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A few comments on dumb policy

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Please excuse my frustration … there are frequently honest disagreements on policy, but occasionally there are policies that are almost universally panned.

An example of a recent dumb policy was the seller-financed Downpayment Assistance Programs (DAPs) for FHA insured loans. Basically DAPs allowed the seller to provide the buyer – through a 3rd party “charity” – with the 3% downpayment as a “gift”. This allowed the buyer to put no money down. The FHA tried to eliminate these programs for several years – the IRS even called them a “scam” – but certain Congressmen fought to keep the DAPs alive. (The FHA’s financial position would be much stronger today if seller-financed DAPs never existed). Finally DAPs were eliminated in 2008, after causing serious damage, but some Congressmen like Barney Frank (D-MA) kept fighting for them.

Another example of a dumb policy was the Homebuyer Tax Credit sponsored by Senators Johnny Isakson (R-GA) and Joe Lieberman (I-CT). This was part of the 2009 stimulus package and was a complete mistake. (I wrote numerous posts opposing the tax credit – and talked to a number of Senate staffers – and it passed any way). One of the problems in 2009 was there was an excess supply of housing units, and part of the tax credit provided an incentive to build more! Dumb and dumber.

An example of a recent dumb proposal was Senator Elizabeth Warren’s (D-MA) suggestion that FHA short sales not require arms-length transaction (The arms-length requirement is a key protection against short sale fraud, and is a major reason short sale activity increased sharply a couple of years ago).

I could go on … but now we have the sequestration budget cuts that are considered a blunder by most economists and analysts (at least the ones I respect).  These are mindless across the board budget cuts that are hurting the economy – and probably not helping with deficit reduction in the long run. If they are hurting the economy, and not helping with deficit reduction, why can’t we get rid of the cuts?

Some people say the “PAYGO” rules require an offset. But Congress could exempt this from “PAYGO” (PAYGO expired in 2002, so the 2003 tax cuts didn’t require an offset). Some people point fingers on sequestration blaming one party of the other.   That is silly.  We all know who is to blame.

If the House passed a bill ending the sequestration budget cuts today, the Senate (barring a filibuster) would pass it tomorrow, and the President would sign the bill the second it landed on his desk.  So the problem is the House – and since I’m naming names – the problem is with the House leadership of John Boehner (R- OH), Eric Cantor (R- VA), and Paul Ryan (R-WI).  Unfortunately none of these men are even arguing to end the sequestration cuts; they aren’t even talking about them.  

This is frustrating and embarrassing for the U.S. – and this also impacts the Fed.  If we ended the sequestration budget cuts, then there would be a better chance that the Fed could taper and end QE3 sooner rather than later.  Dumb policy is hurting the country right now … and if I was a reporter, I’d ask these three Congressmen about ending the cuts at every opportunity.  
Calculated Risk

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