December 21, 2012
Nationalization and De-Nationalization in the Mortgage Industry
Back in 1938, the Roosevelt Administration, in order to save the housing finance industry, created a federal agency called the Federal National Mortgage Association. The FNMA got banks lending to home buyers by agreeing to purchase the loans from the banks, so long as the loans met certain quality standards.
It was a smashing success! The banks made high quality loans to borrowers (20% down payment, fixed rate, roughly 30% debt-to-income ratio), then sold the loans on the secondary market to the FNMA, and housing boomed. By the 1960s, the FNMA owned about 80% of all the home loans in the United States.
But wait! The federal government owned about 80% of all private home loans in the United States? Wasn't that a little, well . . . socialist? Couldn't private industry do it instead? Yes, indeed. So in 1968 the federal government did something unprecedented: it privatized an entire federal agency. The agency became Fannie Mae, with a public offering and everything. In return for certain tax advantages, it had certain obligations to the federal government, but it was a private entity. And soon it was competing with other private entities purchasing loans on the secondary market, all of whom were securitizing those loans and selling the securties -- mortgage-backed securities. Those entities were competing for loans, so they couldn't be too picky about quality any more.
Fast forward to 2008. Remember that old LendingTree ad, "When Banks Compete, You Win!"? We all found out that was true -- so long as by "win" we meant "live in economically disastrous times."
Suddenly, things were a lot like 1937 again: the housing finance industry was dead. Banks weren't lending -- it was too risky, since borrowers couldn't repay their loans and third parties wouldn't buy mortgage-backed securities. How could the industry be revived?
Fannie Mae, on the verge of failure, was re-nationalized. Quality standards were imposed, mortgages were acquired and re-financed with an assist from the federal government, and banks could make loans and sell them to Fannie Mae. Extremely slowly, haltingly, the housing finance industry began to revive.
Back in 2008, I predicted this would happen. It didn't take a genius, that's for sure. As I wrote back back then (Nationalization, De-Nationalization, Re-Nationalization), we have a history of nationalizing, de-nationalizing and re-nationalizing lending in the United States. We tend to nationalize in a crisis, ending the crisis, then de-nationalize because of our ideological preference for a laissez-faire market system . . . which leads eventually to a crisis . . . repeat.
All that had to happen in 2008 was that history needed to repeat itself, and that was the path of least resistance. But, it also seemed likely that, if it worked -- if the re-nationalized Fannie Mae got the housing finance industry stabilized -- then it wouldn't be long before someone realized that the federal government owned a huge protion of the home loans in the United States and that would seem a little, well . . . socialist. Therefore, as soon as the program was successful, people would want to get rid of it.
The superb news site ProPublica, as part of its series on the housing crisis, is running a very interesting article entitled, We’ve Nationalized the Home Mortgage Market. Now What? It makes the point that suddenly things look alot like 1968 again: 9 out of 10 home loans in the U.S. today are backed by the federal government through Fannie Mae. The chart below, from the article, shows the percentage of home loans backed by the federal government.
What happens next? Well, if history is any guide, the cycle will continue. We will de-nationalize the industry, until the next crisis; then we will re-nationalize the industry to solve the crisis; then we will wonder why an industry that could be private is nationalized, so we will de-nationalize it . . . etc. etc.
Mark A. Edwards
The Priciest Celebrity Homes on the Market
Forbes magazine takes a look at the most expensive celebrity homes currently on the market:
Los Angeles’ Platinum Triangle – comprised of Beverly Hills, Bel Air and Holmby Hills — is where the kind of glitterati who escape to Malibu Colony on the weekends have their main digs. Homes in the Triangle boast the most precious celebrity amenity: privacy. There are two types of properties there: multi-acre estates situated down long driveways behind tall hedges, and side-by-side mansions located in guard-gated developments.
(Image: Frank Sinatra's $12 million home for sale in Chatsworth, CA)
Blumm & Paulsen on the Public Trust in Wildlfe
Michael Blumm (Lewis & Clark) and Aurora Paulsen (Lewis & Clark) have posted The Public Trust in Wildlfe on SSRN. Here's the abstract:
The public trust doctrine, derived from ancient property principles, is thought to mostly apply to navigable waters and related land resources. The doctrine supplies a mediating force to claims of both private ownership and unfettered government discretion over these resources, vesting the state with trust responsibility to ensure that the use of these resources promotes long-term sustainability. A related doctrine — sovereign ownership of wildlife — is also an ancient public property doctrine inherited from England. State ownership of wildlife has long defeated private ownership claims and enabled states to enact and implement wildlife conservation regulations. This paper claims that these two doctrines should be merged, and that state sovereign ownership of wildlife means that wildlife — like navigable waters — is held in trust for the public and must be managed for long-term sustainable use by future generations. Merging the doctrines would mean that state ownership would not only give states with the authority to manage their wildlife populations but also the duty to do so and would equip members of the public with standing to enforce the states’ trust duties in court. This paper shows that the public trust in wildlife has already been employed in California and in several other states, and suggests that it deserves more widespread judicial recognition, particularly — as we demonstrate — that no fewer that no fewer than forty-seven states use trust or trust-like language in describing state authority to manage wildlife. We include an appendix citing the sources of the wildlife trust in all forty-seven states for reference.
December 20, 2012
Did Abraham Lincoln have the Authority to Free the Slaves?
James McPherson, America's preeminent historian of the Civil War, has penned an essay that examines the history and meaning of the Emancipation Proclamation. In the second half of the piece, McPherson takes head-on the "accusation that Lincoln 'freed' the slaves in areas where he had no power, and left them in slavery where he did have power."
Nothing could be more wrong. For one thing, tens of thousands of ex-slaves lived in parts of the Confederacy that were occupied by Union forces but were not exempted from the proclamation. They celebrated it as their charter of freedom. For that matter, so did many slaves in exempted areas, which included the four slave-holding states that never left the Union (Missouri, Kentucky, Delaware, and Maryland) as well as Confederate areas that had been returned to Union control, such as New Orleans and the forty-eight Virginia counties that would soon become West Virginia. They recognized that if emancipation took hold in the Confederate states, slavery could scarcely survive in the upper South.
The proclamation officially turned the Union army into an army of liberation—if it could win the war. And by authorizing the enlistment of freed slaves in the army, the final proclamation went a long step toward creating that army of liberation. If the Emancipation Proclamation was merely a piece of paper that did not actually free anyone, as skeptics then and later charged, the Declaration of Independence was likewise a mere piece of paper that did not in itself create a new nation. Both outcomes depended on victory in a war to which these documents gave new purpose.
HT: The Daily Dish
Gaughan on The Taking of Robert E. Lee's Home
Anthony Gaughan (Drake) has posted The Arlington Cemetery Case: A Court and a Nation Divided (Journal of Supreme Court History) on SSRN. Here's the abstract:
In May 1861, the United States Army seized the Virginia home of Confederate General Robert E. Lee and his wife, Mary Lee. During the Civil War, the Lincoln Administration converted the estate into a refugee camp for runaway slaves and a military cemetery, a burial ground that is known today as Arlington National Cemetery. In December 1882, seventeen years after Lee surrendered at Appomattox, the United States Supreme Court ruled that the federal government had unlawfully seized the Arlington estate without paying just compensation to the Lee family. It further held that the doctrine of sovereign immunity did not bar the Lees from bringing suit to vindicate their legal title to the property. In the aftermath of the Supreme Court’s ruling, Congress reached a settlement agreement with the Lee family. Arlington National Cemetery has remained the lawful property of the United States ever since. The Supreme Court’s ruling in United States v. Lee made clear that the Constitution is not suspended in wartime. At all times, legal and constitutional limits govern the exercise of official power. This article tells the story of United States v. Lee and places the case in historical context.
December 18, 2012
The Fate of Land in the West Bank
The New York Times takes a look at the future of E1, a heavily contested piece of land on the borders of East Jerusalem:
Israel sees E1, only 4.6 square miles and largely rocky desert, as the stone in the arch that connects East Jerusalem, which Israel has annexed, to Maale Adumim, one of the biggest of the so-called settlement blocs, with a population of 40,000. Israel says it intends to keep Maale Adumim in any peace settlement, hoping to swap land with any future Palestinian state. In fact, it was Yitzhak Rabin of the Labor Party who in 1994 attached E1 to the municipality of Maale Adumim.
For the Palestinians, E1 is seen as essential if they are ever to achieve a viable independent state with East Jerusalem as their capital. Palestinians say they need the land to preserve a workable, practical connection between East Jerusalem and the West Bank, and to build housing for Palestinian refugees and their descendants. As important, the Palestinians contend, E1 is central to a crucial north-south route through the West Bank from Ramallah to Bethlehem.
Medema on the History of the Coase Theorem
Steven Medema (Colorado Denver - Econ) has posted Debating Law's Irrelevance: Legal Scholarship and the Coase Theorem in the 1960s on SSRN. Here's the abstract:
This paper examines the diffusion of Coase’s negotiation result -- now better known as the 'Coase theorem'--in the legal literature during the 1960s, with particular attention paid to the challenge that this result posed for received legal thinking, how the it related to far older attempts to bring economic thinking to bear on the law, how legal scholars utilized it in their analysis, and how the treatment of this result by legal scholars compares to that accorded it by economists during this formative stage in the Coase theorem’s history. What will emerge, in the end, is an enhanced understanding of how the Coase theorem came to have a place in legal scholarship, as well as some additional insight into this neglected epoch in the history of the economic analysis of law.
December 17, 2012
Detroit Attacks Vacant Property with Arugula
Detroit has taken a unique and aggresive approach to address the plague of vacant and abandoned property within its borders. Last week, the city council agreed to sell 140 acres on the east side of town (1,500 city-owned plots) to John Hantz, an urban agriculture entrepreneur. Opponents worry that Hantz got a sweatheart deal that will crowd out other, smaller urban agriculturalists:
Despite strong opposition from a coalition of urban farmers, community activists and local residents, Detroit City Council Tuesday approved the controversial Hantz Woodlands land deal. Under the proposed agreement, the city will sell roughly 140 acres the land to Hantz Woodlands, a division of the Hantz Farms, at slightly over 8 cents per square foot, provided they maintain the land, demolish a number of derelict buildings and plant 15,000 trees.
Garnett on Transect Zoning
Nicole Garnett (Notre Dame) has posted Redeeming Transect Zoning? (Brooklyn Law Review) on SSRN. Here's the abstract:
Thanks to the growing influence of the new urbanists, transect zoning” is becoming the zoning reform du jour. This alternative to zoning traces its origins to architect Andrés Duany’s 2003 SmartCode, which proceeds upon the assumption that urban development naturally proceeds from more-dense areas to less-dense ones. Duany calls this progression the “transect” and urges cities to replace traditional use zoning with regulations on building form appropriate to the various “transect zones” along the progression. Over the last decade, increasing numbers of jurisdictions (large and small) have adopted “transect zoning” laws and the “form-based” codes that accompany and supplement them. Theoretically, transect zoning embraces a relatively simple conception of how to regulate urban development: buildings that are appropriate for the city center should go in the city center (regardless of their use), and suburban buildings should look suburban (again, regardless of their use). In its implementation, however, transect zoning is anything but simple. As a practical matter, the new urbanists favor meticulous and exhaustive aesthetic regulations, found in the form-based codes that represent the ubiquitous gap-fillers in transect-zoning regimes. This Essay begins by briefly describing the rapidly evolving phenomenon of transect zoning and its companion, form-based coding. It then discusses four concerns raised by the current uses of both devices as public land-use-regulatory devices. The Essay concludes by suggesting that form-based codes may be most appropriate in situations approximating the private-development context rather than as a public regulatory.