Oh Geez, Lawrence Summers Lectures Us on the Housing Market, Some Great Libya Coverage, and Trichet Booed Off Stage

What's with these guys that run the world economy into the ground and then have the cojones to lecture us on how to fix the situation? Who really takes them seriously?  Following in the blindly ignorant footsteps of George Soros (who just released his "7 Point Plan" on how to save the Euro zone which replicates his initial offering of fascism-lite control of the banks followed by full Mussolinian control) and Gordon Brown, we now have the pleasure of hearing how the U.S. housing market can be saved by a man who ran the U.S. Treasury under Clinton and was a recent economic adviser to President Obama.  Lawrence Summers has penned an editorial in the Washington Post which tries to pin down the true cause of the housing bubble but fails miserably at offering a credible solution.  No surprise there.  Get ready for some laughs:

The central irony of a financial crisis is that while it is caused by too much confidence, borrowing and lending, and spending, it can be resolved only with more confidence, borrowing and lending, and spending. This is true, above all, of housing policies. Fannie Mae and Freddie Mac, government-sponsored enterprises (GSEs) whose purpose is to mitigate cyclicality in housing and that today dominate the mortgage market, have become a textbook case of disastrous and pro-cyclical policy. (my emphasis)

Right out the bat Summers comes out as fool.  Not only does he diagnose the cause of the housing crisis, he recommends the same prescription that got us into the dilemma to begin with.  Like a patient who is loosing too much blood, Dr. Summers recommends that massive blood loss be cured by, you guessed it, more massive blood loss.  He makes no mention of the giant printing press of an elephant in the room known as the NY Fed. Being a former Secretary of the Treasury, Summers undoubtedly has friends in high places of our wonderful crony capitalist banking system.  Can't bite the hand that feeds now can we?
Here comes the solution, get ready for the barrel of fallacies:

Unfortunately, for several years policy has been preoccupied with backward-looking attempts to address the consequences of past errors. While the focus has been on helping individual homeowners, decisions that are ultimately more important regarding the GSEs have been left to their conservator, the Federal Housing Finance Agency, which has taken a narrow view of the public interest. The FHFA has neglected its conservatorship mandate to ensure that the GSEs help stabilize the nation’s housing market.

Oh, I see.  Since Congress and President Clinton and Bush pushed the FHFA to lend to borrowers who would normally be unable to obtain a mortgage on a true free market absent a large increase in personal savings, the FHFA should have done a lot more "in the public interest."  How so you might ask? Summers, being a true political technocrat, doesn't say.  Talking points fair too well for gullible audiences.

First, and perhaps most fundamentally, credit standards for those seeking to buy homes are too high and too rigorous. The characteristics of the average successful applicant in 2004 would make that applicant among the most risky today. The pattern should be the opposite, given that the odds of a further 35 percent decline in house prices are much lower than they were at past bubble valuations.

Your jaw should be dropping at this point.  So an overabundance of risky lending to borrowers with low credit standards exacerbated the crisis so more loose standards will thus solve the problem?  Ah yes, slavery really is freedom according to Summers.

From the perspective of the guarantor, as distinct from the mortgage holder, lower rates are all to the good since they reduce the risk of default. The GSEs, however, have made refinancings very difficult by insisting on significant fees and by requiring that any new refinancier take on all the liability for errors in underwriting the original mortgage at a cost to American households of tens of billions a year.

So the GSEs, which have essentially been nationalized, should waive fees for refinancing which in turn would cause a loss in income and an increase of government spending down the road.  When all else fails, have bureaucrats give out taxpayer dollars!

Third, stabilizing the housing market will require doing something about the large and growing inventory of foreclosed properties. Aggressive efforts by the GSEs to finance mass sales of foreclosed properties to those prepared to rent them could benefit both potential renters and the housing market.

I can do one better, let housing prices drop till the market clears.  No need for more paper pushing by Fannie and Freddie employees, let the market take care of it like it could have done much more efficiently and less costly years ago.

Fourth, there is the issue of preventing foreclosures, the initial focus of housing policy efforts. The right way forward is far from clear.

Admittedly, this is very true.  The foreclosure process has been wrought with many legal nuances that are anything but simple to vet out and solve. Some have been wrongly kicked out of their houses after making mortgage payments on time for years.  But this is just another consequences of an asset bubble fueled by government's perverse incentives and cheap credit from the Federal Reserve.  It could take years to sort the foreclosure mess out in court but the sooner it happens the better.

Fifth, there were clearly substantial abuses by financial institutions and most everyone in the mortgage industry during the bubble. Just compensation to the victims is a legitimate objective. But allowing negotiation over past actions to be the dominant thrust of policy creates overhangs of uncertainty that impose huge costs on the financial system and inhibit lending. A rapid resolution of disputes is equally in the interests of bank shareholders and the housing market. The FHFA should be striving to rapidly conclude this period of uncertainty.

The evidence is shaky on how much "abuse" really occurred but there is no need to include the FHFA in this process.  It has caused enough trouble already.  You don't bring the dog to the negotiation table for two neighbors disputing who should pay for torn up shrubbery.

Other players in housing policy could also help. Bank regulators could facilitate inevitable restructuring of underwater mortgages by requiring banks to treat second mortgages and home equity loans in realistic ways. The Federal Reserve could support demand and the housing market by again expanding purchases of mortgage-backed securities.

Assuming regulators have perfect knowledge on what is a "realistic value" (I have a bridge to sell you if you think they do), they have proven inadequate and corrupt thus far in handling the crisis.  Like PJ O'Rourke suggested, don't give the teenage boys more whiskey and an extra set of keys to the Mustang.  To finally prove his Keynesian credentials, Summers advocates for more money printing by the Fed as if that hasn't done enough damage.

Judging by Summers' wildly successful suggestion for Obama's initial stimulus package, only a fool would take his advice.  That's why he is writing in the Washington Post.  My suggestion on how to fix the housing market is much simpler, don't listen to the likes of Summers.  As the President of Harvard, I am sure he can find a professor there to give him an A for effort after giving him the big fat F he so rightly deserves.

I just noticed while typing this out why Summers doesn't make a peep about the Fed's role in the crisis, from Calculated Risk:

From NY Fed President William Dudley: The National and Regional Economic Outlook
Stabilizing the housing sector is particularly important because housing equity is an important part of household wealth. This calls for a comprehensive approach to housing policy, starting with an urgent effort to remove the obstacles that make it difficult for all borrowers to refinance at today's low mortgage rates, but extending beyond this to tackle other problems weighing on housing.

Obama just announced a restructuring of his home refinancing program today which includes, you guessed it, lower credit standards and reducing fees.  More spending and loose standards are the formula for failure, we shouldn't expect anything less.

So my three favorite foreign affairs writers have all weighed in on Libya and Gaddafi's death today.  Each offers a great take on the continuing imperialistic absurdity of our foreign policy and the true intentions behind our intervention in Libya.  First up is Justin Raimondo over at Antiwar.com:

It’s hard to imagine a more inappropriate response to the revolting scene of Gadhafi’s last moments, as captured on video: beaten and bloody, propped up on the hood of a jeep and paraded through the streets of Sirte by screeching rampaging savages, these scenes elicited revulsion even from some pro-rebel Libyans. Here’s Andrew Gilligan in the Telegraph on how the ghoulish scene went down:

“In Benghazi, on the main square where it all started, they were slaughtering camels in celebration. There they sat, eight of them, feet tied so they could not move, quivering with fear as they were beheaded one by one. As soldiers fired rifles in the air, members of the cheering crowd held up the severed heads as trophies. They daubed their hands in the camel-blood, and gave the V-for-victory sign with dripping fingers.”

This revolting scene illustrates why “democracy” – in any sense of the term that makes sense to Americans – will never come to Libya, not in a million years. In the politically correct world of our policymakers, and the view of the mainstream media, people all over the world are identical in their essence: they have “rights” that are supposedly universal, and first and foremost among these rights is self-rule. To call any of them savages, as I am doing without apology, is considered “racism,” and to even suggest they will soon revert to their historical pattern of saddling themselves with yet another brutal dictator is derided as “cynicism,” not to mention sour grapes in the face yet another “foreign policy success” by the Obama administration.

Raimondo gives a pretty good summary of American imperialism beginning with Teddy Roosevelt.  It's a great article all around and really shows just how apathetic the public is becoming to continual warmongering.  Next the great Paul Craig Roberts weighs in on the affair:

Now that the CIA’s proxy army has murdered Gadhafi, what next for Libya?
If Washington’s plans succeed, Libya will become another American puppet state. Most of the cities, towns, and infrastructure have been destroyed by air strikes by the air forces of the US and Washington’s NATO puppets. US and European firms will now get juicy contracts, financed by US taxpayers, to rebuild Libya. The new real estate will be carefully allocated to lubricate a new ruling class picked by Washington. This will put Libya firmly under Washington’s thumb.

With Libya conquered, AFRICOM will start on the other African countries where China has energy and mineral investments. Obama has already sent US troops to Central Africa under the guise of defeating the Lord’s Resistance Army, a small insurgency against the ruling dictator-for-life. The Republican Speaker of the House, John Boehner, welcomed the prospect of yet another war by declaring that sending US troops into Central Africa "furthers US national security interests and foreign policy." Republican Senator James Inhofe added a gallon of moral verbiage about saving "Ugandan children," a concern the senator did not have for Libya’s children or Palestine’s, Iraq’s, Afghanistan’s and Pakistan’s.

Washington has revived the Great Power Game and is vying with China. Whereas China brings Africa investment and gifts of infrastructure, Washington sends troops, bombs and military bases. Sooner or later Washington’s aggressiveness toward China and Russia is going to explode in our faces.

Where is the money going to come from to finance Washington’s African Empire? Not from Libya’s oil. Big chunks of that have been promised to the French and British for providing cover for Washington’s latest war of naked aggression. Not from tax revenues from a collapsing US economy where unemployment, if measured correctly, is 23 percent.
With Washington’s annual budget deficit as huge as it is, the money can only come from the printing press.

Wow, all I can say is that when Roberts decides to be highly critical, he takes no prisoners.  Last but certainly not least, Eric Margolis has a fascinating personal account of Gaddafi:

"What’s going on, what’s happening," a wounded, dazed Muammar Gadaffi reportedly asked just before he was murdered in Sirte, Libya.

The "Brother Leader" had once asked me something similar. A year after the US sought to assassinate him by dropping a 2,000lb bomb on his bedroom in Tripoli’s Baba al-Azizya barracks, Gadaffi took me by the hand, guided me out of his trademark Bedouin tent and walked me around the ruins of his private quarters. He showed me the bed on which his two-year old adopted daughter had been killed by the US laser-guided bomb.

With a plaintive look, he asked me, "Why, Mr. Eric, why are the western powers trying to kill me?" I was stunned. Gadaffi appeared to be sincere. Could he not understand why he had become a hate figure and target number one. A leader Ronald Reagan called, "the mad dog of the Middle East."

The answer, I told him, was punishment: first, for shaming his brother Arab leaders into raising the price of oil to a fair trade value. Second, his naïve, unquestioning support for all sorts of violent "anti-colonial" movements: among them, the IRA, Basque ETA, killer Abu Nidal, Philippine Muslim rebels, Nelson Mandela’s ANC. Any group that called itself "anti-colonial" or "liberationist" and got to Tripoli came away with bags of dollars and Gadaffi’s support.

Each article is highly recommended and shows just where are foreign policy of picking and choosing winners across the globe will slowly lead to a great explosion of reactionary violence toward Americans who have no clue about the atrocities their government is engaging in.  It's all very sad.  Especially since it all revolves around Libya having the largest proven oil reserves in Africa which we are fighting tooth and nail to prevent China from getting their hands on.  God forbid we let someone join the party of a better standard of living.

With such disgusting actions by the powers that be, it's always heartwarming to see any reaction like this, via Zerohedge:

Earlier today we transcribed the speech by outgoing ECB president Trichet in which he called for the formation of a European Ministry of Finance coupled with what is essentially a requirement for the abdication of national sovereignty of those less than worthy countries, together with some less than flattering commentary. It appears a few people at least were not too happy with the call for the formation of the United Empire of Europe, at Humboldt University where the speech was delivered. Bloomberg reports that the "ECB president interrupted during speech in Berlin. Banners held up by students in audience reading “no more money for banks,” and “say no to debt tyranny.” We hope to bring readers a video as soon as one is available.

Those crazy kids.  All they want is for bondholders to take the hit they deserve for making stupid lending decisions.  Who actually believes in true capitalism anymore?