First of all, I appreciate the concern that Ron Paul has regarding restraining American wars that have sapped the wealth of Americans recently.
But Ron Paul’s solution is to end the Fed and slow down money printing to fund those wars. That is pretty unworkable. Ending the Fed would create a lot more problems. I think it would be better to clamp a vice grip on the Fed.
For example, it would be better to slow down securitization of bonds, which were used to fund the last wars. Regulation would do that.
Ron Paul voted against the repeal of Glass-Steagall. That was the right thing to do as we see the havoc that resulted in the real estate market because Gramm and Clinton shoved the repeal through. In 2010, Paul mentioned that in a totally free market, where banks are allowed to fail, there would be no need for Glass-Steagall because the investment banks and commercial banks would carry the threat of failure.
The problem with that is that people would lose their life savings as banks failed with regularity before the creation of the Fed. If the Fed were ended, then I would think it would be even more important for an ironclad rule in place like Glass-Steagall or banks would fail without government guarantees that your money would be safe. Who wants to invest in banks where your money isn’t safe? With the internet a rumour of bank insolvency would spread like wildfire. There would be runs on banks all the time.
The only way to slow down the banks in our system is to stop speculation especially in housing and food. That way no one experiences the yo yo affect of this speculation in the supermarket or with the other most important human need, shelter. Commodity speculation distorts prices and forces people to pay too much for houses, as wages decline in a global economy. So securitization has no place in those markets. And Paul Ryan’s plan for banks to pay a little insurance to be allowed to securitize won’t leave banks with enough skin in the game. They would still blow bubbles. It is much better if banks hold onto the loans they write in real estate.That would severely limit the bubbles.
It would not hurt to require 20 per cent down for all but the wealthiest people. In Germany, a required 20 per cent down guarantees freedom from most real estate bubbles. Home ownership is low, and German banks take it out on the rest of the world, with easy money loans that make them among the most levered banks in the world.
But Ron Paul would open a minefield for middle class savings if banks were able to issue their own currency or if banks were able to bet and fail. The constitution gives the congress the right to issue currency, and so it would be better to nationalize the Fed, and make certain that the Fed had the interest of the nation in view and not the banks first. And criminal sanctions should exist for the Fed leaders who permit a housing bubble like Geithner did in 2003. Geithner actually presided over CDO’s run wild. Henry Paulson and others spread them the world over with a vengeance in 2004 until the crash. Geithner let it happen. Greenspan came out in February of 2004 and advocated a better deal through getting an adjustable mortgage. It was all a Basel 2 plan. These are criminals allowed to go free, in my opinion.
Wells Fargo and other banks have threatened to do away with the 30 year mortgage if all loans are not guaranteed, whether the GSE’s exist or not. In fact, these big banks want the GSE business with guarantees of all loans by the government. That is a pretty high price to pay for a 30 year loan. The Fed and the big banks are literally drooling for the time in which they can make easy money and hurtful loans available to unsuspecting and desperate people. We saw in the housing bubble of the last decade that the volume of those loans actually pushed the prices of the houses skyward. That could happen again. It could happen over and over if our nation does not regulate the banks.
If banks are not regulated, as Ron Paul wants, the 30 year mortgage could go away. It seems as though now there is no middle ground. Ron Paul’s way would likely cause a revolt by the banks and little lending would occur. But securitization and government guarantees would likely result in easy money lending and hurtful appreciation of prices. The middle ground is the 30 year fixed mortgage, which banks don’t seem to want to give out.
Until this all gets worked out, getting a mortgage is a risky proposition. While not mentioning any names, this guy in Reno emailed me with this explanation of rent-to-own:
“In regards to your questions on my web site. When you get into a Lease to Own you are buying an option. In our case the Optionee would pay 3% more than their initial purchase price in year 3, 4% in year 4 and 5% in year 5. The first two years the price doesn’t go up. If the house is worth less, then the Optionee will have to come up with more money to purchase it through financing or decide not to purchase at that time. If the house is worth more, then the Optionee should be able to get financing and it was a good deal for them.”
This is a ridiculous gamble for anyone to take. And the houses offered by this predator are overpriced to start with! Where is the Fed, napping again?
No one likes the private Fed bank except those who use it to steal from Americans. But penalties for failing to regulate could be harsh. Will Rogers had it right with regard to sentiment about bankers who offer easy money:
“If a bank fails in China, they behead the men at the top of it that was responsible…If we beheaded all of ours that were responsible for bank failures, we wouldn’t have enough people left to bury the heads.” Feb. 6, 1927 Will Rogers
I am not for lopping off heads, but a little jail time would go a long way towards stopping bubbles. In fact, it is precisely because there was no jail time that the next housing bubble won’t be 20 years away. The S and L behaviour going forward was stopped by jail and punishment. Our Great Recession housing bubble was set up to guarantee that the bubble blowers would get off with a free pass so that the process can be repeated with a few tweaks a few years down the road.
So, I am with Ron Paul that government has totally failed us. But no government control will most likely create the certainty of another bubble, and the taxpayer will be on the hook. And the banks are so bold in their demands that the 30 year mortgage is being held hostage to their demands. Ron Paul is doing nothing to fix that!
Update: A commenter pointed out that I did not mention Ron Paul’s position on fractional banking. However, it should be pointed out that I have always assumed that fractional banking will be the only system we have. We won’t ever have full reserve banking. We will just end up with unregulated fractional banking in a colossal waste of energy on the part of Ron Paul which will work to the big banks advantage.
And yes, we all abhore the central bank. I would rather see the Fed nationalized so that criminal penalties could be applied for those like Geithner and Greenspan who allowed toxic lending while doing nothing to stop it from their regulatory perches.
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