Commercial Real Estate Finance

Steve Forbes is not a stupid man, so I’ll blame election season for the nonsense he spewed in this article. Please realize that I’m not endorsing a given political party or point of view. I’m just looking at some assertions that leave me wanting someone to seriously debate the issues at hand; rather than just looking for a way to compare Obama and Hoover.

Early in the piece, he writes, “The Depression was triggered by the Smoot-Hawley Tariff, which imposed massive taxes on countless imports.” Really? What about the stock market crash, massive amounts of debt in the economy and a tepid government response (both fiscal and monetary)? Certainly Smoot-Hawley played a roll, as well as these other factors, but loading the whole episode on one piece of legislation boarders on disingenuous.

The article goes on to make similar assertions, all in an effort to cast President Reagan as a hero, Obama as the villain and a newly elected republican legislature (starting in 2011) as our collective savior. All of these things may be true, but the article only supports these points with innuendo and platitudes. Forbes does mention the twin elephants in the room:

“In the 1970s capital disproportionately flowed into energy, commercial real estate, farmland and housing. This time, fueled by government policies to “increase the rate of home ownership,” housing benefited even more than in the Seventies. Over a brief period of time Freddie Mac( FRE – news - people ) and Fannie Mae ( FNM – news -people ) gave implied federal government guarantees to $1.5 trillion in junk paper. Thanks to high-tech financial engineering, Wall Street was able to conjure up instruments to fan the flames even more.”

He does not, however, tell us what to do about any of it. Forbes just wants us to know the republicans have an answer. In reality, the implied government guarantees have been in place for decades, across several administrations and through both Republican and Democratic dominated legislatures. Let’s all remember that the implicit GSE guarantees were made were nationalized in September of 2008, ‘under’ President Bush.

It sounds like the right side of the isle – ether republican or tea party – is starting to rev up the ‘tough love’ economic plank. References like the one Forbes makes to Volker in the early 1980’s make seem to boil the whole mess down to a folksy make-your-bed-and-sleep-in-it answer.

“Ronald Reagan ended these disastrous policies. He gave Federal Reserve Chairman Paul Volcker political cover to slay the inflation dragon, even though it meant putting the country through a painful and politically unpopular recession.”

The point made via slight-of-hand is: we’re going to have to suck it up and be tough about this; clearly a job for a cowboy-esq, macho republican, not one of these Kumbaya singing, mamby-pamby democrats. Again, what’s the real policy recommendation here? Is he saying we should have just let the GSE’s go down the tubes? Any rational person knows that’s ridiculous. If you think the Lehman default was bad, a Fannie default could have caused a depression worse than the 1930’s. Clearly, Forbes is just trying to build the Reagan/Republican connection.

The politics over policy stance is best revealed in his last sentence: “Maybe–just maybe–the new Republican Congress that takes office in January will finally call Ben Bernanke to task for his rubber-dollar superstitions.” Helicopter Ben’s views on monetary policy were well know when Republican President, George W. Bush appointed him! If anything, republicans have tried to marginalize true hard dollar policy advocates like Ron Paul.

The US housing market remains nationalized: the GSE’s make the loans, and the Federal Reserve buys them. I’m yet to hear a single politician, including President Obama, say something constructive about this situation.

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