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Tuesday, December 16, 2008

Lunch With HUD Secretary Steve Preston

Today, I attended a lunch sponsored by the Illinois Chamber of Commerce with current HUD Secretary Steve Preston. Preston is a native of Chicago and so this lunch, downtown, was a sort of homecoming.

During Preston's remarks, he first mentioned that he believes in limited government. He then proceeded to rattle off a laundry list of things that HUD has done both in the community and to help struggling homeowners. He mentioned that HUD has backed about 400,000 loans for borrowers currently struggling to repay their mortgages. He mentioned that HUD helps in providing loan modifications. At one point, he even mentioned that about 90% of all new mortgages are currently being backed by the federal government. This, I read, he thought was a good thing. His conclusion was then that the government was a force for stabilization in real estate. I found his supposition that he is a small government to run counter to the body of his speech. That prompted me to ask this rather provocative question. (I will relay it as close to word for word as I can remember)


I have been in mortgages since 2002. For about three years, mortgages were given to just about anyone with a heartbeat. Now, all those folks are in a position where they can no longer pay them back. You say that you are in favor of smaller government but you also say that government backs 90% of all mortgages. I don't think that's a good thing. That socializes mortgages. There's a mechanism for people that can't pay their mortgage back and its foreclosures. Why are mass foreclosures worse than the government intervention you are proposing?


Now, I felt that Secretary Preston danced around the question a bit. His basic point is not a new one. He said that without the massive government intervention we have seen our economy would really be in free fall. This is the standard answer that any normally small government conservative gives when they are asked to defend the massive government intervention they now back, like the bailout. It's one of those things that is impossible to prove one way or the other. First, I haven't seen the data that I assume he has. Second, we'll never know what would have happened without the bailout. I continue to be skeptical of such an answer. I understand that banks are holding onto much of the money, making acquisitions with much more, and some of it is winding up overseas.

When I first started blogging I talked about folks I called fair weather capitalists. That's how I would classify Secretary Preston. I'm sure he would say that he is a pragmatist. That said, I believe in free markets always. It's not enough to believe in free markets when things are going great. It's exactly when things begin to fall apart that real free market believers believe in free markets. I believe the free market is always the best arbitrator of moving our economy. Secretary Preston would say that this crisis was far too reaching to allow the free market to decide.

For me, free markets always guide us out of the wilderness. Secretary Preston talked about many large corporations that would have failed had we not stepped in. I would say it isn't the government's job to save them. For every corporate failure there is a corporate shark to step in to grab a great merger and/or acquisition deal. That's what the likes of Bank of America have done with many failed banks. When the government props up failure, it also effectively allows the weak to survive when they should be removed.

This debate that I created with my question is one of the central debates in our economy. What is the role of the government in the current crisis? Folks like me can be found on Wall Street, Main Street, and in many business media, but they are scant in the places that matter, within our government. As such, while I made Secretary Preston a bit uncomfortable with the question, ultimately, it is a debate my side will lose.

I also found that Secretary Preston is an example of how it is much easier to be a real small government person when you are given power. Had Preston governed over HUD as a small government conservative, his speech would have been full of examples of how he shrank HUD and made it more efficient. Instead, it was full of the things that HUD did for people. Once in power, small government principles are difficult to implement because it also means weakening your own power and reach.

Finally, I felt as though at the end of his answer to me Secretary Preston did a little pandering. After explaining that we need massive intervention to stop the massive collapse that would have happened without it, he also told me that soon we need to develop the private markets so they can function independently. Where I differ from Secretary Preston is in the idea that we can achieve free market bliss through massive government intervention. I would say such measures are counter productive.


Anonymous said...

Well, tell Steve that while everyone talks about how corrupt Illinois is, just type "hud" on Google Blogs and they will be sure to find a despicable and what we would refer to as an "extorting" HUD HQ. Hope Mr Donovan is able to "clean house". Start with Bush appointees that have been involved in scandal in the past at HUD. And just ask lower level HUD employees if that culture will be missed.

mike volpe said...

whatever corruption there is at HUD, it didn't start with the Bush administration. Silly partisanship is no way to make a point.

Anonymous said...

OK. Then in a bipartisan view there is despicable behavior at HUD by those like Kim Kendrick, in my opinion, think they or HUD is the law. Let me quote a recent blog post on govexec "Upper management, locally, and HQ's, seem to disregard what the laws are anyway. When they are reported as abuse and mismanagement, nothing happens". For our perspective we agree. 4,000,000 violations and only 31 prosecutions, yet they send Conciliation letters and try communicate "let's both drop this" and you donate $5000. Everyone I know says that is extortion. Is it? What happened to being able to confront your Accuser.

In my opinion, HUD is the biggest disgrace in the United States, and I only hope that Mr Donovan is aware of the character that awaits him at HUD.

mike volpe said...

I am not familiar with Kendrick, but corruption is something that I hate. My radar will be up.

Anonymous said... documents the tactis that HUD/FHA uses. The State their just dropped the EXTORTION.

Same past HUD Superstars:

HUD chief resigns amid ethics investigations
Date: March 31, 2008

QUOTE: Housing and Urban Development Secretary Alphonso Jackson resigned Monday, amid multiple ethics investigations and criticism from top lawmakers.... Jackson has recently been accused in a lawsuit of retaliating against housing officials in Philadelphia, Pennsylvania, for blocking a land deal with one of Jackson's friends. The FBI has been investigating allegations that Jackson steered a federal contract to a golfing buddy based in South Carolina.

And More:

HUD Officials Caught Bullying State Employees Members of the Bush Administration have once again been caught strong-arming government officials into abiding by their policies. In an email exchange, two top political appointees at the U.S. Department of Housing and Urban Development (HUD) discussed ways to make the life of Philadelphia's housing director Carl R. Greene miserable after he refused a request to transfer a $2 million piece of city property to a business friend of the HUD Secretary.

"Would you like me to make his life less happy? If so, how?" Orlando J. Cabrera, then-assistant secretary at HUD wrote about Philadelphia housing director Carl R. Greene.
"Take away all of his Federal dollars? : D" responded Kim Kendrick, an assistant secretary who oversaw accessible housing.

HEADLINE: Unfair Housing Acts
HUD is shaking down lenders for billions of dollars in settlements on specious
grounds of racial discrimination, all to justify government as the last line of
defense against moral barbarism.