing just as there has been for centuries.  People will find a way to make that system work.  Like the Savings and Loans of yore they will want to make money on housing loans.  In spite of the rhetoric in the newspapers today that is still a viable business.  It has its ups and downs like any business but it is a solid business. 

If Fannie and Freddie disappeared tomorrow, that void would be filled by others willing to loan for housing.   There is money to be made there even if there is no Fannie or Freddie to buy up the mortgages from the banks.  There were millions of loans made before Fannie and Freddie even existed and there would be again.   These arguments that the market for housing would collapse it balderdash. Yes, there would be some dislocation for a while as the new market grew.  But my heavens could that temporary problem be any worse than what we are already suffering?  Of course the politicians would lose lots of power because they couldn’t curry favor with one group or category for their votes.   The power of the purse would be in the hands of private enterprise.  It is laughable that Fannie and the like are called “Government Sponsored Enterprises”.  What is the government doing in private “enterprise”? 

Fannie and Freddie should be shut down over a 5 year period and there should be no government entity to replace them.  Let the banks do their own work and determine who is credit worthy for a housing loan.  Geithner, the tax cheat, says that the market would disappear but that is a lie.  There are millions of potential loans every year to be made.  If left alone private markets would move to fill that void quickly.  You may have noticed the recent article about the company that is redoing mortgage loans now for underwater or properties threatened with foreclosure.  They buy the loans from the banks at a steep discount and then work out a new deal.  They re-work most of them in a month or so.  You’ve read how those in government programs take months.  That is private enterprise in action.  That company will make a profit the homeowners have someone who will talk to them and make a new arrangement that its best for everyone.  The shame is that those loans weren’t made according to private enterprise standards in the first place.

The early Bank of New York made bunches of mortgage loans for the development of Manhattan after the Revolutionary War.  Hamilton and a few investors that the bank would help with the growth there.  He was right.  The politicians of the day were concerned about a bank that would favor merchants over the little guy.  The charter was delayed for years.  That first bank opened as a private bank.  You trusted them with your money and they trusted you to be good for the loans they gave you.  It was located on lower Wall Street.  That bank and others like it seemed to go pretty well for New York.  When it opened the population was less than 30,000.  By the time of the War Between the States it had a few hundred thousand.  http://www.olcranky.wordpress.com

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