Perhaps the most dangerous myth to come out of financial crisis is that if we had just rescued Lehman Brothers everything would have been fine. Behind this myth is the Dodd-Frank (empty) promise of more regulatory tools.
Mark Calabria | All Articles
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Mark A. Calabria, is director of financial regulation studies at the Cato Institute. Before joining Cato in 2009, he spent six years as a member of the senior professional staff of the U.S. Senate Committee on Banking, Housing and Urban Affairs. In that position, Calabria handled issues related to housing, mortgage finance, economics, banking and insurance for Ranking Member Richard Shelby (R-AL). Prior to his service on Capitol Hill, Calabria served as Deputy Assistant Secretary for Regulatory Affairs at the U.S. Department of Housing and Urban Development, and also held a variety of positions at Harvard University’s Joint Center for Housing Studies, the National Association of Home Builders and the National Association of Realtors. Calabria has also been a Research Associate with the U.S. Census Bureau’s Center for Economic Studies. He has extensive experience evaluating the impacts of legislative and regulatory proposals on financial and real estate markets, with particular emphasis on how policy changes in Washington affect low and moderate income households. He holds a doctorate in economics from George Mason University.
Lost in Thursday’s “nuclear” attack on the Senate, the Banking Committee approved the nomination of Janet Yellen to succeed Ben Bernanke as chair of the Federal Reserve. Even without the filibuster changes, her nomination was all but guaranteed. Once confirmed she will almost surely continue the Fed’s current reckless policies.
Negotiations over increasing the debt ceiling have barely begun, and already we are being hit with silly proposals to side-step the process. The latest is a proposal to have the Treasury mint a $1 trillion platinum coin. Sadly, this is just another gimmick to avoid dealing with the real issues facing our country.
Sunday marks the two-year anniversary of President Bush signing the “Emergency Economic Stabilization Act,” better known as TARP (the Troubled Assets Relief Program).
As sales of new homes reach historic lows, there are increasingly strident calls for Washington to do something. These demands for action, however, fail to recognize that it was government, mostly Washington, which got us into this mess in the first place. Decades of subsidies for the housing industry have resulted in booms and busts that have repeatedly undermined the strength of our financial institutions while leaving the nation with a massive inventory of vacant homes.
A growing chorus of voices has recently been echoing the same refrain: the Obama foreclosure prevention plan has been a failure. This should be no surprise since the Obama plan, from its very beginnings, ignored the primary drivers of default: negative equity coupled with unemployment. But the solution being proffered—mortgage write-downs—is simply another dead-end. Forgiveness, either through bankruptcy courts or the Treasury, will encourage additional delinquencies, not less. The most direct way to reduce foreclosures is expecting those borrowers who can pay their mortgages to do so, regardless of the value of their homes. We need to bring back recourse, allowing lenders to seek repayment from all of a borrower’s assets, not just the collateral behind a loan.