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Gender: Male
Hometown: South Texas. most of my life I lived in Austin and Dallas
Home country: United States
Current location: Bryan, Texas
Member since: Sun Aug 14, 2011, 03:57 AM
Number of posts: 84,468

About Me

Middle-aged white guy who believes in justice and equality for all. Math and computer analyst with additional 21st century jack-of-all-trades skills. I'm a stud, not a dud!

Journal Archives

Federal Credit Programs and the Birth of Lemon Socialism

We regularly criticize government-subsidized lending as a terrible way to achieve policy goals. First, itís less efficient since you are laundering the subsidies through the financial system, thus unnecessarily enriching middlemen. Second, itís well nigh impossible to know the effectiveness of the program. Itís not clear how many people would have gone ahead without the cheap credit, meaning the government is rewarding activity that would have taken place anyhow. Moreover, lending subsidy programs often wind up being overly broad and thus are transfers to people who arenít the purported beneficiary of the gimmie. One classic example is the mortgage tax deduction. It was slotted to be eliminated, along with the tax deductibility of all other consumer borrowing, in the 1986 Tax Reform Act. Instead, it was preserved because brokers and homebuilders howled bloody murder. The mortgage tax deduction is often depicted as a motherhood and apple pie policy, ďpromoting the American dreamĒ of homeownership. That implies it helps what the Australians call battlers: those who rely on the tax break in order to afford their first home. But as we know, the presence of the tax break merely leads to housing prices being higher than they otherwise would be (as in prices are bid up to reflect the impact of the tax bennies). And the tax writeoff is far more valuable to homeowners in higher tax brackets, meaning the middle and upper middle class, that the aspiring middle class (to the extent it still exists).

Here, Professor Sarah Quinn describes how, starting with the Johnson administration, the Federal government played a large role in using lending subsidies to support preferred policies and was responsible for key credit market innovations like mortgage securitization. Quinn also describes how the targets for stealth industrial policy have changed over time.

Read more: http://www.nakedcapitalism.com/2015/03/federal-credit-programs-birth-lemon-socialism.html
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