May 1, 2008
By Alan Pisarski and Ronald D. Utt, Ph.D.
The collapse of the subprime mortgage market in late 2006 set in
motion a chain reaction of economic and financial adversity that
has spread to global financial markets, created depressionlike
conditions in the housing market and pushed the U.S. economy to the
brink of recession.
In response, many in Congress and the executive branch have
proposed new federal spending and credit programs that would
greatly expand the role of government in the economy but do little
to alleviate the distress caused by the financial crisis that has
spread rapidly to nearly all sectors of the economy. …
With the overall economy seemingly blameless for the current
housing market problems, all evidence suggests that something went
terribly wrong in the mortgage market and that it needs to be
repaired to prevent a repeat in the future. ... The history of
federal mortgage finance regulation is largely one of costly
failure. There is no rational reason to expect better results from
more regulation in the future. …
[But] former executives of a major mortgage lender have recently
announced plans to raise $2 billion to buy distressed mortgages at
a discount, restructure them and resell them as performing
mortgages at a profit. Other financial firms are looking to
enter the same market.
For example, the Private National Mortgage Acceptance Company,
or PennyMac, was created for just this purpose. Congress, the U.S.
Treasury and the Federal Reserve should look for ways to encourage
the private sector to create many more such entities, including a
review of relevant tax laws and regulations that may hinder their
Ronald Utt is the
Morgan Senior Research Fellow at The Heritage Foundation.
Washington lawmakers wasted no time turning the collapse of the
I-35W bridge in Minnesota into an opportunity to flog pet policy
prescriptions. Former House Transportation Committee Chairman Don
Young, R-Alaska, wants to raise the gas tax. Sen. Hillary Clinton,
D-N.Y., wants money for Amtrak. Sens. Chuck Hagel, R-Neb., and
Christopher Dodd, D-Conn., want an infrastructure bank imitating
Fannie Mae on steroids, President Bush and Sen. John McCain,
R-Ariz., want earmark money redeployed, and some urge more tolls
and private investment.
While these proposals differ significantly in technique, all
endorse the presumption that the collapse occurred because of
funding deficiencies and that the nation is in the midst of an
infrastructure crisis. The available facts suggest otherwise.
While there may be general merit to a few of the budgetary
proposals floated by some, it isn't apparent that any are of
particular relevance to the I-35W tragedy - in large part because
we don't yet know how or why the bridge failed, or why annual
inspections by trained professionals didn't catch the problem.
We can expect more detail on the inspection process and
government response to it in the months ahead, but evidence to date
suggests that detailed inspections over the past several years -
which identified the bridge as "structurally deficient" - did not
see the problem as serious enough to require weight restrictions or
other emergency efforts.
One report contends that repairs estimated to cost $1.5 million
were recently thought to be sufficient to remedy identified
deficiencies. Moreover, the fact that the I-35W bridge was
undergoing a costly deck renovation when it collapsed also
undermines the claim that funding was a problem.
Indeed, the U.S. Department of Transportation in its "2006
Conditions and Performance Report" reveals significant progress
over the past decade in reducing the number of structurally
deficient bridges. In 1994 18.7 percent of the nation's bridges
were identified as structurally deficient, but that number had
fallen to 13.1 percent by 2004, a 30 percent reduction. It's
important to note as well that the designation "structurally
deficient" implies several gradations of distress, each of which
necessitates different remedies ranging from closure, repair or
more frequent and intense inspections. It doesn't necessarily imply
that there's an immediate safety problem.
Still, the I-35W collapse suggests that federal and state
transportation officials must do better, and the investigation
under way will certainly lead to improvements in the
inspection/remedy process, which seems to have failed to accurately
identify near-term risks. But a better system of risk assessment is
only a part of a solution that will also depend upon the ability of
DOT's to marshal needed resources expeditiously.
A shortage of money for transportation projects isn't the key
problem. Rather, the greatest obstacle will be how to allocate the
existing pile of money among competing "transportation" goals, many
of which have nothing to do with transportation or safety.
State transportation departments once were largely driven by the
clear objective to complete the interstate highway system, begun in
1956 and mostly completed by the early 1980s. But upon completion,
DOTs lost their guiding star. A host of other goals materialized,
such as economic development, employment, regional equity,
transportation choice, sidewalks, trolley cars, earmarks, hiking
trails, national parks and forests, Appalachian poverty,
universities, environment, Mag-Lev railroads and truck parking
These and dozens of other duties have little to do with
mobility, infrastructure quality or safety, but they divert scarce
resources from pressing needs. As a consequence, DOTs are hard
pressed to address legitimate transportation priorities amid the
pressure to accommodate influential constituencies.
What's needed are performance-based transportation programs to
help state DOTs distinguish between the important and the trivial.
Citizens need to hold DOT managers and elected officials
accountable for their success or failure to meet a detailed set of
quantitative performance goals related to congestion relief,
fatalities, safety and quality of existing infrastructure.
In model legislation published by The Heritage Foundation in
January 2007, we noted that such "a plan will include actions to
bring the condition of the state's inadequate bridges ... up to
acceptable levels. Those levels will be strictly monitored and
rated against predefined quantitative performance standards of
We face a serious challenge in the years ahead as many of the
Interstate bridges built before 1970 reach critical ages. The rest
of the Interstate needs reconstruction as well. Some would
recommend greater spending to accommodate both pressing needs and
the other goals that have accumulated over the years. But
implementing quantitative performance standards obviates this
conflict by empowering DOTs to prioritize and fulfill projects in
accordance with these standards - and hold them accountable if they
fail. Can we afford anything less?
Alan Pisarski is an independent consultant in Virginia. Ronald Utt is the Morgan
Senior Research Fellow at The Heritage Foundation.
First appeared in the Examiner
The collapse of the subprime mortgage market in late 2006 set in motion a chain reaction of economic and financial adversity that has spread to global financial markets, created depressionlike conditions in the housing market and pushed the U.S. economy to the brink of recession.
Read More >>
Ronald D. Utt, Ph.D.
Herbert and Joyce Morgan Senior Research Fellow
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