iStockphotoRestoring Trust in Mortgage-Backed Securities
The mortgage finance market has leaned heavily on government support over the past few years. More than 90 percent of mortgages originated in 2011 were securitized by government entities using taxpayer funds to guarantee investors against default risk. And over $5.8 trillion in home mortgage debt in the United States is now either owned or guaranteed by a federal entity – be it the Federal Housing Administration (FHA), Ginnie Mae, the Veterans Housing Administration, or one of the two government-sponsored enterprises (GSEs) under "conservatorship" since 2008. This support cannot continue forever. Read more...
iStockphotoToday’s Student Loan Recipients are Tomorrow’s Economic Elite
President Obama recently took to college universities and late night talk shows to tout his plan to keep student loan interest rates fixed at 3.4%. Since 2008 the Federal Government has effectively socialized the student loan market by enacting laws to eliminate private lender participation in administering Federal loans. As a consequence, student loans owned by the Federal Government have grown from $111 billion at the end of 2008 to $425 billion as of December 31, 2011. With a 9% default rate among borrowers and no collateral to cushion default severities, the program’s interest rate would be insufficient to cover expected credit losses at today’s default rates. Yet there is no appetite among elected officials for scaling back government involvement. Read more...
StockbyteThe Perils of Treasury's New Talking Points on TARP
The policy debate regarding the merits of TARP has taken an interesting turn in recent weeks with the Treasury Department’s claim that the program will likely turn a profit. The bank rescue portion of TARP has already returned a gross profit. Treasury also points out that when counting Fed seigniorage from printing money to buy interest-bearing assets, the government may even come out ahead when including the cost of the $150+ billion bailout of Fannie Mae and Freddie Mac. The message is that TARP and the associated rescue programs not only saved the economy from collapse, but were also a shrewd investment undertaken on behalf of taxpayers. Read more...
iStockphotoVolcker Rule is Designed to Fail
Peter Wallison’s recent op-ed in defense of proprietary trading has generated a lot of controversy, particularly for his claim that proprietary trading is now good banking policy. But whatever you make of Wallison’s arguments, it’s hard to disagree with his conclusion that the current Volcker Rule is an unworkable disaster. Read more...
A Guide to the 2012 Medicare Trustees Report
This is the second of two articles on the 2012 Social Security and Medicare Trustees’ reports. In the last article I discussed Social Security. This article will focus on the Medicare report. Read more...
A Guide to the 2012 Social Security Trustees Report
This will be the first of two articles on the 2012 Social Security and Medicare Trustees’ reports. I am one of the six trustees of these two programs, and one of two public trustees along with Dr. Robert Reischauer. Our annual reports on these two programs’ finances were released with an accompanying summary on Monday, April 23. Read more...
iStockphotoLarge Banks Begin to Recognize Reality of Second Liens
On Monday, Citigroup announced first quarter earnings that beat consensus expectations thanks to cost cutting and better credit performance. Citigroup’s $1.2 billion net release of credit reserves during the quarter boosted earnings, as a decline in reserves translates to a dollar-for-dollar increase in the accounting value of the loans the bank owns. Despite the overall good news on credit conditions, Citi did report a large increase in nonperforming second lien loans – such as a home equity loan or home equity line of credit (HELOC). According to the earnings release, Citi classified $800 million in second liens as nonperforming, including $700 million that were actually current but subordinate to a first mortgage that was seriously delinquent. Read more...
ComstockYes, the Health Law Worsens the Deficit
Last week the Mercatus Center published my study showing that the health care law of 2010 (the ACA) will add at least $340 billion to federal deficits over the next ten years, and more than $1.15 trillion to net federal spending. The study has received a great deal of attention, which has highlighted the need for wider public understanding of federal budget procedures. In this article I will explain some of those budget rules while further substantiating that my basic conclusion is correct. Read more...
iStockphotoCBO Confirms It: ObamaCare Creates an Unstable Disequilibrium in Insurance Subsidies
In March, the CBO released a new study on employee migration out of job-based plans and into Obamacare’s state exchanges. The effect of ObamaCare on employer-based insurance has been hotly debated ever since the law was enacted in March 2010. Several independent analysts predict that “dumping” into the exchanges will occur at a much higher rate than CBO assumed in its original estimates of ObamaCare and have argued that the result would be much higher federal costs than CBO estimated. Read more...
F1onlineObamaCare & the Meaning of Insurance
ObamaCare’s coverage guarantee and expansion is financed through cross-subsidies generated by mandating that individuals purchase insurance policies that cost several times more than their expected insurance claims. Defenders of ObamaCare rationalize these compulsory transfers as inherent to “insurance,” which they erroneously present as a system where low-risk policyholders are expected to overpay for their coverage to reduce the cost of the policies for those with predictably high claims. Read more...
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