BuckeyeBlog

…and they seek to punish both.

One thing you can always count on in politics is the consistency of the left to make the market the bad guy.  This theme appears to run throughout soon-to-be-introduced House Bill 3, which had it’s first hearing today – even though there was NO bill.  The actual language should be available for public consumption later this week or early next.

A hand-picked group of three interested parties spoke to the committee members about their perspectives of the proposal.  The group consisted of one liaison for the lenders and two advocates for people facing foreclosure.  Who was missing?

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The Ohio House Committee on Housing and Urban Revitalization held a hearing today on HB 3, a bill to “address the current mortgage foreclosure crisis.”  From what we’ve been able to learn (the bill is still in ‘placeholder’ form), the sponsors would effectively ‘nationalize’ in Ohio the private contract between a home loan borrower and lender, even if the Feds were to pass on this. 

We expect the bill to include a mortgage payment moratorium as well as ’cramdown’ provisions where state judges would be given the power to rewrite mortgage provisions. Together these provisions would change the relative situation of debtor and creditor originally established by contract.  By violating the sanctity of the voluntary private contract that structures the utilization of private property in free market economies, these moratoriums and cramdowns would compel creditors to give up value of their private property for political ends. 

Remember: Socialism is a centrally planned economy in which the government controls all means of production.  By aquiring control over the contracts that utilize private property, goverment is aquiring control of a means of production and subjecting it to the central planning of politics and politicians.  If HB 3 were to become law with these provisions, it would be a step toward socialism in Ohio.

For more on the mortgage foreclosure issue see our new policy brief by Marc Kilmer.  Marc shows how the proposal not only takes a sledgehammer to one of the central tenets of economic freedom in Ohio, is at the same time unconstitutional, redistributes wealth and opportunity from those who pay their mortgages to those who don’t, and is simply the wrong solution for the wrong problem.

The Denver Post reports that Colorado politicians are bent on evading or simply over-riding the state’s constitutional Taxpayer Bill of Rights (aka TABOR or TEL here in Ohio).  Writer John Andrews asked my opinion of what’s at risk if Coloradans acquiesce to these moves:

“Watch out, Colorado. Without TABOR you could end up like Ohio,” warns David Hansen of the Buckeye Institute in Columbus. He describes a “generation-long spending spree” that has turned their low-tax, high-growth state into one with high taxes and no growth, “totally uncompetitive in the 21st century.”

Despite our national march toward socialism, government has nothing to give that it hasn’t first taken away from the private sector.  Growing government can only come at the cost of the private sector.  Colorado’s TABOR limited the growth of government and as a result, it is a state with jobs, growth and prosperity. 

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Cleveland Plain Dealer columnist Sheryl Harris noted in yesterday’s paper that payday lenders are still operating in Ohio, even though the practice was ostensibly banned by lawmakers last year. These lenders are technically in compliance with the law and are still offering loans to people who want them. It’s the market at work — people who want to borrow money will find people to loan it to them. There is nothing wrong with that, regardless of how many laws are passed to ban it.

Of course, the law passed by Ohio politicians seems to have hurt borrowers. As the story noted:

First American customer David Spencer complained to the attorney general that, where he used to pay $75 for a $500 loan, First American charged him a total of $90 to borrow the same amount after the law changed.

The law was enacted in the name of helping consumers. Consumers of payday lenders didn’t need or want the paternalistic law, however. If they were upset with these loans they would have stopped using them. The continued popularity of modified payday lending in Ohio illustrates that politicians aren’t in touch with the needs of those who use these lenders. In fact, the legislative action against lenders made the situation worse for the consumers they were supposedly protecting. Chalk this up as yet another example of politicians’ interference producing the opposite result of what was intended.

Question: Shouldn’t President Obama’s order limiting CEO pay for companies that receive federal dollars apply to all who sit atop institutions getting fat federal checks?  Such as OSU President Gordon Gee, who is reported to be receiving some $2 million in pay this year?     

Afterall, it looks like OSU is getting at least $2 billion in federal tax dollars each year. See here. 

TOPIC FOR ANOTHER DAY: I spent some 30 minutes this morning googling and digging around OSU’s site looking in vain for the amount of federal dollars received by the University.  A pretty simple question that any taxpayer deserves to be able to answer with less effort than this.  Then I googled “US Government spending” and found an answer within 30 seconds.  Maybe it was me that just stumbled on the right search.  Or maybe it’s more systematic. My grades: Fed spending transparency gets an ‘A’, OSU transparency gets an ‘F’ (or whatever it is they give for a failing grade today).

The Columbus Lawyers’ Chapter of the Federalist Society and the Buckeye Institute are joining up to present “The Financial Crisis: Causes & Cures” at noon on Thursday January 29th at the Athletic Club of Columbus. The luncheon program will feature Ohio University Economics Professor and Buckeye Institute Senior Fellow Richard K. Vedder and John Carroll University Adjunct Professor of Economics John F. Burke.

They will discuss the causes of the recent financial crisis, what should be done now, and how to avoid this kind of meltdown in the future. Professors Vedder and Burke will consider the merits of the so-called stimulus plan, its likely impact on Ohioans, and what it all means for the future of limited government. Buckeye Institute Board member and Capital University Law Professor Brad Smith will moderate the program.

The cost of the event is $20 and you can RSVP at willkamb@hotmail.com

The fight over what lesson to take from the roots of the Great Credit Crisis of 2008 is important. The Left’s contention that a lack of government is at cause cannot be allowed to prevail if the consensus over the superiority of neo-liberal, free market economic systems is to survive.

This new piece by AEI’s Peter Wallison puts the truth as succinctly as anything I’ve read:

The current financial crisis is not–as some have said–a crisis of capitalism. It is in fact the opposite, a shattering demonstration that ill-considered government intervention in the private economy can have devastating consequences.

The crisis has its roots in the U.S. government’s efforts to increase homeownership, especially among minority and other underserved or low-income groups, and to do so through hidden financial subsidies rather than direct government expenditures. The story is an example, enlarged to an American scale, of the adverse results that flow from the misuse and manipulation of banking and credit by government.

When this occurs in authoritarian regimes, we deride the outcome as a system of “policy loans” and note with an air of superiority that banks in these countries are weak, credit is limited, and financial crises are frequent. When the same thing happens in the United States, however, we blame “greedy” people, or poor regulation (or none), or credit default swaps, or anything else we can think of–except the government policies that got us into the disaster.

It looks like the fallout from the passage of Issue 5 has begun. At least one payday lender is closing some of its operations, putting 150 people out of work. Of course, those who were supporting Issue 5 claimed payday lenders would stay in business and that jobs wouldn’t be lost. Maybe those who are losing their jobs can go ask Bill Faith if he has a place for them in his organization.

In his column on Sunday in the Cleveland Plain Dealer, Thomas Suddes takes yet another swipe at payday lenders. In doing so he once again illustrates he is unacquainted with the basic facts about how businesses operate. For instance, he trots out the old myth that payday lenders are “obscenely profitable.” To support that claim, he discusses the gross profits of one payday lending company. Sorry, Mr. Suddes, but gross profits don’t mean too much. They are the profits that accrue to a company before deducting a variety of operating expenses. So these gross profits may look large, but once you subtract things like salaries and overhead, payday lenders usually make a profit margin of around 3% to 8%.

This kind of shoddy reporting about payday lending is, unfortunately, par for the course. You have those opposed to payday lending say things that sound bad, such as payday lenders charge 391% APR or they have huge gross profits. While technically true, these things are not really accurate in the sense that they leave a misleading impression. A 391% annual percentage rate is meaningless when you are discussing a two-week loan. Gross profits are a meaningless indicator of how big a company’s profit margin really is. But those who say this either don’t know what they are talking about or are happy to leave such a misleading impression in the average reader’s mind. It’s too bad we can’t have a little more honesty in the debate over Issue 5.

These issues and others are discussed in an issue brief I co-authored with Dr. Tom Lehman.

Perhaps the people over at Progress Ohio didn’t live through the Taft Administration. Or perhaps they are fond of his tax-and-spend brand of Republicanism. Whatever the reason, they are trumpeting the fact that Bob Taft has joined his fellow former governors to endorse restrictions on payday lending.

In his statement, former governor Taft claims that Issue 5 is about financial freedom. I’m sure in his mind a government ban on what types of lending you have access to is indeed financial freedom. Just like his tax increases were probably, in his mind, a way to promote financial freedom. In my view, though, financial freedom comes from less government involvement in my life, not more.

If those opposed to payday lending agree with this kind of backwards thinking and agree that Bob Taft’s endorsement is valuable, then more power to them. It shows their understanding of politics is about as perceptive as their understanding of economics.