TCS Daily


Shock-and-Awe Easing

By Larry Kudlow - December 16, 2008 12:00 AM

In a monetary version of shock-and-awe, the Federal Reserve unleashed a massive easing move with its FOMC policy announcement Tuesday — one that represents a sea change in central-bank operations.

For starters, Bernanke & Co. established a new target range for the federal funds rate of zero-to-one-quarter percent. That's right: zero-to-one-quarter percent. In doing so, the Fed is abandoning its fed funds target and essentially following Treasury bill rates in the open market, which have been trading close to zero for many weeks. The Fed also signaled the near-zero funds rate could last for "some time."

However, the really big news is not the fed funds target. It's this sentence:

"The focus of the Committee's policy going forward will be to support the functioning of financial markets and stimulate the economy through open market operations and other measures that sustain the size of the Federal Reserve's balance sheet at a high level." (Italics mine.)

The Fed goes on to say it will purchase large quantities of agency debt — meaning Fannie and Freddie — and more mortgage-backed securities (quite possibly toxic assets). In other words, it wants to drive mortgage rates down. What's more, the Fed may buy long-term Treasury securities, also to drive bond yields lower. And it will purchase the Term Asset Backed Securities Loan Facility in order to finance consumer-related bonds and pump liquidity to consumer lenders.

The message here is that Bernanke & Co. is locked and loaded, ready to shoot every last bullet to help credit markets and the economy. In particular, the Fed is formally adopting a Milton Friedman-type approach that is directed at expanding its balance sheet and stimulating the economy.

The Fed's balance sheet already has more than doubled from roughly $900 billion to $2.2 trillion. For all we know it may soon double again. Money-supply measures are already growing at 7 to 8 percent.

And while some economists worry about higher future inflation from all this money-creation, Tuesday's consumer price report actually showed deflation of 10 percent annually over the past three months. That gives the central bank ammunition to ignore inflation and aim instead for a massive monetary easing.

Will it all work? In the short-run it may. But is a near-zero interest rate, and even more pump-priming, really the best longer-term solution? It's still troubling that Fed policy lacks a true anchor or compass. In the past, targeting the economy alone has resulted in higher inflation. That's why many conservatives wish the central bank would keep a sharp eye on the value of the dollar and commodity prices (including gold).

While energy and other commodity prices have experienced a wicked plunge since the summer, in recent days — ahead of the Fed's new policy decision — the dollar has fallen and commodities have rebounded. But the question is this: In the future, will the Fed be able to unwind its huge cash-liquidity injections? The same can be asked about government bailouts for banks and quite possibly Detroit. Yes, this is an emergency. But it's also unprecedented government intervention in the economy. How we restore traditional free-market capitalism remains unsaid and unknown. That is worrisome.

Stocks cheered the Fed's move by rallying nearly 400 points on Tuesday. Savvy investors Ken Heebner and Robert Doll — two financial and political conservatives — strongly endorsed the Fed moves on CNBC. This massive easing almost certainly underscores the likelihood that stocks bottomed on November 20. Both the monetary surge and the upturn in equities are pointing to economic recovery next spring or summer.

Meanwhile, on the fiscal policy front, everyone has been focusing on Obama's huge big-government-spending infrastructure play. But Team Obama is also drawing up plans for a massive purchase of mortgages in order to get long-term borrowing rates down to 4.5 percent — a full percentage-point drop. The specifics are sketchy, but there's no question the Obama Treasury, led by Tim Geithner, will be working hand-in-glove with Geithner's former Fed boss Ben Bernanke to drive down mortgage rates and stop the housing slump.

Perhaps Bernanke himself scored a few points with his historic shock-and-awe easing move. It's as though Bernanke is telling the new president: Hey, I'm on your team.

But I still believe the best economic stimulus would be a move to cut tax rates across-the-board for individuals and businesses. No matter how much money the Fed prints, or how many roads or mortgages Uncle Sam buys, none of it creates new incentives for private enterprise, risk-taking, and investment.

To complement the Fed's easy money, permanent tax cuts would increase the production and investment that would soak up the excess money and create non-inflationary growth. Alas, supply-side tax cuts are nowhere to be found right now.

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65 Comments

What a crock!
"...to drive down mortgage rates and stop the housing slump."

Driving down mortgage rates will not stop the housing slump. What an IDIOT!

I expected way better from Kudlow. I sure hope he was referring to what the Obamacrats were thinking, and not what Kudlow thinks will work.

The only way to 'fix' the housing 'slump' is for the Feds to bulldoze every foreclosure and, in some markets, perhaps even non-foreclosures. Only removing units from the housing stock with their prices go up.

Unless the idiots at Obama Central plan on making Johnny Crappy Credit be eligible for even more faulty debt? Since those same idiots precisely promoted the same policies in the past that got us in this mess, that is very likely. But in the end, the bulldozing option is still the superior one as far as 'effective' government intervention is concerned.

Or, they can just leave it alone. There's no 'slump'. What is happening now is that the market is harshly reflecting the prices by good 'ole supply & demand.

easy idiots
So in the new Obama command economy, the central planers want to do the same thing the last gang did; give mortages to everyone with a pulse? Kenysianism didn't solve the big depression(which the Austrian Economists foretold)but just made it linger longer, and it won't work now. If these new big government commisars keep going on like this they might even try the stupid wage and price controls of that other idiot Nixon.

That beast is the government, not the economy.
All we need do is vote the bastards out.

In the meantime,politicians DO listen when enough people shout at them loudly enough.

Even the media will listen and help. Already BHO is annoying the press.

You're not even in the business
You've been taking me to task for some time now for offering an opinion on subject matter not within my area of special expertise. Now allow me to put the shoe on the other foot, based on my long experience in the field.

Lowering interest rates will certainly alleviate the housing crunch, in a variety of ways. First, we do not have an excess of available housing units. We just don't.

Why do I think that? Because every one of those recently foreclosed units had a family that bought the place wanting to live there. Have all these families vanished from the face of the earth? Of course not. For every vacated unit there exists one (family) unit of potential demand.

The problem was that they signed on to mortgages that were either undocumented or whose terms changed so they became unaffordable. Both problems can be (and are being) corrected.

I presume you are aware that families have the tendency to buy up to their affordable limit. And since most assume they are being qualified by a competent and honest mortgage broker, for all practical purposes that means how much house the lender allows them to buy.

Follow the logic. That means that when mortgage rates go down, home prices can go up. (And vice versa.) What happened was that when interest rates went to the floor back in the first Bush administration it allowed prices to go through the roof. And developers reaped a windfall.

A positive side effect was that the building trades all enjoyed boom time, and employment was very high. A negative side effect was that home prices went up too fast, and no longer reflected any concept of actual value. They need to come down to the point where they can meet the incomes of qualified buyers before deals can be struck.

Theh the excess inventory can be occupied, and things can return to normal.

A major aspect of our current problem is that when the slump started, millions of mortgages went upside down. Mortgages reset at higher rates and more empty homes appeared on the market, driving prices down below the point where those left holding the bag felt they couldn't book the losses involved in selling these homes below their investment in them.

Now mortgage rates are dropping fast.. and the result will be a strengthening of sale prices as families can afford to make the payments on more expensive homes. At some point this new demand will meet the expectations of anxious sellers. And the market will have returned to a steady state.

It's a good strategy. BTW your whipping boy, "Johnny Crappy Credit", will not be able to buy another home. The very first of the newly proposed regulations is to require all statements on loan forms to be verified and documented before the loans can be guaranteed or sold.

Just leave it alone and it will take years to work out by market mechanisms-- as was the case the last time it happened, in the early eighties. But housing is too large a part of the general economy (at least as large as autos). So we don't have that time to waste.

The formula to quickly correct the sag is to lower interest rates, to require verified documentation and to regulate the industry more intelligently and diligently than has been the case. I don't just blame the current administration.. this mess began under Clinton. But so far I'm heartened by the swift and intelligent way the crisis is being handled.

Unless you want to start a revolution...
voting and bitching are the only ways to change the system.

Do you have some other illegal methods in mind?

It begins with good enforcement
"So in the new Obama command economy, the central planers want to do the same thing the last gang did; give mortages to everyone with a pulse?"

Just the opposite. You ought to maybe look things up before you make your comments.

There has always been a clause at the bottom of one's loan application that mentions the stiff penalties for lying, misrepresenting, etc. It warrants that neither the loan applicant nor the originator has falsified any of the information in the package. But there has been no diligent enforcement.. so the requirement has been ignored in the general rush toward full deregulation of all markets.

For that reason, last year Obama introduced the Stop Fraud Act in Congress. It will certainly be at the top of the Congressional agenda in the coming year.

Stop Fraud defines mortgage fraud, creates criminal penalties for professionals engaging in fraud (and a professional must sign EVERY loan application submitted to a lender) and increases funding for federal and state law enforcement programs. I hope you are sufficiently interested that you take a look at this:

http://www.scribd.com/doc/8119168/Obamas-Mortgage-Plans

That you admire the Austrians comes, I suppose, as no surprise. You appear to share with them a willingness to believe your preconceived assumptions without first checking the evidence to see whether they actually fit.

One more law that won't be enforced.
Looks good on paper but with no teeth, it will mean nothing.

We have laws preventing illegal immigrants from working in the USA. We have laws to control illegal drug smuggling and use. So what?

The entire US code could be erased and replaced with one 'law', don't lie, cheat, steal or murder. Then enforce it.

Making more paperwork that creates more opportunities for well intentioned people to break a law will only achieve the results the politician wanted, to score points and make a claim "I did something.", but he won't solve the problem.

Yes, let's end government schools
I am all for eliminating forced public education.

As Rush says, people value what they pay for.

"Government schools never sought the permission of parents to educate children."
"Instead, they used force to secure their audience. As is only natural, the arrogance of the state and its contempt for parents has grown with the years. So also has its power over society."

"When a few parents in Palmdale, California learned that their children’s school had permitted researchers to interview first, third and fifth grade students about such things as sexual urges and fantasies, they became outraged and took the matter to court.



The Ninth Circuit Court of Appeals heard the case and concluded that when parents place their children in a public school, they forfeit any right to determine what or how their children are taught. The school may teach anything it wishes in any way it wishes. It may allow researchers, special interests, social activists, and anyone else it chooses access to students. The court’s decision confirmed earlier court opinions.


Our society has become a slave to the state by virtue of government-controlled schools."

"The United States was founded, formed and grew to international prominence and prestige without compulsory schooling and with virtually no government involvement in schooling. Before the advent of government-controlled schools, literacy was high (91-97% in the North, 81% in the South), private and community schools proliferated, and people cared about education and acted on their desire to learn and have their children learn."

Early America was arguably the freest civil society that has ever existed. This freedom extended to education, which meant that parents were responsible for, and had complete control of, their children's schooling. There were no accrediting agencies, no regulatory boards, and no teacher certification requirements. Parents could choose whatever kind of school or education they wanted for their children, and no one was forced to pay for education they did not use or approve of."

"But Americans have not surrendered their freedom altogether. 27,000 private schools serve over six million students in America. Nearly two million students are home schooled. Tutoring services and learning centers number in the thousands. Community groups, churches and charities offer free tutoring. Parents pool their resources to run summer schools and special classes for their children.



Much more could be done if parents and students were not trapped in the web of government schooling. As it is, many parents are actually afraid to step into independence. Some are afraid because schools threaten or intimidate them. Some are afraid of the financial responsibility. Many simply are unaware of all the opportunities and possibilities available."


http://www.schoolandstate.org/solution.htm

Should I assume you support the efforts of this organization and others?

Use force just like those we oppose?
Conservatives and libertarians need to use government schools to force their message upon students?
You are no different than Roy and the other socialists.

When you compromise with evil, evil wins.

Even Bill Gates couldn't 'fix' public schools.
He is redirecting his money to promote effective teachers.

"In his opening remarks, Bill Gates had said that several of the schools the foundation funded in its first eight years faced an uphill battle because of political landscape problems: School officials wanted to try things like hiring only the best teachers and extending the length of the school day — but, stymied by opposition, they were unable to do so.

After hearing the foundation’s presentation, attendees raised the possibility that similar stumbling blocks could trip up the foundation’s next phase of efforts.

To get traction for high-quality standards and rigorous tests, states would have to agree to adopt them. To fire ineffective teachers, union contracts would have to be rewritten. Even building data systems can elicit community backlash, as has been the case in New York City with the ARIS data warehouse, which some parents and teachers resent as an unwelcome addition to the public schools that forces overly simplistic calculations and treats students as mere numbers."

http://gothamschools.org/2008/11/12/gates-foundation-will-steer-its-education-giving-in-a-new-direction-but-how-much-impact-will-the-billions-have/

The only way to 'fix' 'public' education is to apply the free market principle of competition, which will mean effectively ending 'public' education as we know it.
If you think the government must fund education, then you must allow parents to direct that funding and not the state. And this must include parochial schools as well.

Fix the problem first.
THE problem is government control of public schools.

Parents who want to teach their children virtue and morality discovered they cannot change the system and started private schools, home schools and charter schools.

Until you recognize that state mandated curriculum, of any kind, IS the problem, yow will be part of the problem.

You said you want to work with the system we have.
"Let's get more conservative and libertarian views into the schools now to balance the liberal view."

This is what I understand you to mean.

When you have a broken system, what you suggest will have little success.

Fix the system first and teach people to read, write, calculate and think. Don't teach what to think.

Fixing the problem is ending the tax.

Maybe these folks can help.
Here is a group that can help.

"Despite the leftists' objections, I began gathering indisputable evidence of bias and placed pressure on the school. In turn, they continued to receive calls and letters asking for a stop to the indoctrination.Whenever I met with administrators, they complained about the negative PR they held me responsible for. However, I kept repeating the same message: In order to receive a positive review, you will need to take positive action. This certainly did not endear me to the administrators, and I became something of a persona non grata. Once, after an article came out that they were particularly unhappy about, I was brought into the office with a security escort. The superintendent even made veiled threats of reprisal against me (instead of dealing with the "root causes" of the negative PR, their own rampant bias). But because my criticisms were accurate - and because I always strove to act with decorum and respect - this threat turned out to be hollow. Soon the intense pressure on the school caused their resistance to give way, and changes started to take hold."

"Gray Davis' budget crisis resulted in large statewide funding cuts in education. Our high school placed a tax increase initiative on the ballot to generate some revenue. To the districts tremendous surprise, it failed, and right away I was blamed. At this time, I met with the superintendent and principal and carefully outlined the basic changes I felt needed to be implemented. I let them know this election was a wakeup call, demonstrating public disapproval, and that any positive steps the school should take would be dutifully reported on the radio.

Next, came the miraculous. First, the principal wrote a memo instructing all teachers to discuss the war in Iraq in an even-handed way. This was followed by an unprecedented and groundbreaking directive issued by the superintendent, fulfilling the key request of my campaign: it required every teacher to maintain a politically neutral environment. The principal personally backed this policy up by reiterating the new directive on the PA system. She even took independent action to further rebuke teachers who
overstepped these bounds.

The initial battle had been won.

As I had assured the principal and Superintendent, I reported these changes on Larry Elder's show. Their next tax initiative passed, by the margin of 508 votes. This means the school got what it wanted, but that public pressure will remain, keeping them on the straight-and-narrow. I also hope patriotic members of the faculty will become more vocal. At the end of the year I discovered many teachers were behind me, but they were not open about it, fearing reprimand from the leftist establishment. The readers of this article can also call the school (at 310-395-3204) or the district (at 310-450-8338) and thank them for again making the classroom a place of integrity, and asking them to stay the course."


http://www.psaf.org/

Note that the administration did not get too serious until they lost money. Competition will also affect how schools are funded. If charter schools and vouchers are choices, traditional public schools will be forced to change or close.

Just like that ultra liberal college that closed not long ago.

Public schools use force
If you believe you can 'fix' the public school system, a socialist system based upon force, without dismantling the system, then your are wasting your time.
Anything you do to work within such a system is a band-aid.
Unless traditional public schools have competition, they will not change.
And even when an education system has competition, of sorts, such as the university system, communist dogma is perpetuated by instructors with tenure and the inmates can control the institution. Larry Summers made a comment interpreted by Harvard staff as inappropriate and forced him to resign. How (classically) liberal is that?

Let's see how long Michelle Rhee lasts in DC. If she can change DC schools for the better, there may be hope for traditional public schools.

As a libertarian, how can you support such a system of force that is our public schools?

NO, you have NOT said that you do not support the current system.
You said you only want to fix the current, socialist system.

Roy keeps thinking that if only the 'right' people are in charge, government will work. The problem IS the system, regardless of who is in charge.

Unless you are promoting dismantling the current socialist education system, you are supporting the current system. You have, to date, not indicated that you support dismantling the current system.

nonsense enforcement
It sounds like you're saying, well the thought was good, no matter that it didn't work with all its unintended consequences. Typical liberal naivete.
And now it seems you support that other favorite proven failed option of doling out billions in all the pork programs that will also result in the same unintended consequences. Liberals love having the fox guard the henhouse.
What specifically do you have against Autrian Economics? That it favors freedom perhaps?

Socialists can't support individual liberty
If they did they would go out of business.

Calling people names
You accuse me of some three letter something you won't define although I have repeatedly asked.

You know what a socialist is.

Your cynicism is misplaced
"It sounds like you're saying, well the thought was good, no matter that it didn't work with all its unintended consequences. Typical liberal naivete."

I think you're proceeding from a simplistic view of how government works.. plus a knee jerk reaction against statism that fails from a profound lack of information about exactly what it is that government does.

In fact enforcement proceeds from a well written body of law, PLUS a strong will to enforce it, PLUS adequate funding for enforcement.

If we look at the governing philosophy of the current administration, it proceeds from a distrust of government generally and regulation specifically. So over the past eight years we have seen a three pronged attack on federal regulation in virtually every area-- including mortgage placement and the ability to freely create novel and uncontrolled forms of securities.

Those three prongs are: control of Congress to enact legislation; rewriting of rules in the executive branch, to bypass Congress; and a de-emphasis on enforcement.

The Stop Fraud Act crafts new rules for federal enforcement, provides for adequate funding, requires investigation and prosecution on a state level and more clearly defines exactly what mortgage fraud IS.

Passage of the Act into law, plus a clear intent to do what it says, equals a greater likelihood that this kind of absolute mess will not recur. Failure to do so virtually guarantees that something like it will happen again.. and a glance at our financial history will provide abundant examples of exactly that.

Another striking example fo the problems that occur when there is no will to prosecute is in the Bernie Madoff case. Commentators are currently pointing to a dozen different ways the SEC, which should have nipped this one years ago, consistently dropped the ball.

There was no will to enforce. And such a will MUST, under our system, proceed from the White House on down.

It may be that your high school dropped the ball when it came to teaching its students Civics. Or maybe you were asleep during that class. But it's never too late to catch up. I would suggest coming up to speed on the question of enforcement.

2. "And now it seems you support that other favorite proven failed option of doling out billions in all the pork programs that will also result in the same unintended consequences."

Billions in pork programs? How about pointing out just where I've said anything about billions, or pork?

I'm talking about the very modest increments in the federal budget to provide for investigation and prosecution staff. Those are mere millions. Failure to spend such millions wisely has given us a crisis whose true cost will in the end be measured in trillions, not just billions.

3. "Liberals love having the fox guard the henhouse."

Explain for us how the incoming administration is the fox and the world of mortgage financing is the henhouse. For one thing, the place is a wreck. There are no more hens to be taken. For another thing, no one on Obama's team is likely to be personally profiting from stricter enforcement of mortgage placement rules. It's only the nation that stands to benefit.

4. (My favorite question.) "What specifically do you have against Autrian Economics?"

Nothing against the theory. It's as good as many of the other theories out there. What I notice, though, is that the followers of the Misian School all seem to ignore the concrete in favor of pure theory. Their heads are in the clouds and their theories only prove one another. Their fail to touch the ground in their comments on events in the real world.

And I do regularly read Mises.org to savor this tiny little enclosed bubble of a world.

"Freedom", on the other hand, is just a word that stirs the breast in certain people, and provides a motivation that requires of them no exercise of their critical faculties. It allows one to wave the flag without fully understanding what they're waving it about.

We are all always free to do what we choose. Some choices have consequences, and those should be considered with care.

Cynicism justified
The federal government is so large the real power lies in the bureaucracy.

In fact, individual bureaucracies. The Boston SEC office and the NYC SEC office can't work together. They are supposed to be on the same team and could have and should have caught Madoff years ago.

"Earlier yesterday Senate Banking Committee chairman Christopher Dodd called for a review of the SEC's handling of Madoff. Dodd's counterpart in the House, Representative Barney Frank, a Newton Democrat, said it was "obviously appalling" the SEC had apparently missed those early warnings. But the Newton Democrat questioned whether SEC lacked the funds to pursue tips at a time when the Bush administration was rolling back its funding."

http://www.boston.com/business/articles/2008/12/17/sec_chief_cites_agencys_failures_in_madoff_case/

{Of course, Congress blames lack of funds even though they are the ONLY branch of government authorized to allocate funding. Just another example of how all branches of government fail.)

An FBI agent in Minneapolis with information about an attack on the USA in 2001 was ignored.

With thousands of individual fiefdoms in the federal government all trying to protect their power and influence, (with help from their Congressman) they can pick and choose which laws to enforce regardless of who their elected bosses are.

We should have a fence on the southern border by now. Why hasn't it been built? We have laws against employing 'undocumented workers'. It is very easy for employers to check and very easy for the Social Security Admin. to very. But they refuse to pursue SS accounts they know are fake.

Our federal government is becoming more like the Ottomans Empire.

The only fix is to cut the size and power of such a government.

How many commissions have studied the problem and done nothing to solve it?

Freedom is being held accountable for you actions. Something the present government and society refuses to do (bailouts anyone?)

I think the author of "Born Liberal, Raised Right" [http://www.booktv.org/program.aspx?ProgramId=10044&SectionName=&PlayMedia=No] has a very significant point. You narcissistic baby boomers failed to hold individuals accountable leading to our current socialist malaise.

That's what you said, work with the current system for 'balance'.
Show me where you claimed not to support the current socialist public education system.

I can't find it.

And you still have not defined my three letter 'affliction'.

"I repeat, conservatives and libertarians need to hold their noses and work the system from within."
What you said.

Buying up -CAVEAT EMPTOR!
I presume you are aware that families have the tendency to buy up to their affordable limit. And since most assume they are being qualified by a competent and honest mortgage broker, for all practical purposes that means how much house the lender allows them to buy.

A mortgage broker is NOT a buy's agent, he/she is the seller's agent.

Nor does a mortgage broker know your personal habits of thrift or have a crystal ball to determine your future.

Two otherwise economically identical families can have different "capacities", simply because one goes out to eat three times a week, the other uses their crock pot. One makes do with a 32" TV, the other has a 52" incher.

Here's the simple fact (and one I learned the hard way)-you don't take credit just because its offered. Your shiny new house, car or other baubles will lose their luster, but the payment book stays the same.

Fifteen years ago, I was in over my head. Clawing my way out meant brown-bagging, forgoing a lot of happy hours, buying a PC and driving a clunker for 5 years.

People like Roy who peddle the notion that you have no responsibility for determining your own credit capacity encourage a repeat of the present situation.




Everything Federal
But there has been no diligent enforcement.. so the requirement has been ignored in the general rush toward full deregulation of all markets.


Here's this blatantly stupid canard again.. "deregulation"..EVEN IF it were true (Its not). there's 50 states with banking and lending regulators.. Am I to assume NY, MASS, ILL and those other bastions of lassez-fair, Austrian economics all deregulated as well?

Roy, If I've said it before, this post merits a repeat. You are an abject financial and factual illiterate.

You appear to have a willingness to believe your preconceived assumptions without first checking the evidence to see whether they actually fit.

Roy, if Obama wanted to stop fraud, I think he should have practiced in Springfield. Oh but he never knew Blago was dirty, never knew Wright was a racist.....


Caveat emptor?
You are correct that bureaucracies in general are often inefficient, or even incompetent, at what they're supposed to be doing. And specifically we've seen in recent years where their mission has been effectively subverted from above.

As, for example, when the voters elect a man to the White House who sold off assets he held in Harken Energy just before its share price collapsed. This is a man who's going to enforce rules against insider trading?

The answer is to clean house, put in better people, charge them afresh with a renewed sense of mission, and give them adequate tools to work with.

The problem you describe does not point inexorably to the conclusion that ALL bureaucracies must, by some great rule of nature, be in their natures corrupt. One can just as easily find private, for-profit outfits equally inefficient, incompetent or corrupt.

Take a look at our ratings agencies and due-diligence outfits, that can evaluate investment opportunities for a price. If there is no one to patrol them, what's to stop them from taking bribes from the funds they're supposed to be rating? Or from purchasing assets whose price they are to a very great degree able to set?

And in fact haven't we seen quite a lot of this going on? Rating agencies did, in fact, give AAA ratings to all those mortgage-backed junk securities that are giving us such a problem now.

The answer is not to just let them continue. If we disband all federal oversight we just send the message that it's open season now on all investors.. and that NOTHING available in the financial marketplace can be trusted any more.

So if we want a healthy marketplace to exist, we have to have good cops on the beat. It's just like the town markets of old, where adulterated or tainted goods could be sold to the housewife and weighed out on dishonest scales. This condition existed for many centuries before people realized they needed a government capable of keeping merchants honest. And were willing to pay for good sheriffs on patrol.

Exactly how do you suppose we can effectively hold anyone accountable for their actions, unless we have federal and state regulators capable of doing the job? We need to arm such regulators with a good set of rules and a budget sufficient to hire quality enforcement.

Otherwise, total freedom for all means freedom for crooks.

Answers to all your queries
"Earlier yesterday Senate Banking Committee chairman Christopher Dodd called for a review of the SEC's handling of Madoff. Dodd's counterpart in the House, Representative Barney Frank, a Newton Democrat, said it was "obviously appalling" the SEC had apparently missed those early warnings. But the Newton Democrat questioned whether SEC lacked the funds to pursue tips at a time when the Bush administration was rolling back its funding."

{Of course, Congress blames lack of funds even though they are the ONLY branch of government authorized to allocate funding. Just another example of how all branches of government fail.)

No. It is an example of a White House actively encouraging laxity. As is admitted by the author. The White House fired competent regulators and hired politically connected Brownies (amateurs). They also decimated enforcement budgets through the hidden use of rule changes. If Congress was ever needed, they relied on the total tyranny enforced in those years by Republican whips. The carrot and stick was the threat of removing re-election funding from the Party.

"An FBI agent in Minneapolis with information about an attack on the USA in 2001 was ignored."

The FBI was, and is, a morass greatly in need of house cleaning. Or do you think we'd be better off without any federal crime-fighting agents?

"With thousands of individual fiefdoms in the federal government all trying to protect their power and influence, (with help from their Congressman) they can pick and choose which laws to enforce regardless of who their elected bosses are."

No they can't. The problem comes from appointed officials, who can be put in place by the administration and removed for cause. As one who has known all the little guys in the departments for many years-- the Civil Service guys with their ID tags on chains around their necks-- I can assure you they don't just make up crap on their own.. ever. They all follow the orders of their big boss, who is an appointed official. They're under express political direction.

The answer to this is to elect more responsible politicians.. not to wreck the Civil Service. Like your computer, it just does what you ask it to do.

"We should have a fence on the southern border by now. Why hasn't it been built?"

If we did build such a fence, desperate workers looking for jobs would just come in by plane or boat, the same way dope goes under, around or over every attempt to interdict it. As long as there are jobs for them here, immigration is going to happen.

Note though that illegal immigration is rapidly drying up now. No more jobs. (Thus the economy has done what the government couldn't.)

"We have laws against employing 'undocumented workers'. It is very easy for employers to check and very easy for the Social Security Admin. to very. But they refuse to pursue SS accounts they know are fake."

So you admit this has directly to do with the will to enforce the laws in place. This will, of course, comes from the head of the agency.. who, again, is an appointed official and not a part of the Civil Service. In every case it goes back to who is in the White House.

Back when employer sanctions were first put into place for hiring undocumented immigrants I was an employer. And I had to carefully vet the background of every janitor into whose hand I put a broom, under threat of serious federal penalty.

As did every other employer. But as time went on, they all realized there was no real threat of enforcement. So compliance became mandatory. This is an instance that directly supports what I've been saying: put teeth in the law and hire more cops. Incentivize following the law and reporting noncompliance. It only makes good sense.

I hope you're actually listening to me and not just stuffing lint in your ears. What I'm telling you is, no lie, the way Washington actually works.

" private, for-profit outfits equally inefficient, incompetent or corrupt."
They don't have the power of the gun (the state) behind them.

They are subject to market forces. They cannot use force.

Why did Spitzer miss Madoff?
Maybe they paid for his prostitutes?

Madoff and foundations
Madoff seemed to have stolen a lot of 'foundation' money.

Why were the trustees of such foundations so reckless with the money?

Could it be these 'foundations' were some sort of tax shelter? Why does every wealthy individual set up a 'foundation'? Hillary Clinton has a 'foundation'. How much money can she claim from such an account?

It seems like there are enough significant legitimate charities that would be happy to take donations from all those wealthy who have set up a foundation. (Evey major sports star has a foundation as do so many others who have recently become wealthy.)

"put teeth in the law and hire more cops"
But you want to make MORE laws that won't be enforced.

(See your post above.)

We have enough laws that are NOT being enforced. How will making more laws and regulations that won't be enforced help? It won't, but it will make some people FEEL better.

The way the business operates
I don't think this exchange demonstrates your unfamiliarity with the subject matter. I think it demonstrates a willingness to deceive:

Me: "I presume you are aware that families have the tendency to buy up to their affordable limit. And since most assume they are being qualified by a competent and honest mortgage broker, for all practical purposes that means how much house the lender allows them to buy."

You: "A mortgage broker is NOT a buy's agent, he/she is the seller's agent."

So where does he stand to gain? He normally gains a percentage of the loan placed. So he has an incentive both to mislead the purchaser, the dumb boob he's leading by the hand, and to misrepresent that boob to his principal, the loan purchaser.

Often, of course, the loan purchaser is complicit in the scam.. as I describe below.

You again: "Nor does a mortgage broker know your personal habits of thrift or have a crystal ball to determine your future."

Such things are laughably easy to find out. And if a mortgage originator fails to require documentation, to perform due diligence or to demand answers to the right questions, it says two things. First, that the buyer of the loan is complicit in the scam, and plans to immediately sell it to unsuspecting others; and second, that there is no effective oversight of the marketplace they prey upon.

The predictor of a borrower's future viability is, of course, governed by the law of large numbers. If you are a member of a certain class of purchaser, these laws will inform your lender of the likeliness of your future default.. down to the third decimal.

They know who they're signing onto loans. It's their business to know. And if they originate bad loans, they do so knowingly.

And finally, you again: "People like Roy who peddle the notion that you have no responsibility for determining your own credit capacity encourage a repeat of the present situation."

I take no responsibility for the psychology of the buying public, I merely describe. As everyone in the real estate industry knows, consumers tend to be untutored and credulous boobs who believe implicitly and uncritically every word "their" agent tells them.. no matter whom it is you actually represent. Each agent has the personal choice as to whether he acts responsibly or deceitfully.

Where his profession has membership in an association with a Code of Ethics to follow, it represents an additional path toward ethical behavior. The NAR is one such organization, and membership in it is meaningful.

Caveat emptor are indeed wise words for any prospective purchaser.. and always will be. However the federal and state regulatory agencies do have a burden of their own: to conscientiously do everything in their power to prevent mortgage or sales fraud in their jurisdictions.

Which beginning?
I don't see where you state you want to change the system.

Where did you write that?

SEC warned in 1999 about Madoff.
Clinton was president in 1999.

"Harry Markopolos, who years ago worked for a rival firm, researched Mr. Madoff's stock-options strategy and was convinced the results likely weren't real.

"Madoff Securities is the world's largest Ponzi Scheme," Mr. Markopolos, wrote in a letter to the U.S. Securities and Exchange Commission in 1999.

Mr. Markopolos pursued his accusations over the past nine years, dealing with both the New York and Boston bureaus of the SEC, according to documents he sent to the SEC reviewed by The Wall Street Journal."

http://online.wsj.com/article/SB122910977401502369.html?mod=article-outset-box

"Arthur Levitt was the 25th Chairman of the United States Securities and Exchange Commission. First appointed by President Clinton in July 1993, the President reappointed Chairman Levitt to a second five-year term in May 1998. On September 9, 1999, he became the longest serving Chairman of the Commission. He left the Commission on February 9, 2001."

http://www.sec.gov/about/commissioner/levitt.htm

"Mr. Levitt serves on the Board of Directors for Bloomberg LLP.

In 2005, Levitt was named a special advisor to the American International Group's board of directors and the board's nominating and corporate governance committee following the resignation of CEO and Chairman Maurice "Hank" Greenberg, who left after an investigation into the firm's accounting practices by New York Attorney General Eliot Spitzer.

Levitt oversaw an audit published in August 2006, by Kroll Inc. -- where he is a consultant -- describing how the City of San Diego had allowed a pension deficit of $1.43 billion. The report blamed around 30 city officials, including five incumbent council members. According to the San Diego Union Tribune [1], Kroll charged the City of San Diego $21 million for the report, with Leavitt's time billed at $900 per hour."

http://en.wikipedia.org/wiki/Arthur_Levitt

I would like to see Barney defend Clinton's SEC for ignoring Madoff.

Your expertise doesn't apply to macroeconomics
"You've been taking me to task for some time now for offering an opinion on subject matter not within my area of special expertise. Now allow me to put the shoe on the other foot, based on my long experience in the field."

Sorry, but this isn't about real estate professional expertise particulars. It is about simple economics and the situation at hand.

I find that Realtors and mortgage specialists are the LAST people on earth to understand any of it, too. They tend to just 'understand' what CAR/NAR tells them (which is usually total spin), what they are willing to believe that is to the contrary of that (which isn't much) and what Tinkerbell tells them in their dreams (because denial is such a powerful pre-requisite in those industries).

That is why for years while I was at cocktail parties, it was the real estate 'professional' who took me to task when I would say, "This is all a bubble and when it blows up, most of your clients will owe more than their houses are worth. How do you feel about that?"

They said it couldn't happen, got offensive, said (loudly) that I was full of it, a total financial nutcase because I didn't buy myself, etc.. They were wrong.

"Lowering interest rates will certainly alleviate the housing crunch, in a variety of ways."

Not this time. If people won't buy cars why on earth will they buy houses in this economic climate? Then there are other factors particular to financing that no longer exist, which you bring up and I will respond to further below.

First, we do not have an excess of available housing units. We just don't."

Yes we do. Well, from the self-interested, economics-denial view that most people look at things (propping up their collapsing home values), we most certainly do. From a rational point of view, we have a supply of homes that can easily be sold at the prices the market can bear if the market is allowed to do so.
Given how the first point of view is the operational view of the article and the resulting topic, that is the one that applies when I made that assertion.

"I presume you are aware that families have the tendency to buy up to their affordable limit. And since most assume they are being qualified by a competent and honest mortgage broker, for all practical purposes that means how much house the lender allows them to buy...And since most assume they are being qualified by a competent and honest mortgage broker, for all practical purposes that means how much house the lender allows them to buy"

Really? So, in my area, the median family income is like $100k (two incomes total, generally). Using conservative lending standard benchmark of a 10% down payment that the borrower has to cough up on his own (no seconds, borrowing from parents, etc) a maximum income to lending ratio of 3 ($300k loan max), and higher credit rating requirements would KILL most of the mortgage approvals in my area, Roy. Houses that were worth $600k just six months ago would have to be sold at $300k, the buyer would have to cough up $30k for the down AND have sterling credit.

Oh, and then you'd have to find a lender crazy enough to lend in an area that will need to see 50% or more in collapsing collateral value for the next few years as all of this plays out.

It's not just about the warm bodies, Roy, It is about those who will qualify under these conditions.

"The formula to quickly correct the sag is to lower interest rates, to require verified documentation and to regulate the industry more intelligently and diligently than has been the case"

That won't correct the sag. It will cause house prices to collapse more.

Reading your post, you and I are not in disagreement on the cause and effects. What you seem to be confused of is distinguishing between what should be done that makes economic sense (which you clearly see when looking strictly from that point of view) vs what politics says so otherwise (what Kudlow and Obama and the article is all about on this topic).

Ergo, from a POLITICAL point of view: 1) We have too many housing units and 2) too restrictive (yes, Roy! This is politics here) lending practices that keep people from buying homes they clearly can not afford.

The 'slump' is not about housing for sale to future buyers. It is about the values of homes now and in the future for the existing suckers, er..'voters' who think that they are entitled to unending real estate wealth just as they were taught to expect.

So, just wait for the bulldozers, Roy.

Helping a down market correct itself
Feel free to explain how all this is a problem in macroeconomics. The problem I've been describing is one in the area of best methods to alleviate the housing crisis. And it's best to understand the way the industry works before offering one's opinion.

Prices have spiked just too high, for one thing. Once they come back down there will be many more takers. And as a matter of fact, the recent easing of mortgage interest rates (which also has the effect of lowering monthly costs) has brought a lot of new buyers out of the woodwork. You might want to look this up.

We do have a roughly equivalent amount of vacant homes and people looking for them. They're the same people who've just been tossed out of their homes. And in many cases-- but far from all-- they were just people who shouldn't have been allowed to buy in the first place.

Lower asking prices will correct this, as the falling "acceptable price" line at some point will intersect with the static "affordable ceiling" line. But there will be a lot of pain involved in getting lenders who've involuntarily become owners to part with the bricks they hold at a terrible cash loss. That's been the only thing taking so long to work out.. they have to bite the bullet and sell at a loss.

A lot of these homes would make good rentals, renting to the same pool of families who've been foreclosed on. But once again, these families can only afford to pay so much. So the owner of the bricks still takes a loss. Many will do it anyway, just to keep some warm bodies at the premises. And they'll be the smart ones.

At some point they'll all realize that taking the hit will allow them to walk away with something.. whereas now they're earning all of nothing.

The other aspect to keep in mind is workouts.. which are far easier and more economical before one kicks his contract tenants, or as they call them, "homeowners", out on the street. They can certainly afford to pay something (assuming they've not lost their jobs yet). They just can't pay what their mortgages have reset to. Once again, all of something's a lot better than zero income.. plus the considerable expenses of maintaining a vacant house.

Take a look at new mortgage originations now, if you can find the number. I'm hearing it's up, and the fish are biting again. This time, of course, they're all well qualified fish.

To me, the macro aspect of all this will take care of itself. The problem actually occurs in one unit at a time.. and can best be solved one unit at a time.

False Dichotomy
So where does he stand to gain? He normally gains a percentage of the loan placed. So he has an incentive both to mislead the purchaser, the dumb boob he's leading by the hand, and to misrepresent that boob to his principal, the loan purchaser,

This illustrates your basic problem. In your world, purchasers are sheep about to be slaughtered by selling wolves. Anybody in sales knows the lifeblood of sales is referrals. You don't get referrals from dissatisified people.

Buying a house is a fairly simple proposition, if you do your homework. Of course in your world, nobody has to do homework, they should simply be able to go out and make the biggest purchase most people WILL EVER MAKE, relying on government-which is an endemically dysfunctional organization.

It's funny you never think to ask whether "dumb boobs" are capable of being misled by leftist politicians of both parties.


misplaced
I do indeed know what governments do. Mainly they use their monopoly on force to make people do what they otherwise would not. They also don't have enough money to fulfil all their promises of bread and circuses, so since they can't steal enough in taxes, they inflate in order to buy the votes and pay off cronies.
Yes, it is billions of money they don't have in the same old disproven Keynsianism that's never worked.
Heads in clouds is not too specific, but it is spicifec how politicians hate Austrian economics becuase they couldn't distort the economy they way they are so fond of doing. All these problems couldn't have even existed and that's very concrete re AE.
But I notice your stance is ideological not empirical at all, thus your defense of statism.

You don't read what people write, Roy
Seriously. You aren't reading what we (not just me) have been writing.

"Feel free to explain how all this is a problem in macroeconomics."

Actually, you've done a good job explaining that yourself. You just confuse it with 'understanding the way the industry works' somehow. In reality, I think you are really saying, "understanding how Roy thinks the industry SHOULD work". And, it is a very reasonable view, too.

" The problem I've been describing is one in the area of best methods to alleviate the housing crisis."

No. You are describing how it SHOULD be relieved, the bulk of which I agree with you. But, that isn't what people want. Their politicians know this.

"And it's best to understand the way the industry works before offering one's opinion."

The 'industry' will not work any more from now on than it did before, with regards to this systemic problem.

"Prices have spiked just too high, for one thing. Once they come back down there will be many more takers"

Yes, that is the macroeconomic (and rational) view of the situation. But it is NOT what Kuldow is reporting on and is certainly NOT what the politicians are under pressure to let happen.

In that vein, the 'acceptable price' is not acceptable at all. And as long as the market is kept from reaching that price, it is very doubtful that lenders thinking rationally as you and I are right now will want to lend in those regions, don't you think?

In the end, there aren't enough QUALIFIED (by your measures and (I suspect as well) mine) buyers either. Not for all the units that were built for meeting the demand of qualified AND unqualified AND speculators, etc. Not enough to keep the prices artificially high.

Right now, I am sure those who have good FICA scores are availing themselves to the refinancings for 30 year loans at the nice, low rates available. But Johnny Crappy Credit won't be one of those. That includes people who weren't even the NINJA types, but just had to buy in over priced markets and now couldn't get a refi (because they owe more than the house is worth and that is tanking even more).

That is the mess as defined as far as Obama and his cronies are concerned. To be fair, that would be the definition as far as any politician in power is concerned.

And if I were a politician, my first order of business would to run on a platform of a huge public works/infrastructure project that in reality will be bulldozing foreclosed properties as soon as they clear in the courts. That and nationalizing the mortgage industry so I can save the bulk of my voter's from paying big time for the folly of their poor investment decisions. Both would guarantee to Johnny Crappy Credit (my core Democratic voter) that his $600k house he could never afford will not only return to that value but appreciate some more!

Governmetn subsidies increase costs
Governments subsidizes houses, medicine and education. In all these industries, costs keep rising no matter how many more subsidies government throws at them to 'control' costs.

Skepticism isn't Cynicism, Beano
I think you're proceeding from a simplistic view of how government works.. plus a knee jerk reaction toward statism that fails from a profound lack of information about exactly what it is that government does.

The correlation between subsidies and cost
"Governments subsidizes houses, medicine and education. In all these industries, costs keep rising no matter how many more subsidies government throws at them to 'control' costs."

Your view of the function of government is brittle and doctrinaire. The governments we've been getting in recent decades are being paid by their contributors in business NOT to be able to control costs. And the voters are too dumb to vote on issues. They choose the candidate that makes them feel good.

1. I'm not sure how you think government "subsidizes houses". But if you mean it offers loan guarantees to promote wider home ownership, that's a good thing. There may be mistakes in the details, like insuring bad loans, but those can be corrected through better management.

Once again, you need good rules and good enforcement.

2. Medicine. Every other advanced nation on earth has a greater proportion of its medical costs paid through the government. And every one of them also has cheaper medical costs than the US. Doesn't that undo your argument?

What makes our medical costs greater is the corruption of government by money. A greater honesty and dedication to the public good would make the quality of our government rise to the mark of that of every other advanced nation. Once again, we're 37 on the list now.

A prime example is the passage of the Medicare prescription benefit. The government passed legislation saying they would (a) pay for medicine people couldn't afford on their own, thus increasing the volume and profits of the pharma industry, and (b) would not bargain for a reduction in prices-- as any other mass purchaser would have done.

That's not an argument against government. It's an argument against **** POOR government.

3. Education. This is a duty that any government is morally obligated to provide. Because if they don't provide it, the only people who can give their children a good education will be rich people. And poor people will get nothing to allow their children to make a way in the world.

That's so obvious any half wit could still figure it out. But with you the problem doesn't lie in your mental capacity. It's your ideological bias that prevents you from employing your brain properly.

I don't think, for example, that you can even give me an example of a subsidy that has been designed to control costs. It's just something that makes sense in your head.

These cockamamie ideas of your don't stand up to ANY test. Think, marjon, think! Challenge yourself!

Good point
Something I'm increasingly troubled by is Obama's coziness with industry insiders who've been around long enough to be suspected of being part of the problem. People like Bob Rubin are coming back into government. And they were the architects of deregulation every bit as much as the the people in any recent Republican administration. The Clinton Era was not good for putting the markets under effective control.

Just one of the reasons I never considered Clinton (or Obama for that matter) a lefty. They are both centrists.

Take a look at our likely new head of the SEC, Mary Schapiro. She was around back in 1999. Is she going to turn out to be part of the problem? We don't yet know.

Likewise I'm very leery of Bob Rubin, about whom we know much more.. none of it reassuring.

And I am particularly worried about Austan Goolsbee. The guy impresses me as being trouble.

One can only hope that Obama, a genuinely bright and well directed guy, can evaluate the kinds of advice he'll be geting from this team. He certainly can't do much worse than the team George Bush, a poorly educated fellow genuinely disinterested in government, put together.

The view from the other end of the telescope
I'll have to disagree with your cynical view of government. And not because I'm not cynical too. Just in a different way.

"I do indeed know what governments do. Mainly they use their monopoly on force to make people do what they otherwise would not. They also don't have enough money to fulfil all their promises of bread and circuses, so since they can't steal enough in taxes, they inflate in order to buy the votes and pay off cronies."

To me, this gets it totally backwards. Because government does not "pay off" any cronies to buy votes. It gets paid off by its contributors to give them billions in breaks and subsidies. And it influences the voters very cheaply, by using contributions to buy talented political spinmeisters.

There are indeed expenses for social programs.. frivolous expenditures you do not believe in. But consider for a moment if you lived in a country where there was no public education, or food stamps to fill the mouths of the hungry and improvident poor.

The ignorant masses would have no way to earn money so they'd have to pursue stealing yours. You would have prohibitive expenses to pay in protective services (private guards, dogs, alarm services, etc.). Not to mention in increased taxes to pay for more police protection, more prisons, more legal expenses, etc. The net result would be a far greater individual expense TO YOU than you suffer from under our current system, where government spends enough to keep this problem down.

Go to Ecuador and see. That's a country with almost a zero federal budget and NO social services. The poor are just poor. Unemployed and hungry. You can't go outside the rich people's zona without a private guard by your side. The place sucks.

Is that good for business? No it isn't. The only foreign investment coming into Ecuador is in the extractive industries, like oil. Otherwise there are too many costs and not enough skilled employees.

We really do need a welfare state to some degree, just to keep the poor and ignorant from becoming a problem. When we're working at our optimum efficiency, as we were during the 1950s, everyone was joining the middle class. We were all becoming producers of wealth, not a spending sinkhole.

Finally, as one article of your faith is that Keynesian approaches have "never" worked.. how about World War II? The government invented money in staggering, previously unimaginable increments. And it put everyone to work.

The Depression was finally gone, and gone overnight. Imagine how rich we'd all be now if such wealth hadn't all been pushed down the rathole of war. If we'd used it just to build a new society. Wouldn't that have been a smart idea?

"One can only hope that Obama, a genuinely bright and well directed guy"
What evidence do you have?

He has only demonstrated he can navigate Chicago politics without much stink clinging to him, yet. Of course it helps to have a press corps that gets tingles up their legs whey they hear him speak and voters like you.

You had the same hope for Hugo as well. Look what he has accomplished. Maybe you had better examine how you judge character before you are disappointed again.

Challenge yourself.
1. Mortgage tax deduction is a subsidy. Freddie and Fannie buying any crappy mortgage is a subsidy.

2. Name any country with national health care that has created all the new drugs and medical technology that the USA has developed.

3. From the 1620s to the mid 1800s children in America received an education without any subsidy or control from the government. And America educated very bright people in that time.

It is your love and faith in government that clouds your ability to think at all.

For several hundred years, people in America did very well without government interference or subsidy. Those tests are well documented and are available for anyone with an open mind to study.

Education in America
"Education in Early America: Education in early America was much different than that of today, in form and results. Most education was done by the home or church. This is where the ideas and character were implanted in our founders. Such training produced one of the greatest group of men - in thought and character - of all time.

Samuel Blumenfield says: "Of the 117 men who signed the Declaration of Independence, the Articles of Confederation and the Constitution, one out of three had had only a few months of formal schooling, and only one in four had gone to college. They were educated by parents, church schools, tutors, academies, apprenticeship, and by themselves.

Almost every child in America was educated. At the time of the Revolution, the literacy level was virtually 100% (even on the frontier it was greater than 70%). John Adams said that to find someone who couldn't read was as rare as a comet. When tutors were hired they were most often ministers, and those that went to college were instructed by ministers.

The first school in New England was the Boston Latin School. It was started in 1636 by Rev. John Cotton to provide education for those who were not able to receive it at home. The first common (public) schools were thoroughly Christian. In 1642 the General Court enacted legislation requiring each town to see that children were taught, especially "to read and understand the principles of religion and the capital laws of this country..."

As time went on private schools flourished more than common schools (especially as the Puritan influence in common schools decreased). The Christian community saw the private schools were more reliable. By 1720 Boston had far more private schools than public ones, and by the close of the American Revolution many towns had no common schools at all." There were no public schools in the Southern colonies until 1730 and only five by 1776. "

http://www.tysknews.com/Depts/Educate/history_part2.htm

Challenge yourself:

http://www.deliberatedumbingdown.com/MomsPDFs/DDDoA.sml.pdf

"To live outside the law, you must be honest." Dylan
Is the reverse true?

How the game is played
Super-- First, let me thank you for posting a response that's neither half-witted nor inane. It's actually an intelligent comment.

"This illustrates your basic problem. In your world, purchasers are sheep about to be slaughtered by selling wolves. Anybody in sales knows the lifeblood of sales is referrals. You don't get referrals from dissatisified people."

As it happens, I used to be a sales agent. It was child's play, for anyone who wanted to, to sell overpriced houses to an unwitting young couple, even a very bright one.. and to refer them to an unprincipled mortgage broker who further fleeced them.. and to do it all so charmingly that they never even suspected they were being played. So these ahrks got all kinds of referral business. You give the consumer entirely too much credit for perspicacity.

And what was I doing all that time, seeing how easy the scam was? Dumb old me, I stayed honest. And sincerely tried to find the best deal for the purchasers that came my way.

Oddly, I was rarely thanked for it. In fact I lost a lot of customers to con artists who could play the game more skillfully than I, and sold people homes and mortgages they never should have closed on. So I got out of the game, saying this is no profession for an honest man.

From your own insider's view of the real estate industry, wouldn't you say all the above was a true description of the existing state of affairs? Buyers, even intelligent ones, can be played like a cheap kazoo by a skilled operator.

2. "It's funny you never think to ask whether "dumb boobs" are capable of being misled by leftist politicians of both parties."

There hasn't been an actual leftist politician in this country since Henry Wallace.

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