Bailout Watchdog Explains Unaffordable Housing Policy

It's almost worth the $700 billion subscription price to get regular broadsides from the Troubled Asset Relief Program's special inspector general (SIGTARP). The recently declassified Sigtarp quarterly report [pdf] is scathing-enough-for-government-work in its description of the TARP's enormous moral hazard problems. For more detail on this, the blogs Seeking Alpha and Calculated Risk are highly recommended.

Much of the report's criticism focuses on matters that are not within the control of TARP to any substantial degree: the rate of home foreclosures, the larger universe of bad loans, slow job creation, etc. But I reiterate my earlier praise for Sigtarp Neil M. Barofsky's writing style. If you want succinct descriptions of what a territorial predator TARP will continue to be until it is eradicated, you can't do better than the Treasury Department's own man: 

The substantial costs of TARP — in money, moral hazard effects on the market, and Government credibility — will have been for naught if we do nothing to correct the fundamental problems in our financial system and end up in a similar or even greater crisis in two, or five, or ten years’ time. It is hard to see how any of the fundamental problems in the system have been addressed to date.

In another section, Barofsky notes, "Supporting home prices is an explicit policy goal of the Government," and demonstrates this with a flowchart in which all options converge on one point:

If you're looking to take the Talking Heads' advice and not worry about the government, an item like this "Home Prices" arrow that is always green and always pointed up is a good place to start. How dangerous can people be if they believe (boldly ignoring the "evidence" out in "non-virtual America") that public policy alone can keep home prices erect?

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  • ev||

    Love the Talking Heads reference.

    Aside: one of the best shows I've ever been to was a Halloween show my friend's band The Giggles put on two years back at IU. They played Talking Heads '77 straight through. Jesus was that a party.

  • fortyouncer||

    Never heard it. Now I have, cool song, thanks.

  • ||

    If smart people are in charge, they can defy the laws of supply in demand. Honestly, I think that is what clowns like Geitner and Paulson believe. We should have taken our medicine in 2008 and let housing prices return to their natural price. And while we were at it, since it was going to be a shit sandwich anyway, we should have eliminated the home mortgage interest dedeuction and lowered the marginal tax rates and eliminated the tax on capital gains and savings interest. That way people would have an incentive to save and invest rather than stick all of their wealth in home equity. And we could have come out on the otherside a whole lot better for it.

  • The Gobbler||

    Same with the banks "too big to fail". I just saw the CEO of BNY Mellon on The PBS News Hour and he said that NO bank (including his, which is the biggest bank in America) is too big to fail. He said if a bank fails, you just unwind it.

  • ||

    But if we didn't bail out the hyperwealthy the universe would have imploded!

  • Mango Punch||

    The flowchart is idiotic

    forstarters: Increase in Amount of mortgages created ==> Lower mortgage interest rates, gets the equation backward.

    FALSE

  • ||

    forstarters: Increase in Amount of mortgages created ==> Lower mortgage interest rates, gets the equation backward.

    It says "purchased," no? I believe it's talking about Federal policy to have the FHA (and Fannie and Freddie before them) be willing to buy any ole' mortgage that comes along.

  • ||

    I think the general assertion that increased amount of mortgages purchased = lower rates is accurate. Those purchases increase the supply of mortgage funding. Increased supply generally equals lower prices.

  • Tim Cavanaugh||

    Right. They're referring to mortgaged purchased by Uncle Sam, which leads to lower rates because the bank gets to offload the additional risk. (Or all the risk.)

  • Johnny Longtorso||

    I put a link to this in yesterday's open links thread. Once again, The Man ignores me.

  • The Bearded Hobbit||

    I remember, man.

    {group hug}

    ... Hobit

  • Bingo||

    Number of jobs created = Down Arrow

  • Joe_D||

    Clearly, the solution is for the government to subsidize the building of houses... hey, we can even build multi-home buildings..

    Wait, have I seen this before? Have we done this all in reverse at some point?

  • Phil||

    Yo, the pdf link is broken. How can I find these reports?

  • Johnny Longtorso||

    Clearly, the solution is for the government to subsidize the building of houses... hey, we can even build multi-home buildings..

    We must drive up home prices to make the poor require subsidies to get into those houses so we can punish them for their non-green suburban lifestyle.

  • ||

    Yes. We can drive up home prices, and then force banks to lend more money to people so that they can still afford* them. It's a win-win situation!

    (If by "afford" you mean "borrow the money and make interest-only loan payments")

  • ||

    Barofsky for President!

  • ||

    It's surprising he hasn't been fired for "not being a team Player"

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