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Cato Dispatch for November 16, 2007

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(Links to outside sources were active as of the date of this dispatch; however, not all news sources maintain links to current stories indefinitely. Some links also may require registration.)

House Approves Bill to Restrict Mortgages

"With home foreclosures skyrocketing, the House on Thursday voted to crack down on mortgage lenders by forcing them to get licenses, making them responsible for discovering whether borrowers can really repay and fining them for steering people toward risky subprime loans," CNN reports. "The measures are designed to keep more people from sinking into the current mortgage crisis, where prospective homeowners with shaky credit got mortgages with low interest rates only to see the rates rise and bring monthly mortgages up to prices they could not afford."

In "Our Subprime Fed," Cato senior fellow Gerald P. O'Driscoll, Jr. writes: "In recent years, monetary policy has created an expectation that the Federal Reserve will bail out investors when asset bubbles deflate. The recent crisis in the subprime mortgage market is at least partly the outcome of this new approach to monetary policy. That crisis has already had widespread ramifications for homeowners and investors.

"Today, monetary policy is fostering moral hazard. Monetary policy can generate moral hazard if it is conducted so as to bail investors out of risky and otherwise ill-advised financial commitments. If investors come to expect that the policy will persist, then they will deliberately take on additional risk without demanding commensurately higher returns. In effect, they will lend at the risk-free interest rate on risky projects, or at least at a lower rate than would otherwise be the case. Too much risky lending and investment will take place, and capital will be misallocated."

Dems Debate in Las Vegas

"The post-debate punditry pile-on is almost all favoring Hillary Clinton," reports The Boston Globe. "After appearing dazed and confused under an onslaught of attacks during the Democratic presidential debate on Oct. 30 in Philadelphia, the front-runner in the national polls was much sharper Thursday night in Las Vegas. She followed the age-old strategy of the best defense is a good offense, going after John Edwards and Barack Obama on healthcare and accusing Edwards of mudslinging."

Michael Tanner, author of the Cato book Leviathan on the Right: How Big-Government Conservatism Brought Down the Republican Revolution, comments: "During their debate last night the Democrats seemed to be competing to see who was most in favor of raising taxes and spending more money. Whether they were talking about health care, social security, or anything else, the candidates all seemed to agree that the answer was more and bigger government. The debate may not have done much to change the dynamics of the race -- Hillary Clinton appears to have solidified her front running status -- but it clearly showed how far the Democratic Party has drifted from the days when Bill Clinton declared that 'The era of big government is over.'"

Budget Bills Contain $20 Billion in Pork

"Citizens Against Government Waste, which closely monitors federal spending, is putting the finishing touches on its tally of pork projects in the pending spending bills -- and the picture isn't pretty," The Politico reports. "The group estimates that there will be at least 8,000 earmarks this year, costing U.S. taxpayers, $18 billion to $20 billion."

In "A Reality Check on Earmark Reform," Stephen Slivinski, Cato's director of budget studies, writes: "Earmark transparency is merely a beginning. A good first step for sure, but hardly the endgame of fundamental budget reform. Future reforms should create an incentive to actually reduce the scope of government overall. In the meantime, it's important to remember that as long as a culture of spending persists in Washington %u2013 fueled by a budget process that allows Uncle Sam to be all things to all people %u2013 then no matter who is in power, earmarking in some form will always be with us."

Jacob Grier, editor, jgrier@cato.org