Jim Devine writes:
>> My impression is that both the GMU and Chicago schools start with
>> their conclusions and work backwards, coming up with different
>> rationalizations. (How else can we explain such phenomena as the Coase
>> "theorem"?)
I don't think I disagree. When I introspect about my political beliefs, I
think I start with certain core beliefs, which seem self-evident to me, and
then look for theoretical arguments why my beliefs are correct. To further
introspect, I do believe that I can objectively evaluate theoretical arguments,
and even reject arguments that support my core beliefs, and even give credence
to arguments that reject my core beliefs, or at least be determined to refute
certain otherwise compelling arguments that reject my core beliefs. That is
why I jumped on your statement -- you seemed to be saying that precisely
because a theorist advocates a core belief policy with which you disagree,
there is, ipso facto, no reason for you to treat the theory seriously. That I
reject.
>> This is part of the general " financial deregulation" trend I referred
>> to, which essentially means "give the financial entrepreneurs what
>> they want." My usage is not just my own. It's the general usage in the
>> financial press and in government (which seems to follow the lead of
>> the financial press).
>>
>> The mortgage lenders wanted to be able to lend with a minimum amount
>> of risk. So in the spirit of "given 'em what they want," somebody with
>> a reputation for being intelligent -- perhaps at the pro-industry
>> Fannie Mae, Freddie Mac, Ginnie Mae, or Connie Mack -- though up the
>> idea of bundling and securitizing mortgages and allowing the bankers
>> to sell them. This dispersed risk much more widely amongst the many
>> financial organizations, so that large number of companies got hit
>> when (some) mortgages went sour.
It is the policy of the United States, through the collective decision-making
of our democratic government, to subsidize home ownership. The subsidy is
reflected in the tax code, Fannie Mae and her sisters, in the past the creation
of the savings and loan industry, anti-deficiency foreclosure laws, and other
policies. It is self-evident to me that when you subsidize something, strange
things eventually happen. We can spend lots of time analyzing why the housing
bubble burst in 2007-08, but our collective-decision to subsidize home
ownership was a critical part of the existence of the bubble in the first place.
>> It also, as you say, meant that the "originators had little interest
>> in whether or not the loan was ultimately repaid." And of this meant
>> that the originators didn't care to discriminate. But that's different
>> from what I was talking about, i.e., stuff like being legally
>> prohibited from redlining (racist discrimination, etc.)
>>
>> This reform also has nothing to do with banning credit rationing.
>> Rather, it undermined the incentive to ration credit _in general_.
>> What happened was not motivated by "those who were critical of the
>> "discriminating" nature of the mortgage banker" as much as by the
>> mortgage bankers themselves.
I am not really sure what you are arguing. You previously appeared critical of
the personal nature of decisions to make mortgage loans. I am thinking of the
typical scene in an old movie where the potential borrower goes to the local
bank and is personally interviewed by the banker, and, based upon a subjective
judgment of the potential borrower, the banker has to decide whether to take a
chance and makes the loan. That process disappeared from the mortgage loan
industry and we had loans based upon nothing more than stated income and a
favorable appraisal in an inflated market. I don't see how anybody critical of
the old process could be critical of the new process -- it is utopia.
Regarding the alleged distinction between the old process and redlining, it is
entirely polemical. The evidence is irrefuable -- prior to anti-redlining
laws, there was absolutely no difference in the default rates between white and
black borrowers, so even assuming bankers discriminated based upon race (which
I am willing to assume for purposes of discussion), the discrimination was
evident the bankers were doing what they were supposed to be doing -- making
creditworthy loans. If we make the collective decision, through our
government, to require bankers to make loans to people who are going to default
at higher rates, that is fine, but let's be clear in understanding the
consequences.
>> >PC argues that there is no basis for the assumption that collective
>> decision-making through government will be more benevolent, beneficial
>> or less self-interested than collective decision-making through
>> markets, <
>>
>> I thought I acknowledged that point, i.e., the PC critique of
>> democracy. ("Even if the Public Choice (PC) critique of democracy were
>> valid...") The problem of course, is that "collective decision-making
>> through markets" hands over all power to those with lots of money.
>> Anyway, while the GMU types defend "imperfect markets," I defend
>> "imperfect democracy." Let's stipulate that democracy -- and
>> especially the gelded version of democracy we see in countries like
>> the U.S. -- produce all sorts of abominations that do not serve the
>> collective will of the citizenry, just as the PC school says. This
>> does not deny the fact that the only legitimate basis for state power
>> and for decisions being made for the collectivity is the collective
>> and democratically-decided consent of the governed.
I still think you are evading the PC critique -- if we are going to have a
democracy, what rules should be instituted to minimize the problems inherent in
democracy, problems which you are apparently willing to accept as real? Saying
democracy, as a whole, is better than plutocracy, as a whole, does not mean you
can avoid discussing details of that democracy.
>>
>> One way of summarizing this point is to say that John Locke, James
>> Buchanan, and the like see (god given?) property rights as trumping
>> citizen's rights. I would agree with Jean-Jacques Rousseau that it
>> should go the other way, with citizenship rights trumping property
>> rights (or allowing them, depending on the democratic will). Of
>> course, I disagree with Rousseau on a lot of other things.
Personally, I do not make natural law arguments. I view property rights as
instrumental to more fundamental core beliefs (freedom, happiness, prosperity).
David Shemano
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