2012 January FIRE Policy News

The January 2012 issue of FIRE Policy News reports on the looming bankruptcy – or will it be a takeover by the state? – of Harrisburg, capital of Pennsylvania. The city’s finances are a mess, at least in part due to a trash incinerator project that doesn’t pay for itself and the city’s purchase of Wild West artifacts for a museum observers say will never be built.

Also in this issue:

• Banks that received federal bailout money ended up approving riskier loans and shifting capital toward risky investments after getting government help, say researches at the Ross School of Business at the University of Michigan.

• The halls of Michigan’s state capitol will be swarmed in the next few months with people looking to change the way state residents buy auto insurance. The bills they’ll discuss--depending on one’s point of view--will either give consumers more choice about the levels of auto coverage they receive or gut a unique system of “no-fault” insurance that offers limitless coverage for injuries sustained in auto accidents.

• A failing program to help home mortgage borrowers is the basis for the newest Obama administration effort to help home mortgage borrowers. Time will tell whether it succeeds or disappoints as much as its predecessor, the Home Affordable Refinance Program.

• Major agricultural interests are pushing for a new form of subsidized crop insurance to be implemented on top of the existing Federal Crop Insurance Corporation. Subsidies to the FCIC already cost taxpayers $8 billion annually.

• An emphasis on confidence as a cause of economic activity instead of a consequence of economic conditions seems to have prevented policymakers from identifying the role Fed actions were playing in undermining the dollar and restraining liquidity. Those assumptions continue to drive federal policy.

• Business writer and market researcher Jack W. Plunkett says there’s good reason for optimism regarding housing and the economy in coming years: Generation Y. “As they continue to mature, once the employment market finally firms up, they will cause a huge spike in household formation that will be extremely positive for both the real estate industry and for retail sectors that sell household goods,” he writes.