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Why Fannie and Freddie Should Exist in the New Mortgage Market

Posted on April 11, 2013 by The Progressive Policy Institute

They may be in federal conservatorship, but a funny thing is happening to the two “troubled” mortgage giants, Fannie Mae and Freddie Mac: They are making tons of money.

It’s enough to give federal bailouts a good name.

With double-digit home price appreciation and more buyers coming off the sidelines, there have been fewer defaults and more revenues on GSE (government sponsored enterprises) loan guarantees. That’s translated into a handsome $17.2 billion profit in 2012 for Fannie Mae, while its twin, Freddie Mac, posted gains of $11 billion.

With these eye popping numbers, the game has changed. With profits expected to continue and even rise for the foreseeable future, it is now likely that the $180 billion in taxpayer funds used to bail out the GSEs will be paid back in the next few years. It also puts additional pressure on Congress to figure out the government’s future role in housing, specifically as it relates to the GSEs.

But high-level conversations in Washington, D.C. about reforming (or replacing) the GSEs often center around financing challenges for single-family housing, overlooking the crucial role GSEs have played in commercial real estate lending.

Read the entire article here.

Obama Budget Catching Hell From Both Sides: Why That’s a Good Sign

Posted on April 10, 2013 by The Progressive Policy Institute

In his piece for the Daily Beast, John Avlon quotes PPI President Will Marshall,

“In a panicky reaction to President Obama’s budget, some liberal groups are trying to chain Democrats to a Norquist-style pledge to defend the status quo on entitlements,” says Will Marshall of the Progressive Policy Institute. “It’s dumber than dumb, but at least it shows the country that Obama is trying to rally the center against the enemies of compromise on both sides.”

Read the entire article here.

Privatizing Law and Order

Posted on April 10, 2013 by The Progressive Policy Institute

The gun lobby is shooting sensible gun legislation full of holes. Already, the Senate has dropped a ban on assault weapons and high-capacity magazines, and Rand Paul is threatening to lead another filibuster, this time against stricter background checks.

As the endgame approaches, it’s important to understand the radical vision that underlies pro-gun absolutism. Forget about the Second Amendment—the gun lobby, abetted by timorous Republicans, is trying to privatize law and order.

Maintaining public order is supposed to be government’s job. The sociologist Max Weber considered a “monopoly on the legitimate use of physical force to keep order” to be the defining characteristic of a competent state.

The Republican Party exists to elect people to run the government. Where are the Republicans who will stand for the civilized principle that the government, not private vigilantes, should provide basic law and order? Apart from a few honorable exemptions, such as John McCain, they have been intimidated into silence.

In the gun lobby’s dystopic view, Americans can no longer rely on government to keep them safe, so they have to do the job themselves. When everybody is armed and dangerous, the predators among us won’t be able to find any victims. Banning assault weapons and high-capacity clips is tantamount to unilateral disarmament, since it would leave law-abiding citizens outgunned in their confrontation with thugs and criminals.

Continue reading at the Daily Beast.

Photo credit: Shutterstock

Natural Gas Vehicles: Driving America to a More Prosperous, Secure and Sustainable Future

Posted on April 9, 2013 by The Progressive Policy Institute

There has been a sea change in public attitudes toward natural gas. Not so long ago natural gas was widely viewed as a “bridge fuel” to a future of clean, renewable energy. Now, amid a shale gas boom, many energy analysts regard it as a “foundation fuel” that can power America’s economy in efficient, affordable and environmentally responsible ways for the rest of this century, and possibly beyond.

It is by far the cleanest fossil fuel. Gas produces 50 percent less CO2 than coal2 and 30 percent less CO2 than oil, while also producing significantly less sulfur dioxide, nitrogen oxide and harmful particulate matter. The more we burn natural gas in the place of oil or coal the less we put greenhouse gas emissions into the atmosphere.

Natural gas is also highly efficient. When used directly in America’s homes and businesses, natural gas loses just 8 percent of its useable energy in its journey from the point-of-origin (wellhead) to the point-of-use (burner tip). By contrast, electricity loses approximately 68 percent of its useable energy during the same journey from origin to use.

Thanks to the huge increase in natural gas now being produced from shale rock formations, natural gas is becoming even more abundant. America is now the largest producer of natural gas in the world, with an estimated future supply (reserves plus resources) of approximately 2,170 trillion cubic feet. That’s enough to meet America’s energy needs for more than 85 years. These estimates are based just on current technology. As new production technologies are
developed, this resource base will only grow.

Because natural gas is abundant domestically, it is very affordable. In 2012, oil cost about $15 per MMBtu (million British thermal units) on average, while natural gas cost less than $4 per MMBtu.5 In recent years, natural gas consumers have literally saved millions of dollars on their energy bills. With all of this going for it, more and more American consumers are turning to natural gas for their home heating, water heating, cooking and other energy needs.

Download the entire policy memo.

Forging Consensus on Immigration

Posted on March 25, 2013 by The Progressive Policy Institute

The Bipartisan Framework for Comprehensive Immigration Reform released earlier this year by four Democratic and four Republican senators has been the basis of virtually all the serious discussions about immigration reform going on in Washington these past several weeks. Substantial disagreement has now surfaced over proposed limits on family-based visas as well as over ways to bring in greater numbers of unskilled workers. Yet one topic that may prove to be one of the more nettlesome has thus far received little attention: While the Framework links legalization and eventual naturalization of undocumented immigrants almost entirely to border controls, it neglects what has long been the weakest aspect of immigration enforcement—the workplace. Surprisingly, the Gang of Eight’s many critics have yet to focus on this aspect of their Framework.

Four years ago, as immigration reform fell off the congressional agenda, the Brookings-Duke Immigration Policy Roundtable grappled with precisely these issues. Ours was a deliberative effort involving twenty individuals from the left, right and center—think tank analysts, academics, political and policy entrepreneurs, former government officials, and community leaders—who saw immigration from divergent, even conflicting perspectives. Over the course of a year, we convened regularly and explored our differences in order to determine where we could come together on specific policy proposals. In October 2009 we issued our report, Breaking the Immigration Stalemate. Its findings and recommendations are highly relevant to the Senators’ new push to forge consensus behind comprehensive immigration reform.

When their Bipartisan Framework asserts that “the United States must do a better job of attracting and keeping the world’s best and brightest,” it comes to the same conclusion as did the Brookings-Duke Roundtable—America’s economy demands a policy that supports high-skill immigration. Yet unlike the Senators, we took the next step and considered how to “pay for” those additional newcomers in a political environment where any increase in overall numbers of immigrants meets entrenched resistance. So while the Roundtable called for an additional 150,000 permanent resident visas for skilled workers, we also urged elimination of the controversial Diversity Visa Program, which each year awards 50,000 green cards to the winners of a lottery that the GAO has concluded is vulnerable to fraud.

Download the policy brief.

Guidelines for Federal Housing Administration Reform

Posted on March 22, 2013 by The Progressive Policy Institute

After the housing bubble burst, the Federal Housing Administration (FHA) rapidly expanded the scope of its mortgage insurance well beyond its traditional mission of helping low-to-moderate income, first-time home buyers. Instead of lending directly to borrowers, the FHA insures mortgages in exchange for a premium, and only pays out the cost of those mortgages when borrowers stop making payments. In response to the massive loss of private liquidity, the FHA gained significant market share at a time when banks stopped lending and home prices were still falling. Congress also raised the FHA’s loan limits in order to provide more liquidity, pushing its lending higher up the income scale. The FHA’s intervention resulted in the most severe delinquency and default rates in the agency’s history. Normally self-funded, FHA is facing the possibility of a first-ever bailout, with some estimates as high as $16.3 billion. Now, as home prices have finally started to rebound, pressure is mounting to resolve the FHA’s fate and limit financial losses.

Unsurprisingly, the debate over reforming the FHA has been polarized. Liberals maintain that home prices would have fallen dramatically had the FHA not stepped in when private mortgage insurers and investors retreated from the market. In their view, the FHA provided an important countercyclical function and any taxpayer funds currently needed to make it whole are well worth paying. Conservatives, however, say that FHA‘s emergency lending made homeownership possible for many people, especially in working class neighborhoods, who could not really afford to buy a house. They see the FHA as blocking the return of private capital, wreaking havoc in economically hard-hit neighborhoods, and promoting risky, government-backed lending at a sizeable risk to taxpayers.

That debate, however, is mostly over the past. The critical question now is what should be done to assure FHA’s solvency, and return it to its original mission. U.S. policymakers must decide on a course of action that averts a taxpayer bailout of the FHA and lowers its loan limits to enable private capital to resume its normal role in mortgage lending.

Download the policy brief.

Anatomy of a Special Tax Break and The Case for Broad Corporate Tax Reform

Posted on March 21, 2013 by The Progressive Policy Institute

Washington policymakers turn to broad tax reform perhaps once in a generation, and now may be such a time. Today’s focus is on the corporate code, the source of most of the complexity and many of the economic problems associated with the U.S. tax system. There are many views about what aspects of the corporate code require reform and how to do it. Nevertheless, a consensus has formed that the reforms should simplify the corporate code by phasing out many special preferences and using some or all of the revenues to lower the
corporate tax rate.

This consensus reflects a growing recognition by policymakers and business people of how certain features of the corporate tax code impose burdens on American competitiveness. The feature noted most often is our 35 percent marginal tax rate on corporate profits, the highest of any developed country. The impact of this high marginal rate on competitiveness is exacerbated by the worldwide character of the U.S. tax system: We apply that rate to the worldwide profits of U.S.- based companies, while all but five other nations have territorial tax systems that tax businesses only on the profits earned in their domestic markets. Finally, over many decades, policymakers have created scores of special tax deductions, tax credits and tax exemptions for designated business activities, products or industries. These provisions not only entail costly administrative and compliance burdens for the companies that use them. They also interfere with our markets’ ability to allocate capital and other economic resources to their most productive uses, leaving the overall economy less efficient and productive. Phasing out special tax preferences and using all or most of the additional revenues to lower the corporate tax rate is the most reasonable response to these issues.

Here, we offer a case study of these dynamics using one of the larger and most recently-enacted special tax preferences, Section 199 of the corporate tax code. Since 2005, this provision has provided a special deduction for some of the profits arising from certain designated “domestic production activities.” As we will see, the provision, originally designed for domestic manufacturing, now covers an estimated one-third of corporate economic activities. For example, food processing qualifies, but not retail food businesses—unless the food establishment roasts beans used to brew coffee. That exception allowed Starbucks, for example, to cut its effective tax rate by more than 2 percentage points in 2009. At the same time, the complex terms of Section 199 limit its value to most industries and companies. So, while the provision lowers the effective tax rate of those firms that can claim it – and no one faults a company for taking advantage of a badly-crafted policy – it also induces them to channel their investment and other business decisions in the particular ways required to claim the deduction. As a result, Section 199 distorts the allocation of capital and other critical resources, including entrepreneurial activity, both within and across industries, and for the economy as a whole.

Download the policy memo.

The Great Squeeze Persisted in 2012

Posted on March 20, 2013September 18, 2024 by The Progressive Policy Institute

New PPI research finds young people continued to be squeezed from the labor force in 2012 relative to people age 35 and over. More young people, facing limited job prospects in spite of a broader economic recovery, are being forced to leave or stay out of the workforce. This could have serious long-term implications for the economic well-being an entire generation.

Over 2000-2012, the labor force participation rate for young people aged 16-24 fell by 17 percent, a precipitous fall that was exacerbated by the recession but started well before. Similarly, in 2012 those aged 25-34 were still 4 percent below their labor force participation high in 2000. They are struggling to recapture lost jobs during the formative years of what determines one’s career and earnings potential.

The staggering fall of labor force participation rates for the youngest working age segment of the population cannot be explained solely by increased college enrollment. Had the labor force participation rate remained constant since 2000, I estimate there would have been an additional 4.1 million people aged 16-24 in the labor force in 2011. Meanwhile, BLS data shows college enrollment of people aged 16-24 was 3.2 million higher in 2011 than 2000, and more college students were in the labor force (although the participation rate fell).

Continue reading “The Great Squeeze Persisted in 2012” →

PPI, Zillow and the American Action Forum will host a Housing Forum in Washington, D.C.

Posted on March 18, 2013 by The Progressive Policy Institute

While the housing recovery has been rather uneven across the country, most metros are experiencing some form of home value appreciation and have seen a bottom in home values. But such volatility can be confusing for those in the market and for policy-makers whose decisions are affecting millions of home buyers, sellers and owners. So what is in store for the future of housing demand and mortgage finance? How will the role of investors evolve throughout the housing recovery?

To help answer some of these questions, Zillow®, the leading real estate information marketplace, the Progressive Policy Institute and the American Action Forum will host the half-day “Forum on the Future of Housing: What’s Next for Housing Demand, Mortgage Finance, and Recovery” April 18 at the Knight Conference Center at the Newseum in Washington, D.C.

“Conditions in the housing market have been changing rapidly for the past year, and sometimes it can be hard to keep up,” said Zillow Chief Economist Stan Humphries . “This forum will explore the most significant factors affecting today’s market and will give attendees a handle on what to expect for the rest of this year.”

“Housing has become a potential upside in an economy that is largely moving sideways,” said president of the American Action Forum and former director of the Congressional Budget Office Douglas Holtz-Eakin. “It’s time to develop a comprehensive plan for federal involvement in housing finance. The stakes are enormous. Washington will be well-served to hear from experts in the field on ways to move forward.”

“Bringing together leading experts, influencers and policy-makers in a true bipartisan fashion is a rare occurrence in Washington these days,” said Progressive Policy Institute Fellow for Financial Markets Jason Gold. “A flurry of hearings, bills and proposals have started to emerge from Congress, making this the perfect time to consider how each will impact the ever-changing recovery.”

This will be the third housing forum hosted by Zillow. The first, “America’s Housing Crisis: Private-Sector Responses and Public Policy Innovation,” was held in New York last April, and the second, “California’s Housing Market: Navigating the Post-Bottom Landscape,” was held in San Francisco in September.

Full details of the Washington, D.C., event are below, and guests can register for this free forum at https://futureofhousingforum.eventbrite.com. More information and updates about speakers can be found at www.zillow.com/blog/category/housing-forum.

Forum on the Future of Housing: What’s Next for Housing Demand, Mortgage Finance, and Recovery
April 18, 8 a.m. – 12:30 p.m.
Knight Conference Center at the Newseum
555 Pennsylvania Ave. NW
Washington D.C.

Keynote Addresses by:
The Honorable Johnny Isakson
United States Senator

The Honorable Jeff Merkley
United States Senator

Top Housing Experts in Public and Private Sectors Will Debate and Discuss in Two Panels:

The Future of Housing Demand
Moderated by Diana Olick , CNBC
and
The Future of Mortgage Finance
Moderated by Nick Timiraos , Wall Street Journal

Speakers and panelists include:

Eric Belsky , Managing Director of Joint Center for Housing Studies, Harvard
Amy Bohutinsky , Chief Marketing Officer, Zillow
Mark Calabria , Director of Financial Regulation Studies, Cato Institute
Doug Holtz-Eakin , President, American Action Forum
Mike Fratantoni , Vice President, Mortgage Bankers Association
Jason Gold , Senior Fellow for Financial Markets, Progressive Policy Institute
Laurie Goodman , Senior Managing Director, Amherst Securities Group, L.P.
Jerry Howard , CEO, National Association of Home Builders
Chris Mayer , Paul Milstein Professor of Real Estate, Columbia Business School
Scott Simon , Managing Director, Pacific Investment Management Co.

Special overview of the nation’s housing market by Zillow Chief Economist Stan Humphries .

About Zillow, Inc.
Zillow, Inc. (NASDAQ: Z) operates the largest home-related marketplaces on mobile and the Web, with a complementary portfolio of brands and products that help people find vital information about homes, and connect with the best local professionals. In addition, Zillow operates an industry-leading economics and analytics bureau led by Zillow’s Chief Economist Dr. Stan Humphries. Dr. Humphries and his team of economists and data analysts produce extensive housing data and research covering more than 350 markets at Zillow Real Estate Research. The Zillow, Inc. portfolio includes Zillow.com®, Zillow Mobile, Zillow Mortgage Marketplace, Zillow Rentals, Zillow Digs™, Postlets®, Diverse Solutions®, Buyfolio™, Mortech™ and HotPads™. The company is headquartered in Seattle.

Zillow.com, Zillow, Postlets and Diverse Solutions are registered trademarks of Zillow, Inc. Buyfolio, Mortech, HotPads and Digs are trademarks of Zillow, Inc.

About PPI
The Progressive Policy Institute is an independent, innovative and high-impact D.C.-based think tank founded in 1989. As the original “idea mill” for President Bill Clinton ‘s New Democrats, PPI has a long legacy of promoting break-the-mold ideas aimed at economic growth, national security and modern, performance-based government. Today, PPI’s unique mix of political realism and policy innovation continues to make it a leading source of pragmatic and creative ideas. PPI is a non-profit, 501(c)(3) organization.

About The American Action Forum
The American Action Forum is a center-right policy institute providing data-driven insight and solutions to today’s defining domestic policy challenges. AAF’s products offer forward-thinking, relevant ideas for a better economic future with limited government. The American Action Forum is an independent nonprofit 501(c)(3) organization, and it is not affiliated with or controlled by any political group. Learn more at www.AmericanActionForum.org

Progressive Policy Institute to Host Media Teleconference Featuring Robert Shapiro to Discuss the Case for Broad Corporate Tax Reform

Posted on March 15, 2013 by The Progressive Policy Institute

FOR IMMEDIATE RELEASE

March 15, 2013

PRESS CONTACT: Steven Chlapecka – schlapecka@ppionline.org T: 202.525.3931

Progressive Policy Institute to Host Media Teleconference Featuring Robert Shapiro to Discuss the Case for Broad Corporate Tax Reform

Teleconference to take place in Advance of Release of Shapiro’s Newest Policy Memo: Anatomy of a Special Tax Break and The Case for Broad Corporate Tax Reform

Washington, D.C. – On Wednesday, March 20, 2013 at 11 a.m. EST, join the Progressive Policy Institute and economist Robert Shapiro, chairman of Sonecon LLC and former Under Secretary of Commerce for Economic Affairs. Shapiro will outline findings from his forthcoming PPI policy memo, “Anatomy of a Special Tax Break and The Case for Broad Corporate Tax Reform”. The memo dissects Section 199 as a case study in the way special tax breaks distort economic decisions, add undue complexity and force rates up by leaking revenue.

WHO: Dr. Robert Shapiro, Chairman, Sonecon LLC; Senior Policy Fellow, Georgetown University McDonough School of Business

WHEN: 11 a.m. EST, Wednesday, March 20

Media wishing to participate or interested in an advance copy of the report, contact Steven Chlapecka at 202.525.3931 or schlapecka@ppionline.org.

RSVP to: schlapecka@ppionline.org to receive dial-in information.

– END –

Student Debt Crisis and the Private Sector

Posted on March 14, 2013September 18, 2024 by The Progressive Policy Institute

Does the government have a conflict of interest when it comes to student debt? On one hand, the government fills an important role in providing financial access to higher education. But on the other hand, it needs to deleverage a record-level debt that now amounts to over 70% of GDP.

This question may seem odd given the government’s move to bring the student loan market in-house over the last few years (ending its guarantee program in favor of direct loans). But it may be an important question if we want to develop a politically viable solution to the growing student debt crisis.

Bringing loans in-house saved interest and administrative costs, but it didn’t actually decrease tax payer risk: the government now has $850 billion in student debt exposure on its books, up from $381 billion in 2005. And as tuition keeps rising, public funding keeps falling, and more people pursue college, new debt issuance is growing fast – new government loans were over $100 billion last year. This is potentially problematic, especially given the recent rise in default rates, because it means fewer government assets are available to respond to future crises. Not to mention it leaves tax payers increasingly vulnerable.

Continue reading “Student Debt Crisis and the Private Sector” →

The Bill Clinton and DLC Model For Reinventing the Republican Party

Posted on March 14, 2013 by The Progressive Policy Institute

The Conservative Political Action Conference, a kind of annual camp meeting for the American right, opens in Washington today amid controversy over who’s in the tent and who’s not. Not invited were two prominent GOP governors, Chris Christie and Bob McDonnell, yet the obnoxious Donald Trump managed to snag a ticket.

This was too much for conservative realists, who think the movement can ill afford to shun Republicans who know how to win elections and govern in blue and purple states like New Jersey and Virginia. “When a party is in the minority, it has to add, not subtract,” huffed Jennifer Rubin. “CPAC’s cardinal sin was in foolishly trying to toss out others instead of building the broadest coalition.”

She’s right. Republicans have failed to win the popular vote in five of the last six presidential elections. Their message may sound like the revealed truth to the CPAC faithful, but it repels moderate voters. And they blame their losing streak on bad candidates, inept organizing, insufficient funds, beastly attack ads—everything but what they stand for.

I have seen this movie before, only then, in 1989, it starred the Democrats. As one of the original New Democrats who worked with Bill Clinton to turn the party around, I see some striking parallels between then and now.

Democrats had just come off their third straight presidential loss, this time to a candidate, George H.W. Bush, who seemed like pretty weak tea after the intoxicating Ronald Reagan. Their nominee, Massachusetts Gov. Michael Dukakis, was no left-wing firebrand, but a smart and utterly decent technocrat. Even so, he could not overcome the electorate’s lingering mistrust of ’70s-style economic and cultural liberalism.

In 2012 Republicans likewise nominated a Massachusetts governor who stressed competence over ideology. They also were confident of victory (despite the consistent findings of voter surveys, which apparently get about as much respect from conservatives as climate science) and so were rudely surprised when Obama beat Mitt Romney handily.

Paul Ryan’s Third Strike

Posted on March 13, 2013 by The Progressive Policy Institute

If Rep. Paul Ryan was chastened by his 2012 election defeat, it doesn’t show in his latest budget. It’s a defiant reaffirmation of libertarian dogma that makes no pretense of being a realistic blueprint for governing.

In fact, the House Budget Committee chairman’s new plan aims to shrink government on an even faster timetable than his previous two, balancing the federal budget in 10 years. He proposes to cut public spending by $4.6 trillion over the next decade, but raises nary a penny in new tax revenue.

That of course makes his plan radioactive to Senate Democrats and President Obama, who campaigned and won on explicit promises to take a “balanced” approach to debt reduction. Nonetheless, Ryan seems quite pleased with his handiwork. “We House Republicans have done our part,” he wrote in Tuesday’s Wall Street Journal. “We’re outlining how to solve the greatest problems facing America today.”

Actually, all Ryan’s plan proves is that it is mathematically possible to balance the budget in 10 years with spending cuts alone. So what? You could achieve the same result by raising taxes the same amount. Neither is going to happen. Democrats will never accede to the first, and Republicans will never accede to the second.

Solving the Student Debt Crisis-Deflate the Bubble

Posted on March 11, 2013 by The Progressive Policy Institute

PPI’s Student Debt Investment Fund (SDIF) policy proposal was picked up by Kay Steiger of The Raw Story:

A new proposal published last week claims that creating a new secondary market would to “deflate” the so-called student debt “bubble” by repackaging both public and private student loans for banks to buy and sell.

“The student loan bubble is about to burst,” the authors write in the proposal, released by the center-left think tank Progressive Policy Institute (PPI) last Tuesday. The authors warn that while this proposal wouldn’t tackle the problem of rising student tuition, they do insist this would help tackle the problem of student debt that’s already been taken out, which has recently reached the $1 trillion mark and surpassed both credit card and auto loan debt in America.

“Young college grads have been bearing the brunt of the declining real wages over the last decade, they’re taking jobs that are less skill for less pay, and there’s a hollowing out of those middle-skill jobs,” Diana Carew, an economist at PPI and the lead author on the proposal, told Raw Story. “At the same time, tuition has been rising very rapidly, so they’re less likely to be able to pay in the long term.”

Read the entire article.

Big Data: An Emerging Frontier for Innovation and Policy

Posted on March 11, 2013September 18, 2024 by The Progressive Policy Institute

Michael Mandel participated in a recent OECD conference in Paris, France, Growth, Innovation And Competitiveness: Maximizing The Benefits Of Knowledge-Based Capital. Mandel joined Matteo Pacca of McKinsey & Company and Jakob Haesler of tinyclues for a panel entitled, “‘Big-data: An Emerging Frontier for Innovation and Policy?”. He spoke on trade relating to “Big-data” and its role on generating growth and jobs.

Watch the event webcast.