Four Economic Mandates Examined: Mortgage Modification

10 May

I caught a small portion of the Daily Show with Jon Stewart.  He had Robert Reich as a guest.  Robert Reich is the Chancellor’s Professor of Public Policy at the University of California at Berkeley and was the Secretary of Labor in the Clinton Administration.  On the Daily Show, Mr. Reich proclaims that “investments” need to be made in infrastructure (even creating an “infrastructure bank”), education, research and development in the sciences, and “job creation”.  And, says Mr. Reich, government is the only entity to do these things.

To set the baseline of discussion and skew the issue in the “big spending” camp’s favor, Mr. Reich calls Congressman Paul Ryan’s budget proposal “wildly regressive”.  In truth, the Ryan plan is moderate at best.  According to the Ryan Plan’s own numbers, the federal government will run a fiscal deficit until 2038.  So even taking the estimates at face value, the Ryan Plan will not actually balance the budget for almost 30 years.  I am not sure, exactly, what “wildly regressive” means at Berkeley, but if we are in a debt crisis and facing a second downgrade, does it seem like we have 30 years to get to a point when we can start PAYING off our debt – ever increasing for the next 30 years?  I do not have a degree from Berkeley, but “wildly regressive” seems misleading at best.  But hey, I am not the Chancellor’s Professor of Public Policy either.

But, what else does a Professor of Public Policy have to do but make recommendations on public policy.  And not to disappoint, Mr. Reich has done just that.  Actually, Mr. Reich has some advice for President Obama:  Economic mandates that consist of four points.  I will list each point separately and discuss them one at a time.

  1. “Obama should demand that the nation’s banks modify mortgages of homeowners still struggling in the wake of Wall Street’s housing bubble – threatening that if the banks fail to do so…he’ll break up Wall Street’s biggest banks.”

First, I find it tragically funny that he calls it “Wall Street’s” housing bubble.  As if government itself, through the Federal Reserve’s manipulation, Fannie Mae and Freddie Mac, and Congress’ mandates that “started in the early 1990s” had nothing to do with any of that mess and it was all Wall Street’s doing.  Either Mr. Reich is being misleading on purpose or he truly believes this version of history.  In any event, should he be giving advice on public policy if either is true?

Let us set aside the argument of who is responsible for the housing bubble and look in awe as this public policy guru recommends that the executive branch, with so few powers granted in Article II, Section 2 of the US Constitution, “demands” that banks do what he says – even threaten them with destruction if they do not – and concede to his mandate.   This is central economic tyranny that makes a joke of private contracts.

Both parties to a mortgage are free and responsible private parties and the government should have no authority to demand a restructuring of the original contract.  If there is to be a restructuring, then the two parties should sit down and renegotiate the original contract.  Where does the government get the authority to interfere in this private process?

So what is Mr. Reich’s second recommended economic (tyranny) mandate?

  1.  “Second, he should condemn oil speculators for keeping gas prices high – demanding that the oil companies allow the Commodity Futures Trading Corporation to set limits on such speculation and instructing the Justice Department to investigate and prosecute oil price manipulation.”

“Kill the speculators!”  This second point will take as much, if not more than the previous point, so in an effort to bite this Reich off in pieces, point two will be continued in my next post – Four Economic Mandates Examined:  Oil Speculation.

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Posted by on May 10, 2012 in Uncategorized


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