A Government Role in the Mortgage Market?
by Jeffrey Miron on August 18th, 2010
Timothy F. Geithner, kicking off a half-day conference on housing finance, said Tuesday that it was important for the federal government to continue guaranteeing mortgage loans.
He said continued government support was important “to make sure that Americans can borrow at reasonable interest rates to buy a house even in a downturn.” The absence of such support, Mr. Geithner said, would make future recessions more severe because private lenders would not provide enough money for loans.
These are the kinds of remarks that make me want to tear my hair out: why should government intervene in mortgage markets in any way, shape, or form?
These interventions are just a backdoor way of redistributing income. But even if one believes in such redistribution, distorting mortgage markets, and generating all the moral hazard caused by this approach, is insane.
Some advocates of mortgage policies will claim that homeownership generates beneficial spillovers because property owners take pride in their property and neighborhoods, leading to greater value for everyone. Existing evidence is consistent with this view.
But this evidence does not show that subsidizing homeownerhip generates positive spillovers; in particular, pride in ownership plausibly attaches to houses that people have scrimped and saved for, and in which they have substantial equity; not to houses people know they cannot really afford and in which their equity is miniscule or zero.
So, advocates of redistribution should make their case honestly, not hidden in complicated and costly mortgage policies. The reason they do not, of course, is their fear that voters might reject these subsidies if the true magnitudes were obvious. That’s possible; but that’s democracy.
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[Added by me] - Though this clip has been editorialize, black and white for impact and all democrats making "comments", I believe it could have been done with either party involved in our political climate these days.
2 comments:
First, I love Jeff Miron. He's sometimes a little too black-and-white for me, but I read his stuff everyday (at least on days I'm at work). Second, that video made my morning.
Glad you enjoyed it Paul.
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