As an economist, I know one simple truth: every legislative and regulatory decision has implications for jobs and output. Hence, policies like mandating mortgage modifications and forgoing access to energy resources in the Outer Continental Shelf and the Gulf of Mexico have inextricable economic consequences.
With all the flurry surrounding the recently-announced preliminary settlement conditions for sought by AGs and bank regulators after the foreclosure crisis, it is interesting to note that the modification push that is the focus of that effort is losing ground in Congress.
A lot of people have asked me why I took a break from writing lately. Well, it is largely because I didn’t have much to say anymore besides “I told you so,” and I don’t want to appear snippy. So while I will try to maintain an appropriate tone, recent talk about national servicing standards […]
Recall the beginning of the movie, “A Beautiful Mind,” which introduced John Nash’s theory of cooperative games? Nash is in a bar with his classmates and sees an attractive woman. His breakthrough is that if he and his friends all try to meet the one woman, none of them are likely to succeed. If only one makes the attempt, however, the chances of success are much greater. Hence, the theory of cooperative games was born, whereby if they each approach one woman their chances of finding a date are increased.
Last week, the media and the plaintiffs’ bar tried to turn an arcane set of legal procedures into a foreclosure crisis. After a brief review, the industry revealed that most foreclosures involve borrowers who moved out long ago and have not made loan payments in more than two years. Moreover, the vast majority of the “errors” discovered do not affect the legal claim on the property. This week, despite encouraging reports showing sales of previously occupied homes rising 10% in September, the media and the bar continued to fan the flames, suggesting that investors might have actionable claims due to allegedly faulty documents, underwriting defects and servicing. The story crucially relied upon the public’s misunderstanding of loan underwriting and securitization. Minor aspects like typographic errors, while technically being errors, have no material effect on loan losses.
The press has had a field day with foreclosure difficulties and robosigners in the last couple of weeks. In reality, such problems pale in comparison with the difficulties already existing in the industry.
Now that summer is over and I have recovered from the shock of Dodd-Frank, we have Basel III on the horizon. Basel III moves in some predictable directions, but — focusing exclusively on capital – still falls short of meaningful reform that addresses the propensity for future crises.
Last week, my commentary dealt with the analysis underpinning my Senate Small Business Committee testimony (available at www.c-spanvideo.org/program/294781-1). According to my research, the Gulf Coast region will be devastated just under the current six-month moratorium. I estimate that it will lose in excess of 8,000 jobs, more than $2.1 billion in economic activity, and some $100 million in state and local tax revenue. The spill-over effect to the rest of the US could cost 12,000 jobs and nearly $3 billion in lost output nationwide, including $200 million in Federal tax revenues (available at http://www.saveusenergyjobs.com/wp-content/uploads/2010/07/The_Economic_Cost_of_a_Moratorium_on_Offshort%20_Oil_and_Gas_Exploration_to_the_Gulf_Region.pdf).
On Friday, many of you also saw my Wall Street Journal op ed, deriding the spiralling policy rhetoric regarding the gulf and the energy industry (available at http://online.wsj.com/article/SB10001424052748703940904575395303739152376.html?mod=googlenews_wsj). Already, many in Congress are whipping up hostility toward the industry in order to raise taxes to pay for the Administration’s energy legislation.
Up until recently, the Louisiana economy was certainly hurt by the nationwide recession, but not debilitated like other states. The reason was that the Louisiana economy was largely built upon energy and domestic tourism, two sectors that have remained robust through the financial crisis and the Great recession. Of course, that all came to an end with the BP oil spill.
Louisiana’s economic problems, however, have not stemmed from the spill, itself. While the fishing industry was certainly hurt by the spill, the second, and potentially bigger, blow came from the Obama Administration’s May 30th, 2010, moratorium on offshore deepwater drilling in its efforts to respond to the spill.
Wait, wasn’t the regulatory reform conference over? In a surprise move, conference members reconvened yesterday “in an emergency session to salvage votes” for the bill they passed out just last week. Now that they have dropped the $19 billion bank levy and raised FDIC premiums, can they move on? In my opinion, no. The emergency conference is just the latest evidence that the bill passed out last week is nowhere near complete.
I have said many times now, while I don’t necessarily agree with the three core elements of the bill – resolution authority, systemic risk regulation, and consumer financial protection – I can at least say that they have been sufficiently debated to the extent that Congress is reasonably unified around the concepts. The rest can go.