Archive for the ‘GOP’ Category
Moral Hazard and Mortgages (or don’t worry, you won’t become a bad person if the government assists you with your mortgage)
Moral Hazard. If you haven’t already heard about it, be prepared. It’s a monster epithet. The Republicans will be hurling it at those attempting to develop plans to assist defaulting home owners. Namely, one President Obama. I can already see Eric Cantor, the House Whip, parting the clouds to hurl his epithet from on high. He’s positively giddy, I am sure, to be getting an opportunity to condemn liberal (or perhaps even socialist) politicians seeking to help people who have been “irresponsible” about their finances.
Moral Hazard refers to situations in which organizations or individuals are tempted to break or modify a contract if the risk associated with the agreement can be transferred. With regard to the current mortgage crisis, if we set aside high rolling institutions, it boils down to this: home owners with mortgages agreed to pay lenders back on certain terms. If the government now assists those who can’t keep up their side of the bargain, that is, make their mortgage payments, they are creating an incentive for future bad behavior. The government is creating a moral hazard. When viewed in these terms the so-called moral hazard issue can be understood as akin to the slippery slope dilemma. Once you do X, say, have a beer, before long you will become an alcoholic. Doesn’t sound plausible? Okay, here is a more common one: if we provide birth control to young people, it will lead to rampant promiscuity. Likewise, if we provide assistance to those who have gotten in over their heads by having mortgage payments that are too expensive, it will lead to people running around and buying things that they can’t afford (assuming that they will be rescued). It will lead us (as a nation) to become irresponsible about our finances. QED
Ah, wait you say. You think that this horse has been out of the barn for quite some time. I couldn’t agree more. I don’t think that helping a few million people (out of a population of 300 million) who are going to lose their homes is going to create a culture shift, that is, get the horse back in the barn. Perhaps Cantor and friends believe that by drawing a (Maginot) line in the sand they will begin a great transformation of our culture. We will halt financial irresponsibility, etc. There are labels for people who believe in magic of this sort: radical right wing utopians. Change just doesn’t work this way. Further, these utopians would love to mislead us about what’s actually happened and frighten us about an imminent moral collapse.
1) Such radicals might say that people should have known better. Many/most people who are in dire straights acted in good faith when they took out a loan to buy or refinance a home. There was supposed to be a process in place that told them whether they were qualified or not. Now you can say, well, they shouldn’t have listened to the banks that wanted to lend them money to buy a home. But this would have been counterintuitive for most folks. If a bank wants to lend me its money, it must know what it is doing. It’s the bank’s money, after all. Why would they give it to me if I were a risk? That’s a reasonable assumption. And it’s one that the banks wanted us to accept.
2) I haven’t seen the banks, credit card companies, or mortgage houses doing anything to help inculcate the proper attitudes toward financial responsibility in the populace. Quite the contrary. They spent millions (billions) to advertise the virtues of easy credit. The economy road on this paper tiger for years, and the bankers laughed all the way to their banks regarding how much debt that they could get people to absorb by offering items such as “teaser rates.”
3) Does anyone really believe that many folks are going to run out and start taking mortgages that they can’t afford, because they think that they can depend on the government for a rescue sometime in the future? These are extraordinary times. Help that may come from the government now is not something that people will be able to depend on in the future. Hell, they can’t even be sure that they will get it now.
4) The phrase “Moral Hazard” sounds very serious and terribly scary, as if the entire moral sky will fall if we succumb to granting aid. Right wing radicals would love us to believe that the notion of “Moral Hazard,” and their contractual understanding of morality, should be at the center of all of our ethical and political deliberations. It is the talisman that can hold big government at bay. However, the kind of personal responsibility that it refers to is a piece of the moral puzzle that is our lives, not the whole puzzle.
We must keep our guard up to defend against a Moral Hazard tempest in a teapot (dome). Republican discourse about MH associated with mortgages tends to focus on individuals. They want to make sure that individuals are not rewarded for bad behavior. But when one lives in a society in which wealthy individuals, rich bankers, CEO’s, etc, are regularly rewarded for bad behavior, it’s unproductive to start scolding the little guy. There are bigger fish to fry. And further, perhaps more importantly, holding fast to worries about MH in the current economic crisis is like saying that we should let the ship sink–and we are altogether in a ship of state on this one–so as not to reward the shipbuilders for having done a lousy job. People like Cantor will argue that if we plug up the holes, we will just be doing the builders a favor. And if we give home owners assistance, we will just be rewarding them for lousy planning and disrespect for contracts. Even if this were true and things were this simple, which I dispute, we would still need to assist these homeowners in order to help stop the bleeding in the economy. Their losses will continue to become our losses if we don’t stop the death spiral in the real estate market.
Deep commitments to broad stroke principles–for example, never create a situation in which you seem to reward someone for behaving irresponsibly–must not get in the way of common sense. This is why we must all be pragmatists now.
The GOP, seeing that it is in a Death Spiral, has announced a new slogan to help revivify the Party.
The GOP: A Party that won’t be compromised by compromise!
Representative John Boehner, House Minority Leader, made the announcement early this morning on “Morning Joe.” In making the announcement Boehner specifically mentioned how his Party must continue to respect their icons: Goldwater, Reagan, Bush and Bush. He then added something that left Joe and his guests mystified. Boehner said that he would be damned, “if John Dewey and his liberal pragmatist friends are going to put lady liberty behind bars.”*
*Okay, Boehner didn’t say this on “Morning Joe.” But he might have if he had read Dewey….
Following the unregulated free market logic that has spiraled the country into our current economic morass, the Republican Party, especially those in the House of Representatives, have taken a page from the corporate world. They have decided to downsize, and it appears that the execs at GOP, Inc. are expecting the downsize to be permanent. The logic here seems to be that it is better to have a smaller, more efficient body of ideologues, that can be held in line, in order to toe the line. This will guarantee that the rhetoric from GOP Inc., its most important product line, will remain as pure as the first snows of winter. After all, Republicans are principled folks, unlike Democrats and Obamanites who are willing to be “pragmatic.”
The unprecedented scope of their business plan has only become apparent in the last few days. The Republican execs in the House of Representatives, Boehner’s band of boys, have been especially aggressive in supporting it. A recent Washington Post-ABC News Poll has shown overwhelming support for the President’s stimulus package, yet not one Republican in the House voted for the President’s package.
Would you support or oppose new federal spending of about 800 billion dollars on tax cuts, construction projects, energy, education, and health care to try to stimulate the economy?
- 70% Support
And Nate Silver reports on January 29, 2009, the following on FiveThirtyEight:
It’s not just the goose egg that the House Republicans laid on the Democratic stimulus package yesterday: Boehner’s Boys have been equally uncooperative on other matters. Case in point: a bill yesterday to delay the transition to digital TV. This measure was approved unanimously by the Senate; every Senate Republican gave it the green light. But 155 out of 178 House Republicans voted against it, which resulted in the measure’s defeat since a two-thirds majority would have been required for passage under the House’s suspension of the rules.
Or, take the Ledbetter Fair Pay Act, a seemingly fairly popular/populist (if not inscrutable) piece of legislation on gender-based pay discrepancies. This was something that Barack Obama whacked John McCain on on the campaign trail, with McCain offering little rebuttal. In the Senate, five Republicans — out of 41 — voted with the Administration on Ledbetter, including all four Republican women. In the House, just three Republicans did — out of 178.
There may be a few retrograde Republicans in the Senate not fully with the downsizing program. But one has to understand that the House represents the life blood of the Party. They are the elected Republicans closest to the forces of production, those that produce the largest quantities of grade A ideology. So, unless there is an unexpected upheaval at the top of GOP, Inc., expect the downsizing to continue. (The proposed new motto for the new GOP: Change through Ideological Purity.) There have even been rumors that GOP, Inc. would rather go bankrupt than compromise its principles. (Unnamed sources suggest that bankruptcy filings can be expected any day now. Stay tuned.)
(Image from The Boston Phoenix)
UPDATE: August 26, 2010. Well, it looks like I must have been terribly wrong about this from what appears to be a Republican resurgence. As of today, the Republicans look like they may win back the House this November. They have been temporarily saved by the bad economy and the mid-term election pattern of voters turning against the incumbent party. However, I would still argue that in the long term Republicans will be forced to downsize if they decide to stick with ideological purity. They don’t have any answers to the economic mess that we are in. (Just look at the how dependent they are on the “magic” bullet of lowering taxes, which helped bury us during the Bush years.) Once people realize this, and understand how much of the Party is under the sway of right wing ideologues, the Republicans will indeed have to consider downsizing. (And then there are the demographics that are against them. But this would be another blog.)