The Credit Crunch
2010-04-18 · Guest: — · 48:47
Individual responsibility and government intervention in housing
Bob Zadek discusses the dichotomy between individual responsibility (“you”) and collective government action (“them”). He critiques government intervention in the housing market and financial sector, arguing that regulatory failures are being used to justify more regulation, and takes calls on foreclosure bailouts and unemployment.
Topics: Tea Party, Homeownership, Foreclosure, Financial Reform, Goldman Sachs, SEC, Unemployment, Moral Hazard, Barney Frank, Timothy Geithner
Speakers: Bob Zadek, Caller (Vasu), Caller (Scott)
Intro and the “You vs. Them” Philosophy [00:23]
Bob Zadek: How cool is that? The best things in life are free. As P. J. O’Rourke once said, “If you think healthcare is expensive now, wait until you see what it costs when it’s free.”
Welcome, everybody, to The Bob Zadek Show, Sundays at noon on 910 AM, more stimulating talk. The news is in, the reports are in. We are the leading libertarian talk radio show in the Bay Area and the leading show in this time slot in the Bay Area. Thanks for your support. Thanks for your help. And thanks for listening. I’m your host, Bob Zadek. We are the show of ideas, not attitude, and we welcome your calls, whether you agree with me or not, at 800-345-5639. Or if you have fancy fingers and choose to email or text me, it’s bob@bobzadek.com.
Today, we are focusing on two pronouns. The pronouns are “you” or “them.” This show is committed to you and dismisses them. We are the show for you and for me. We are not for them. I’ll explain.
We also will examine today some pretty mind-glazing, eyes-glazing-over stuff, which is financial reform. We will ask the question: who and where is Wall Street? Who and where is Main Street? Are their interests the same or are they different? I will defend “Wall Street,” whatever that may mean. We are a libertarian talk radio show. Libertarians deal with you and not them.
Now, there’s a lot of stuff in the news. I could probably—I’ve asked the network if I could please have five hours today, but they’ve said no, so I’ve got to do the best I can to put a whole lot of stuff into a one-hour show. Today, we will focus on foreclosures, which have been in the news quite a bit, and we will focus on financial reform. Should homeowners be bailed out by the federal government? Are they innocent victims? And I guess all victims are innocent; that’s why they’re called victims. Or are they gluttonous, selfish humans who have overspent and now they come with a tin cup in hand to ask you and I to bail them out? Are the homeowners victims and worthy of our collective financial help so they can stay in their home that they were silly enough to buy and silly enough to mortgage? Or should they be thrown out if that’s what finance dictates? If you have a view on your bailing out them, or if you are a “them” who is seeking a bailout, your point of view would be helpful to have us understand the issue at 800-345-5639.
The Tea Party and the Spirit of 1776 [01:45]
Bob Zadek: We will also focus on the Tea Party movement. Obama, in his weekly radio show this week, started to trash—the movement is on—trash and belittle the Tea Party movement. Obama, in his weekly radio address, referred to “those people” to denigrate the Tea Party movement, as if those people are not citizens; they are just “those people.”
I must confess that I had been ignoring the Tea Party movement during its early phase. I frankly thought it didn’t have much to do with me. I thought it was somebody or a group of people out in the fringes. But frankly, I have started to pay attention to the principles that drive the Tea Party movement, and I have found a lot more substance in the Tea Party movement than I thought I would find before I started paying attention. If there are any Tea Partiers out there, or if you think the Tea Party movement should be dismissed, I’d love to hear from you at 800-345-5639.
The Tea Party movement right now, according to a recent New York Times poll, comprises—well, if you’re a Democrat or somebody more on the left, you would say “only” 18% of the population identifies with the Tea Party movement. If you are more sympathetic, you will say, “Wow, we’re up to 18% already.” Let’s put this 18% of the American voters who support the Tea Party movement in perspective.
Let’s flash back to the 1770s, when the movement for independence was just beginning. At the time the Declaration of Independence was signed—it was signed on July 2nd, 1776, or it was adopted then, it was signed on July 4th—at the time the Declaration of Independence was signed, the historians estimate that only, or as much as, if you will, but I’ll say only a third of the colonists were sympathetic to independence. A third identified with the Tories, who supported the King and supported staying connected with England, and a third were undecided.
So our country, at the time independence was declared, there was only a third of the country in support. And what I find interesting is, wouldn’t it be interesting if right now the Tea Party movement grew to a third of the country, the same statistic as that which supported independence 232 years ago? So I find the Tea Party movement to have remarkable similarities with the very movement for independence that created our country.
In fact, what’s also interesting is the same principles that drove our country to independence 232 years ago were the principles that seem to drive the Tea Party movement. And I don’t think that the Tea Party movement—and they’re not a monolith—I don’t think there was an intentional decision to go back and adopt the principles that drove America to independence. I think that was a natural movement. Americans just want to be left alone. They crave independence. They just want government to be out of the way. And the movement for independence 232 years ago was a movement to just have the government step out of the way, and that movement is now existing again 232 years ago.
What I find to be very encouraging, at least for me, is the Tea Party movement is not one which is conservative per se; that is, it doesn’t adopt a lot of the socially conservative issues that are so divisive. It seeks—it’s not anti-government, as Obama would paint the Tea Party movement. I’m not anti-government. I just want smaller government that basically leaves me alone. We have to have government, of course. So it’s not an anti-government movement; it is a small government movement. It’s a government that just seeks government to step back, reduce taxes, the very same principles that created our country 232 years ago. It’s an exciting movement. I find myself able to identify with it. I didn’t think I would. And when we come back, we’ll apply those principles to the “we versus them” or the “you versus them” principle of foreclosure and financial reform. Should you support somebody else’s right to stay in a home they can’t pay for? When we come back, Bob Zadek, 800-345-5639, back in a minute.
The Government-Manufactured “American Dream” [10:25]
Bob Zadek: Thank you, Bob Dylan, aka Robert Zimmerman. All I want to do is be friends with you. I don’t want to do anything else to you. Would that the federal government only felt that way, all it wanted to do was be my friend and not classify me or demystify me. But they do.
Welcome back, everyone. This is Bob Zadek, host of The Bob Zadek Show, the leading libertarian talk radio show in the Bay Area. We can be reached, if you have a mindset, at 800-345-5639 or bob@bobzadek.com.
The American Dream is the topic for the next segment. The American Dream. What a soaring principle that is. I guess it was George Bush who started to become a shill for the housing industry. When George Bush was elected, he was promoting what he called the “ownership society.” He promoted the American Dream: homeownership. What a lot of garbage. Shame on you, George Bush. Shame on you. How dare you even suggest that the millions and millions and millions of families who rent are somehow not living the American Dream. Are you suggesting, George Bush, are you suggesting, President Obama, that unless you own a home and mow a lawn and fix a sink, you are somehow having the American Dream bypass you? What a lot of nonsense. The American Dream is the dream to live free of government interference, to raise your children to be better than you are, to be better educated than you, to have political freedom. That is the American Dream. Men didn’t die at Valley Forge so somebody in Levittown, Long Island, could mow their lawn. What a lot of nonsense.
So the American Dream is unrelated, obviously, to homeownership. But because if people buy homes, they have to buy durable goods like refrigerators and beds and furniture, and they have to paint the place and mow the lawns, and they spend buckets of money which turbocharges the economy, that elected officials, including George Bush, realized that the way to hyper-stimulate the economy is to push a lot of people into homes so they’re stuck spending buckets of money fixing their homes. The economy is on steroids artificially. So the more people you suck into homeownership, the more the economy gets boosted, and you can be a hero because the economy is zooming higher and higher. What a lot of nonsense.
So is homeownership the American Dream? Well, of course it is not. It’s interesting. I went back and did a little research, and this American Dream stuff wasn’t helped by a statute passed in December of 2003, which nobody knew about, nobody paid attention to, but it is symptomatic of why we are in the mess we are in now. It is yet again the government interfering with the marketplace and sucking people into buying homes they can’t afford with the promise of low mortgages with no down payment. Had the government not shilled for the home building and durable goods industry, we would not be in the mess we are in now. It is not the failure of the marketplace; it is the failure of government by screwing around with the market and creating artificial demand for homes.
There was a bill passed without much fanfare called, get this, the “American Dream Downpayment Initiative.” Oh my god, oh my god, oh my god. It provided money to the states and to localities which have a population of at least 150,000 people to get an allocation of $50,000 a homeowner to help them buy a home. What business is it of government to help people buy homes? Government should buy homes—people should buy homes if they can afford them, not because the government induces them to.
In any event, lots and lots of people were induced to buy homes. It was a matter of federal government policy to induce people to buy homes. Well, once you turbocharge the economy, once you shill homeownership and artificially inflate the demand, people are going to be drawn in. They’re going to listen to their government, buy homes they shouldn’t be buying under mortgage products that make them think they can afford it. They are sucked in by this homeownership dream created by government. And here they are in homes they can’t afford.
The Ethics of Foreclosure Bailouts [16:18]
Bob Zadek: Well, like all bubbles, the bubble burst, and now we have lots of our friends and relatives in homes that are worth much less than their mortgages. And the question is, what should our government do? Are these people worthy of, pardon the word, bailout? Are they worthy of a bailout so they can, quote, “stay in their homes”? Or should they be told, “You’re on your own, buddy. Move out. Your house will be sold to somebody who can afford it, and there will be this wholesale change that many of the homeowners become renters, and those who are renters now take advantage of more realistically priced homes and they become homeowners.” Is that healthy? Is that the right thing to do? Should you support them and keep them in their homes? What should be governmental policy? Who is the victim here? Are you the victim if your tax dollars go to keep somebody in a home who incurred too much debt? Or are they the victim because they believed government and bought a home that they couldn’t afford? What does your moral compass say about who is the victim and who is worthy of support? Should we support them or not?
Just to let you know the size of the “you” and the size of the “them,” 94% of families either own homes free of mortgage debt or are current in their mortgage or are renting. So 94% of the families in America have no problem whatsoever with mortgages. Should the 94% have their tax dollars diverted to support and bail out the 6%? Or are the 6% on their own? President Obama, of course, feels that the 94% should bail out the 6%.
Well, it seems to me that the 6% who are underwater, including first and second mortgages—they took out second mortgages, probably for vacation, probably to buy cars, probably to buy stuff—they went into debt. The 94% who were more prudent, they made the right decision. Why aren’t the 94% the victims?
Obama’s plan, and he’s devoted a ton of money, Obama’s plan is to first use moral persuasion to induce banks to rewrite mortgages, to write down the payment terms so the homeowners can stay in their homes and keep them there rather than have the homes lost to foreclosure. Of course, these homes are not being lost to foreclosure. All that’s happening is the occupant of that home will change from the overspending current occupant to a more prudent new occupant who will buy that home at a foreclosure sale or at a short sale or buy it from the homeowner. So we are not taking those homes and throwing them into the ocean; we are merely giving that home to somebody who can afford it, taking it away from somebody who cannot afford it. Is there any greed involved? Is that good policy or bad policy?
And just to give you some example how this very fight gets so inflammatory, there’s an organization called the National Community Reinvestment Coalition, headed by a guy named John Taylor. And a quote from John Taylor, which will show us what we are up against is, John Taylor says, quote, “Regardless of how you view this, we spend trillions for Wall Street and this is a trickle for Main Street.” So here we are creating envy once again. If you give the money to the big banks, give it to homeowners. Of course, the answer is you shouldn’t have given it to the big banks. And if we can be really schoolyard childish, two wrongs don’t make a right.
Now, the question is, even if you do foreclosure adjustment on the first mortgages, these homeowners have second mortgages that still have to be dealt with. They’re going to be stuck with those debts anyway. So are these homeowners worthy of us, the silent 94%, worthy of our support? What does your moral compass tell you about who is the victim and who is worthy of support? Should we support them or not?
Just to let you know, try this: Let’s assume you bought common stock, and you bought so based upon your personal view or the view of your broker that the stock would go up. And then we have the financial alleged crisis of a couple of years ago, and the market went into the toilet, and you lost a ton of money in your stock portfolio. Why doesn’t the government reimburse us for our stock losses? After all, we were victims; we couldn’t have predicted the housing bubble. So if you’re going to reimburse somebody for the loss in value of their home, why not reimburse somebody for the loss in value of their stock portfolio or for the loss in value of their car? You see where I’m going. How can anybody intellectually justify protecting homeowners from one type of capital loss and not protecting families from other types of capital loss? Anybody who supports helping families stay in their houses is proposing an intellectually bankrupt idea. It makes no sense to keep people in their homes. Neighborhoods are not at risk. There will be a new occupant in that home. It just won’t be the existing occupant. So there is no societal reason to keep homeowners in their homes. That home will be occupied. Yes, there will be a temporary dislocation, but so what? Those communities will have more people in them, and those people will pay the right price for the home. What Obama is doing, he is artificially inflating the value of homes, postponing the moment that home values reach their true value. So we don’t know what a home is worth right now because it’s all artificially affected by government. Government is this big price manipulator destroying the housing market so nobody can tell what a house is worth. I say the homeowners should lose their homes to foreclosure unless they can do a deal with the bank based upon what is economically good for both sides. Am I being cold? Am I paying—am I ignoring them too much at the expense of me? What does your moral compass say? 800-345-5639, bob@bobzadek.com, back in a minute.
Caller: Vasu on Moral Hazard [24:06]
Bob Zadek: Welcome back, everyone. Welcome back to The Bob Zadek Show, Sundays at noon at 910 AM, more stimulating talk. The show of ideas, not attitude. The show that deals with you, not them. Welcome back, everyone. We’re talking about the foreclosure non-crisis. We’re talking about the government shilling for the home building industry. Should homeowners be supported for their spending ways, or should they be foreclosed out if that’s what the market dictates, and should a new homeowner be able to buy that home for a much lower price because they were prudent and they saved their money and they didn’t get sucked in? That’s the moral, financial, ethical, and political question we are discussing. Vasu, welcome to the show. Vasu, are you there? Do we have Vasu on line one? Vasu?
Caller (Vasu): Yeah, I’m here.
Bob Zadek: Ah, thank you for calling, Vasu. How can I help you?
Caller (Vasu): Your show is very good and you are talking about the right points. I really think that, you know, in any capitalist economy, people who make the right decisions, you know, and they took care of their homes or their cars or their stocks or what not, that’s how—that’s how everything works. I mean, if people make the wrong choices, they need to—they need to pay for it. And that’s the only way they can learn. If you bail out all the—all the folks who made the wrong choices, then we are basically pampering them. The next time they’re going to do the same thing again.
Bob Zadek: You’re encouraging bad behavior. It’s called, of course, moral hazard are the technical—that’s the 25-cent word or words that express it. If you reward bad behavior, you don’t discourage it, and you encourage people to be careless. And there’s no principle, and I agree with you, Vasu, thank you, there’s no principle by which a homeowner is owed anything by the government because the homeownership made a bad decision.
Caller (Vasu): Yeah, I mean, it’s a deal between the bank and the—and the homeowner, and why is the government getting in between?
Bob Zadek: Well, the—the administration, if there were somebody from the administration on the phone or in the studio, they would explain that, well, we want to try to preserve communities, and they would say the homeowners were sucked in by mortgage brokers and were made promises by banks. But what’s really interesting is the federal government had built this extensive scheme of disclosures. So we have Congress over—since the—I guess 1969 was the first Reg Z disclosure law. We have Congress who for 40 years was building mandatory disclosures for the purpose of making sure that homeowners and mortgage—and mortgagees, the people who are borrowing money, know what they are getting into. So either Congress says we are morons, we built a whole series of disclosure laws that don’t work, in which case why not repeal them, Congress? Or if the disclosure laws worked, then the consumers had the opportunity to learn what they were doing and they put their head in the sand. And it’s the absence of responsibility that I am so angry about.
Caller (Vasu): Me too. I totally agree with you. I hope more and more people realize that this is not really about preserving society or preserving the—the communities, and it’s really about—I really think deep down this is just vote bank politics. It’s just trying to help those bunch of people who—who will vote for—for the administration the next time around.
Bob Zadek: I couldn’t agree with you more, Vasu. Thank you so much for your call. I appreciate your views.
So there you have it. Are the homeowners victims and should they be kept in their homes when it was their own irresponsible behavior? And perhaps I’m being harsh, perhaps not. If you’re a homeowner and you are one of those people who would dearly like to get help, I would love to air your point of view. I don’t want this to be a monolith. So if you are a homeowner and—or if you know somebody who you care about and they are a homeowner and they are being harmed because they bought their too expensive a house with too expensive a mortgage, I would love to share with my listeners your point of view at 800-345-5639, bob@bobzadek.com.
It may seem harsh, but after all, being in the world imposes responsibilities. People have to look after themselves, look after their families, take care of themselves. And we are not here to pick up the messes that people leave behind because of their own irresponsible behavior. I don’t think that’s being harsh; that’s the way the world is. And to the extent that we insulate people from personal responsibility, we reinforce bad behavior and we build a dependent society when people will not pay attention to how they should behave because after all, the 94% who look after themselves will be around to pick up their messes. Well, homeowner, I will not pick up your mess. You pick up your own mess. You have no birthright to live in the home you’re living in. You have the right to live in your home if you can afford it. If you don’t, then become a renter. Becoming a renter is not a death sentence. It just means you’re a renter. You can very much enjoy the American Dream by renting your home. You still have economic and political freedom; you just don’t mow a lawn anymore. And there you have it.
Financial Reform and the Goldman Sachs Lawsuit [30:00]
Bob Zadek: The other topic in the news today that is worthy of some attention is something that I should proceed by saying: don’t touch your dial, because when I say the words, you’re going to turn over to some music channel. But give me a chance, because I will demystify in literally a few sentences this apparent mind-numbing issue of financial reform.
Now, just to tee up the issue, the Friday headline in most media was that the SEC has brought a civil lawsuit against Goldman Sachs. Now, Goldman Sachs is, of course, this powerhouse Wall Street investment bank, and Goldman Sachs is the A-level franchise to supply leaders in Washington. Goldman Sachs has a steady stream of senior executives from Goldman Sachs going to do a stint in government and then going back to Goldman Sachs. So Goldman Sachs is as much of an insider as a company can be. And now Goldman Sachs is being sued by the SEC in a civil complaint alleging simply that Goldman Sachs defrauded lots of its own customers and defrauded the public by selling some subprime securities. That’s all you have to know, is that the SEC is bringing a lawsuit against Goldman Sachs.
Now, of course, everybody on the left who wants to demonize Wall Street is using that as proof that we need financial reform. And you have to pay attention. There’s something going on here that we really have to pay attention to. I’m reminded that every time there is a headline-grabbing gun crime, somebody commits a crime, goes into a university and shoots up the place or commits a gun crime that makes the headlines and makes the tabloids, there is an immediate cry: we need more gun laws. And what’s ignored is the person who committed the crime broke an entire range of gun laws. So we don’t need more gun laws; already what that person did with a gun was illegal. We don’t need more gun laws; we need to enforce the gun laws we have.
Well, apply that principle, which we all understand, to Goldman Sachs. Let us assume the SEC has merit in their complaint. Well, Goldman Sachs did a lot of bad things for which they are being sued. And if the plaintiff, the SEC, and if other banks bring their own lawsuits against Goldman Sachs, there will be litigation and Goldman Sachs will lose. Does that mean we need more laws? No, the existing laws take care of everything.
So we have this movement afoot for financial regulation of the banks. And what makes this so cynical, this demonizing of Wall Street, whatever even Wall Street means, the demonizing is so hypocritical. The New York Times, no friend of Wall Street, had a headline on April 8th, quote, “Fed reviews find errors in oversight of Citicorp.” New York Times, April 11th, quote, “The two agencies that oversaw WaMu—WaMu was, of course, a major demon—that oversaw WaMu feuded so much that they could not even agree to deem the company unsafe and unsound until two days before it closed.”
In other words, there were an existing series of regulations to regulate the financial services industry, and government, geniuses that they are, they didn’t enforce existing regulation because they are civil servants. So if you have a whole lot of breakdowns in financial regulation, isn’t the cure to do a better job using the tools you have instead of being sloth-like and irresponsible? But you don’t need more laws. There was no breakdown in an existing range of regulation. The regulations were all there. And I dare say, had the Fed, headed by Timothy Geithner, if you will, had the Fed back in ‘04, ‘05, and ‘06 done a better job—where were you, Geithner?—we wouldn’t have been in the crisis we are in now and we would not need more financial regulation.
Regulatory Failure as a Pretext for More Regulation [36:46]
Bob Zadek: So what’s going on in Washington—and it’s very important that we follow this and not be fooled—what’s going on in Washington is, to the extent that the Washington establishment can blame the alleged crisis on the market, which has to be regulated, they can distract our attention from their own failures. So what’s going on now is we are all told, “Look over there! Look over there! Don’t look at us, look over there! Look at Wall Street! They’re the problem, not us!” ignoring that we encouraged homeownership, we didn’t do our job regulating the banks, and therefore we need more regulation.
I’ll go to break with one quote from Bill Dudley, who’s the present Fed Chairman. He has Geithner’s job. William Dudley said, and then we go to break, “Significant weaknesses in the execution of the supervisory program occurred.” That’s a quote. Then he said, quote, “Federal Reserve and a lot of other regulators could have done much better.” Close quote. That from Bill Dudley, Geithner’s successor. In other words, Geithner, you did a crappy job, and don’t blame it on the market; blame it on yourself. This is Bob Zadek, 800-345-5639, back in a minute.
Welcome back, everybody. The Bob Zadek Show, Sundays at noon at 910 AM, more stimulating talk. We are the leading talk radio show in the Bay Area. We’re here every Sunday at noon. Thanks for staying with me.
Today’s topic is you and finances, specifically in this segment, the demonizing of Wall Street. Wall Street, Wall Street’s the problem. Wall Street is a street. Streets don’t cause problems; institutions do. Now, I’m not being a wise guy. I have a brokerage account where I have my retirement funds. It is managed by a broker. Although he works in San Francisco, I suppose he is part of Wall Street. I love my broker. My stocks go up, my bonds pay interest. I feel more and more comfortable about my retirement if I ever retire. So I have no axe to grind with Wall Street.
So who exactly is the Wall Street we are targeting, and what exactly did they do wrong and why do they need more oversight? We have been told that there was a crisis, and the crisis was the failure of the market. Those on the left would say, “Aha! This is the silver bullet! This is proof positive the market doesn’t work!” Utter nonsense. The market worked fine. The problem was the government’s interfering with the market. You cannot have the government messing with the free market on the one hand, then after they mess it up so the free market behaves in response to government interference, you cannot have the market be distorted by government and then when there is a problem, you blame it on the market. No, you blame it on the artificial ingredient, which is government. You don’t blame it on the market.
Indeed, all of our—all of the topics that are in the news today—healthcare, housing, and education—all have a direct source of government interference with the market. As I said in the first segment, the housing market, which is now, I guess, in a state of disarray, became in a state of disarray only when the government—the government, not the market—went into the housing market and tried to suck people into mortgages they can’t afford with Fannie Mae, Ginnie Mae, and Barney Frank, the realtor supreme. When Barney Frank and Fannie Mae and Ginnie Mae started injecting steroids into an otherwise totally calm market, only then did we have a housing problem.
I grew up in the ’40s and in the ’50s. I’ve been around for a long time. I’ve owned a bunch of houses. The first house I bought was a tract home for $48,500, four bedrooms, unbelievably ugly, but I bought it in Westbury, Long Island. For most of my life, housing was not a problem. It was a lifestyle. If you wanted to live in a house, you lived in a house. If you wanted to live in an apartment, you lived in an apartment. You weren’t not living the American Dream; that’s what your lifestyle was. All of a sudden, government discovered if we shill for housing and suck people in by offering them artificially low mortgages—and by the way, when I say offering them in, the policy came from Washington. Once Fannie Mae and Ginnie Mae agree to insure liar loans, the banks are then induced to sell mortgages which will be insured by Fannie Mae and Ginnie Mae, so there’s no risk to the banks. So the government did it, not the market. The housing market for 225 years worked perfectly. It was a perfect market. Everybody bought and sold a house for the right price. Along comes Barney Frank and Fannie Mae and Ginnie Mae, the market is messed up.
Go to healthcare. Healthcare was not a problem in this country until World War II. World War II, we have—for the purpose of wage and price controls, we for the first time the government allows corporations to pay for healthcare of their employees. Healthcare turns to garbage. The whole healthcare marketplace turns to garbage. Government interfering what was for 220 years a fairly perfect market. Everybody was happy with the cost and happy with the service.
Education. Education worked in this country until the 1960s. People were happy with public education. I was a product of public education and I loved it. I loved Jamaica High School in Queens, my favorite place, public high school. The government passed statutes allowing teachers to unionize, turns over control of education to the teachers union, turns to garbage. Every instance of a failure of the marketplace is government-induced.
Unemployment and the Limits of Government Management [42:40]
Bob Zadek: Scott, you may not agree with me. Scott, welcome to the show.
Caller (Scott): Yeah, hi Bob.
Bob Zadek: Hi Scott, thanks for calling. How can we help you?
Caller (Scott): No problem. I’ve just been listening in and it sounds that one of your fundamental issues is that the government has been encouraging house ownership and stuff along those lines. While I don’t know if the big problem within the mortgages were from people coming from first-time owners, meaning they were renters and then went to own, or if it was people just within society wanting a bigger and better house and keeping up with the Joneses and over-mortgaging themselves.
Bob Zadek: Well, in either case, Scott, why would it matter to your view of the foreclosure issue?
Caller (Scott): Well, because the foreclosure issue to me, the only reason I want the foreclosure issue to be resolved is America historically gotten out of its recessions by basically the mass movement of its workforce. It’s one of the beautiful things about how it was able to mobilize and get from industry and even regions geographically to come about. If all of a sudden people cannot move anymore because A, their house is in negative equity or B, you know, they just have no money to get up and move and then that’s going to slow down the market itself.
Bob Zadek: But can’t they move—can’t they move by taking the loss on their home and becoming a renter? There’s no interference with mobility.
Caller (Scott): Oh, well, there is if you have no cash. Don’t you need cash to move? And basically if you’ve lost everything and declared bankruptcy to get out of the mortgage, then you’re stuck, I would.
Bob Zadek: Well, then you have to ask yourself a harder question, Scott, and this is really a tough one, frankly. Scott, the question is right now we have unemployment of somewhere around 9.5%. Is that too high? Is that artificially high? Or is that the right number? And was 6% unemployment an artificial number induced by a hyperactive real estate market? What’s the right number? For the government to manage unemployment down to 6% if the economy can’t support it, that’s a bad decision; that would result in inflation. So how do you decide, how do I decide, that where we are now is not the natural place we should be? How do we know that?
Caller (Scott): Well, I mean, we are where we are whether it’s natural or it’s not. And so what we need to do is how do we benefit ourselves to get the society back up and running to a point where, you know, people can start getting employed and people will start working again and get the place up again.
Bob Zadek: The answer is by allowing businesses, small businesses, to hire and to just get out of the way. If you tax business, they can’t hire.
Caller (Scott): Oh, well, yeah, okay, well, that’s a total issue and I agree with you on that.
Bob Zadek: So therefore, to say that government should step in and reduce unemployment, I say if the natural level of unemployment is 9%, to reduce it—you can reduce unemployment to 6%, just hire everybody and pay them a salary to do nothing. Unemployment would go down, obviously, but society would be harmed. Is your house burning down, Scott? Do I have to worry?
Caller (Scott): Yeah, yeah, no, no, this is just San Francisco. You have fire trucks everywhere.
Bob Zadek: Okay, I didn’t want—if you had to leave and go put water on your flames, I would understand that; I wouldn’t be insulted.
Caller (Scott): No problem.
Bob Zadek: So Scott, so the problem is rather than trying to manage unemployment, I say get out of the way, let the economy take care of itself and we will find the natural level of unemployment. The problem in Louisiana was we tried to manage the level of water, and water sought its natural level, the levees burst, and we had a catastrophe. Don’t manage unemployment; just the government should do whatever it needs to do to let business employ the number of workers it has to employ. But don’t force it. If you put steroids into the economy, steroids cause cancer.
Caller (Scott): Agreed. But what—how do you get out of the spot that we’re in now?
Bob Zadek: What if the spot we’re in now, to use your phrase, is where we’re supposed to be based upon the level of economic activity? Who says this is not where we should be? Just because people are suffering some pain, we’ll work out of it. Economy will take—the economy will take care of itself. Let the markets function. Unless you have no faith in the markets, let the markets function and the market will employ as many people as the market can employ. And I say let’s try that. It’s like trying to manage a forest. A forest is too complex. If you take care of one type of plant, you kill another. Let nature take its course. Scott, thanks so much for your call.
Caller (Scott): Thank you.
Bob Zadek: Appreciate the call, Scott. Well, there you have it. Should government step out of the way or should government manage to the next election cycle? Government elected officials are the ultimate short-term managers; they manage only to the next election cycle. Should we let them do that or step out of the way? Thanks for joining me this Sunday. This is Bob Zadek. Speak to you soon. 910 AM, more stimulating talk. Sundays at noon. See you soon.