There are two
distinct camps of thought regarding the US housing bubble: (a) the government induced
bubble caused by decades of housing market intervention augmented by a cheap
money bubble created by the Federal Reserve 2002-2004, (b) greedy bankers. Regardless of which school
of thought one subscribes to the US housing bubble resulted in a mortgage foreclosures
crisis, resulting in an economic down turn, resulting in millions of lost jobs
and consequentially millions of discouraged workers, with a lingering result of
lost wealth in housing values.
Setting
aside for a moment which school of thought one might subscribe to, congress set
out to mitigate the effects of the now burst bubble and associated cascading consequences
by introducing legislation known as the Housing and Economic Recovery Act
(HERA). Within this particular legislation was a sub component known as the Neighborhood
Stabilization Program (NSP).
The Neighborhood
Stabilization Program was recently studied by The Federal Reserve of Richmond
to find what stabilizing effects the program managed to produce. The title of
the study is: Neighborhood Stabilization –
Putting Policy into Practice. The results? One might want to pay particular
attention to the following which is part of the study’s conclusion:
“….framing
neighborhood stabilization as an emergency relief program posed special
challenges for recipients. Despite its tight deadlines, NSP1 was also
characterized by complex rules and policies, and for indirect recipients, an
additional layer of bureaucracy that stymied quick progress. In addition, the
pressure to obligate funds quickly seems to have forced recipients to choose
the most efficient strategies from the five eligible uses and to change plans
midprogram. As one local government official remarked during our visit, “We
have been so focused on following the NSP1 grant rules and getting the program
up and running that your visit was the first time we have thought about the
broader context of stabilization”. (1)
The
Neighborhood Stabilization Program (NSP), the aim thereof, was to quickly
stabilize a housing market suffering from unprecedented foreclosure rates. That
is to say, the program is politically depicted as causing only positive
externalities with no negative externalities associated. That politicos through
the mechanism of government are quick to point to supposed market based
negative externalities but government based programs are politically framed as
only causing positive externalities. Stated alternatively:
“The point,
rather, is to provide background for asking why the free-rider,
collective-action, externality problems that are regularly identified as
sufficient reason for restricting the role and scope of markets are so seldom
identified as reasons for restricting the role and scope of government”. - Dr. Donald Boudreaux, department of economics
George Mason University (2)
What was
not part of the Federal Reserve of Richmond’s report is a report entitled Chronology:
Neighborhood Stabilization Program, The Modesto Bee, 01/03/2012. One should
take a moment and go to the link below and read the report. It’s a charming
tale of general conflicts of interest, city councilmen and conflict-of-interest-rules,
non-profits with individuals compensated in excess of $400,000, family members
of the participants living in taxpayer renovated structures, exorbitant
spending and extravagant purchases, shoddy workmanship, "egregious
deficiencies", city bureaucrat resignations, the FBI, and HUD's Office of
Inspector General. You’ll laugh, you’ll cry, you’ll kiss your tax dollars
goodbye.
Chronology:
Neighborhood Stabilization Program, The Modesto Bee, 01/03/2012.
Notes:
(1) Community Scope, vol2, Issue 2, 2011, Neighborhood Stabilization - Putting Policy into Practice
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