US Policy Causes Defaults, Quasi US Agency to Fail
|May 19, 2010||Posted by Jeffery J. Smith under Progress Report, The Progress Report|
US Policy Causes Defaults, Quasi US Agency to Fail
Aussie Officials Plan to Recover More Natural Rents
As US home repossessions hit an all-time high, Fannie Mae announced a $11.5 billion quarterly loss. Should we again rescue the mortgage giant? The Australian Government spells out what to do. We trim, blend, and append five 2010 articles from: (1) Christian Science Monitor, May 10, on Fannie and Freddie by Mark Trumbull; (2) BBC, May 13, on repossessions; (3) MarketWatch, May 14, on home prices by Amy Hoak; (4) iTulip, Apr 15 Eric Janszen interviews Michael Hudson and Apr 20 he interviews Mason Gaffney; and (5) the Australian Government final report of the Australia’s Future Tax System Review: Detailed Analysis, Chapter C: Land and resources taxes, released in May (sent by reader Phil Anderson).
by Mark Trumbull, by BBC, by Amy Hoak, by Eric Janszen, and by AFTSR
- Fannie Mae wants $8.4 billion more in federal aid
Fannie Mae announced a deep quarterly loss Monday of $11.5 billion for the first quarter of 2010 and sought additional support from the federal government.
Fannie and its sibling organization, Freddie Mac, own or guarantee a large share of US mortgage loans.
JJS: When the bubble of inflated and unaffordable housing land prices burst, the mortgages held by Fannie and Freddie lost so much value that the stock of the quasi-public companies became worthless.
In 2008, both corporations failed and were taken into a government conservatorship. Taxpayers are paying a price, as the Treasury pumps in money.
Along with announcing its quarterly loss, Fannie Mae asked for $8.4 billion more from the Treasury. Since the conservatorship, total government aid for Fannie and Freddie is $144.9 billion.
Fannie’s first-quarter loss this year was smaller than in the same period of 2009, when the firm lost $15.2 billion.
But adding loads of new debt onto the federal balance sheet could take America a step closer to a possible Greece-style debt crisis.
“The federal debt stands at $8 trillion. The Fannie Mae, Freddie Mac, and Federal Home Loan Bank debt stands at $8 trillion as well,” said Anthony Sanders from George Mason University. Together, those debts are greater than a year’s gross domestic product.
What can be done to improve the health of the housing markets — and of the finance system that now relies so heavily on Fannie and Freddie?
JJS: Forget F&F; they do not make housing affordable. Want to make housing affordable? Stop taxing it, raising its cost. Start taxing land (or using some method of recovering land rent), spurring owners to put their sites to best use, which increases the housing stock, and more supply decreases price. Plus, stop taxing income, so people will have more money for buying a home.
Forget more bureaucracy and tinkering with an unjust system. Lands value is socially generated, so as a society, recover it and share it. And stop the suffering.
- US home repossessions hit all-time high
Banks took control of 92,432 properties in April, up 1% from March, and a 45% rise from a year earlier, said RealtyTrac.
While actual repossessions rose, the number of new notices started against struggling homeowners declined.
New repossession cases fell 9% from March and 2% from April 2009.
A total of 333,837 new repossession filings were made in April, one for every 387 homes in the US.
California, Florida, Michigan, Illinois, and Nevada accounted for 52% of all new repossession actions in April.
JJS: Some bought when land was way overpriced. Now others can buy while land is more reasonable.
- As tax credit ends, some home sellers drop prices
Despite falling mortgage rates, fewer people applied for mortgages to purchase a home last week.
Purchase applications fell almost 10% in the first week following the expiration of the federal homebuyer tax credit. The lure dangled before prospective buyers lasted more than a year.
Rates on 30-year mortgages dropped to their lowest level since mid-March. Low rates helped spur people to refinance their loans.
The expiration of the credit could be prompting home sellers to slash prices: 22% of listings on the market as of May 1 experienced at least one price reduction — that’s a 10% increase from the previous month.
JJS: Some of the media create a forum for economists who know how to stabilize the business cycle.
- Interview with Michael Hudson
Eric Janszen: Im looking forward to a wide-ranging discussion. I want to include your Financial Times article last week on the fate of ex-Soviet debtor nations, the Bank of International Settlement report on sovereign debt risk in Western economies, and also talk about China. Lets start with the BIS report.
Michael Hudson: The whole idea that Social Security has to be pre-funded and Medicare has to be pre-funded with savings levied regressively is hypocritical unless they say wars have to be pre-funded and bailouts to the financial sector have to be pre-funded.
- Interviews with Mason Gaffney
The capital theory part of Georgian thought that I think is valuable and needs to come back. And that is what Folger and I are trying to do.
JJS: Saving the best for last, some nations actually let their knowledgeable economists tell the truth.
- Final report of Australia’s Future Tax System Review
By levying a land tax, the community effectively shares in the benefit that would otherwise flow to the landowner.
Taxes based on site values can cause payment difficulties for landowners who have high value land holdings with limited cash flows. There is a role for governments to allow deferral of land-value tax liabilities until the land is sold. Such arrangements currently exist for some local government rates.
As land is an immobile base, it is an appropriate source of revenue for States and local government.
Editor Jeffery J. Smith runs the Forum on Geonomics.
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