DeMarco’s One Correct Point

August 1, 2012August 2, 2012Danny Vinik 1 Comment

Liberals have been jumping on Federal Housing Finance Agency (FHFA) leader Ed DeMarco for not allowing principal reduction for mortgages held by Fannie Mae and Freddie Mac. Such a policy would bring many homeowners above water and allow them to refinance at lower interest rates and afford their mortgages. Here’s Krugman:

In any case, however, deciding whether debt relief is a good policy for the nation as a whole is not DeMarco’s job. His job — as long as he keeps it, which I hope is a very short period of time — is to run his agency. If the Secretary of the Treasury, acting on behalf of the president, believes that it is in the national interest to spend some taxpayer funds on debt relief, in a way that actually improves the FHFA’s budget position, the agency’s director has no business deciding on his own that he prefers not to act.

I don’t know what DeMarco’s specific legal mandate is. But there is simply no way that it makes sense for an agency director to use his position to block implementation of the president’s economic policy, not because it would hurt his agency’s operations, but simply because he disagrees with that policy.

That’s 100% correct and it’s terrible that DeMarco is overstepping his bounds. However, DeMarco also made one good point:

Perhaps the greatest risk of the Enterprises’ allowing principal forgiveness is one with far more significant long-term consequences for mortgage credit availability. Fundamentally, principal forgiveness rewrites a contract in a way that other loan modification programs do not. Forgiving debt owed pursuant to a lawful, valid contract risks creating a longer-term view by investors that the mortgage contract is less secure than ever before. Longer-term, this view could lead to higher mortgage rates, a constriction in mortgage credit lending or both, outcomes that would be inconsistent with FHFA’s mandate to promote stability and liquidity in mortgage markets and access to mortgage credit.

I’ve talked about this before in using eminent domain for principal reduction. It’s a real issue that many economic bloggers are overlooking. Here’s Felix Salmon’s response: Continue reading “DeMarco’s One Correct Point” →

Legalize Online Gambling

August 1, 2012August 1, 2012Danny Vinik Leave a comment

Image via dupo-x-y

The New York Times reported today that Pokerstars and Full Tilt Poker have come to an agreement with the U.S. government to pay hundreds of millions of dollars for illegal online gambling and fraud. Now, Full Tilt Poker had effectively set up a ponzi scheme, taking money from players and putting it in their pockets. Players saw the money in their accounts and Full Tilt said that they could withdraw it at any time, but it seems that was not the case.

These settlements seem fair since both companies certainly broke the law, but there is a bigger question lurking beneath them: what exactly is the problem with online gambling?

I know opponents of it point to the ease of access and the social problems it could create. But not just do I not think that is a valid reason for banning it, I don’t even think the reason holds up under scrutiny.

Opponents to online gambling are generally the same opponents of gambling in general. They have a strong dislike for it, believing it causes a vast array of social problems including the destruction of family values. This may well be the case, but it is also an extremely paternalistic point of view. Many Americans enjoy gambling and do so responsibly. Ever since the rise of Las Vegas in the early 1930s, gambling has been an accepted, if sometimes looked down upon, part of life.

The question then becomes whether online gambling poses such a greater risk to society than in-person gambling that it should be banned. On this, the answer is unequivocally no: online gambling may in fact pose less of a risk to society than its brick-and-mortar counterpart. Continue reading “Legalize Online Gambling” →

Dullest Campaign Ever

July 31, 2012Danny Vinik Leave a comment

In David Brooks’s column in the New York Times today, he rattles off 10 reasons why this presidential campaign is so incredibly boring. He rightfully scolds Mitt Romney for running “the closest thing to a policy-free race as any candidate in my lifetime” and criticizes President Obama’s proposals as “small and medium-size retreads.” I disagree with Brooks’s description of the President’s proposals – does he really consider the American Jobs Act small?

But I also think the reason he considers these ideas retreads is that Obama has been in office for four years. He hasn’t been keeping a secret agenda from the American public just to unveil it on the campaign trail. In addition, Democrats have been pushing many of the ideas he supports for years. Policy experts and the media have thoroughly dissected every policy proposal. There isn’t anything new to report.

And even if Romney did reveal which policies he supports, the media would only be able to do so much with it. In all likelihood, those policies would be conservative retreads as well.

But Brooks makes another point that I think is more important:

[T]echnology is making campaigns dumber. BlackBerrys and iPhones mean that campaigns can respond to their opponents minute by minute and hour by hour. The campaigns get lost in tit-for-tat minutiae that nobody outside the bubble cares about. Meanwhile, use of the Internet means that Web videos overshadow candidate speeches and appearances. Video replaces verbal. Tactics eclipse vision.

This is 100 percent true and it’s sad, as I’m not sure there’s much that will change either. If the media collectively decided to ignore the gaffes that attract viewers, then maybe we could break out of this technology-driven monotony. But the majority of viewers are strongly split between Obama and Romney. They want to see passionate speeches from the candidate they support and gaffes from the candidate they don’t. They don’t want to see wonky, policy speeches. So if a media station decides to focus on policy over gaffes (ala The Newsroom), it’s just going to see viewership decrease (ala The Newsroom). Welcome to presidential campaigns in the 21st century!