Pigs Fly: William F. Buckley Jr. Calls for Regulation

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This is true, he is calling for regulation in the mortgage markets. Of course, his prescriptions are disastrously wrong, but he’s new at this regulation thing.

The short form for any solution: Do what FDR did. This problem has grown as we have rolled back depression era regulations.

His points, and my rebuttals:

  • He calls it, “terrible subprime-mortgage phenomenon”.
    • It’s not. It’s bigger than that. It’s not even a mortgage phenomenon, it’s bigger than that. There is a general rot at the core of our financial system.
  • The mortgage crisis came on because our free society did not think to intervene at a juncture where it could have limited the effects of cosmic thoughtlessness and insouciant greed.
    • Actually, I would argue that, given Alan “Bubbles” Greenspan’s close ties to Ayn Rand, it was because he supported, “cosmic thoughtlessness and insouciant greed”.
  • Mortgage brokers not caring about credit worthiness, because they immediately resell the loans.
    • Dead nuts right here.
  • The federal government being the only agent that can possibly intervene, it needs to do so, by forbidding the liquidation of mortgages until the disparity between true value and hypothetical value is pounded away by time and inflation — and a revitalization of the functions of the marketplace.
    • This is wrong. It is unbelievably and catestrophically wrong. He is proposing no foreclosures for the duration of the downturn. Local downturns, ones from much shallower peaks, have typically lasted 5 years. This one may last a lot longer. If you have no foreclosure, you have no incentive to pay the mortgage, and so you have NO LENDERS WILLING TO LEND. We would have a totalli illiquid market.

For what it’s worth, a good first step would be to allow bankruptcy judges to redefine the terms (not the principal) of the loans, as they can for vacation homes and rental properties.

If someone has that option, then a lender is likely to be more willing to deal with them responsibly about loan restructuring.

At this time, the people servicing the loans frequently do not own the loans, and as such, they are unable to renegotiate the terms. Allowing bankruptcy to do so would save a lot of homes, and save the market, and it would penalize the most egregiously abusive lenders.

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