Steven's Blog

The Letter

2009-06-22T10:06:00.001-06:00

A letter from Janet, a woman in Arizona. She writes an open letter to our nation's leadership:

I'm a home grown American citizen, 53, registered Democrat all my life. Before the last presidential election I registered as a Republican because I no longer felt the Democratic Party represents my views or works to pursue issues important to me. Now I no longer feel the Republican Party represents my views or works to pursue issues important to me. The fact is I no longer feel any political party or representative in Washington represents my views or works to pursue the issues important to me. There must be someone. Please tell me who you are. Please stand up and tell me that you are there and that you're willing to fight for our Constitution as it was written. Please stand up now. You might ask yourself what my views and issues are that I would horribly feel so disenfranchised by both major political parties. What kind of nut job am I? Will you please tell me?
Well, these are briefly my views and issues for which I seek representation:
One, illegal immigration. I want you to stop coddling illegal immigrants and secure our borders. Close the underground tunnels. Stop the violence and the trafficking in drugs and people. No amnesty, not again. Been there, done that, no resolution. P.S., I'm not a racist. This isn't to be confused with legal immigration.
Two, the TARP bill, I want it repealed and I want no further funding supplied to it. We told you no, but you did it anyway. I want the remaining unfunded 95% repealed. Freeze, repeal.
Three: Czars, I want the circumvention of our checks and balances stopped immediately. Fire the czars. No more czars. Government officials answer to the process, not to the president. Stop trampling on our Constitution and honor it.
Four, cap and trade. The debate on global warming is not over. There is more to say.
Five, universal healthcare. I will not be rushed into another expensive decision. Don't you dare try to pass this in the middle of the night and then go on break. Slow down!
Six, growing government control. I want states rights and sovereignty fully restored. I want less government in my life, not more. Shrink it down. Mind your own business. You have enough to take care of with your real obligations. Why don't you start there.
Seven, ACORN. I do not want ACORN and its affiliates in charge of our 2010 census. I want them investigated. I also do not want mandatory escrow fees contributed to them every time on every real estate deal that closes. Stop the funding to ACORN and its affiliates pending impartial audits and investigations. I do not trust them with taking the census over with our taxpayer money. I don't trust them with our taxpayer money. Face up to the allegations against them and get it resolved before taxpayers get any more involved with them. If it walks like a duck and talks like a duck, hello. Stop protecting your political buddies. You work for us, the people. Investigate.
Eight, redistribution of wealth. No, no, no. I work for my money. It is mine. I have always worked for people with more money than I have because they gave me jobs. That is the only redistribution of wealth that I will support. I never got a job from a poor person. Why do you want me to hate my employers? Why ‑‑ what do you have against shareholders making a profit?
Nine, charitable contributions. Although I never got a job from a poor person, I have helped many in need. Charity belongs in our local communities, where we know our needs best and can use our local talent and our local resources. Butt out, please. We want to do it ourselves.
Ten, corporate bailouts. Knock it off. Sink or swim like the rest of us. If there are hard times ahead, we'll be better off just getting into it and letting the strong survive. Quick and painful. Have you ever ripped off a Band‑Aid? We will pull together. Great things happen in America under great hardship. Give us the chance to innovate. We cannot disappoint you more than you have disappointed us.
Eleven, transparency and accountability. How about it? No, really, how about it? Let's have it. Let's say we give the buzzwords a rest and have some straight honest talk. Please try ‑‑ please stop manipulating and trying to appease me with clever wording. I am not the idiot you obviously take me for. Stop sneaking around and meeting in back rooms making deals with your friends. It will only be a prelude to your criminal investigation. Stop hiding things from me.
Twelve, unprecedented quick spending. Stop it now.
Take a breath. Listen to the people. Let's just slow down and get some input from some nonpoliticians on the subject. Stop making everything an emergency. Stop speed reading our bills into law. I am not an activist. I am not a community organizer. Nor am I a terrorist, a militant or a violent person. I am a parent and a grandparent. I work. I'm busy. I'm busy. I am busy, and I am tired. I thought we elected competent people to take care of the business of government so that we could work, raise our families, pay our bills, have a little recreation, complain about taxes, endure our hardships, pursue our personal goals, cut our lawn, wash our cars on the weekends and be responsible contributing members of society and teach our children to be the same all while living in the home of the free and land of the brave.
I entrusted you with upholding the Constitution. I believed in the checks and balances to keep from getting far off course. What happened? You are very far off course. Do you really think I find humor in the hiring of a speed reader to unintelligently ramble all through a bill that you signed into law without knowing what it contained? I do not. It is a mockery of the responsibility I have entrusted to you. It is a slap in the face. I am not laughing at your arrogance. Why is it that I feel as if you would not trust me to make a single decision about my own life and how I would live it but you should expect that I should trust you with the debt that you have laid on all of us and our children. We did not want the TARP bill. We said no. We would repeal it if we could. I am sure that we still cannot. There is such urgency and recklessness in all of the recent spending.
From my perspective, it seems that all of you have gone insane. I also know that I am far from alone in these feelings. Do you honestly feel that your current pursuits have merit to patriotic Americans? We want it to stop. We want to put the brakes on everything that is being rushed by us and forced upon us. We want our voice back. You have forced us to put our lives on hold to straighten out the mess that you are making. We will have to give up our vacations, our time spent with our children, any relaxation time we may have had and money we cannot afford to spend on you to bring our concerns to Washington. Our president often knows all the right buzzword is unsustainable. Well, no kidding. How many tens of thousands of dollars did the focus group cost to come up with that word? We don't want your overpriced words. Stop treating us like we're morons.
We want all of you to stop focusing on your reelection and do the job we want done, not the job you want done or the job your party wants done. You work for us and at this rate I guarantee you not for long because we are coming. We will be heard and we will be represented. You think we're so busy with our lives that we will never come for you? We are the formerly silent majority, all of us who quietly work , pay taxes, obey the law, vote, save money, keep our noses to the grindstone and we are now looking up at you. You have awakened us, the patriotic spirit so strong and so powerful that it had been sleeping too long. You have pushed us too far. Our numbers are great. They may surprise you. For every one of us who will be there, there will be hundreds more that could not come. Unlike you, we have their trust. We will represent them honestly, rest assured. They will be at the polls on voting day to usher you out of office. We have cancelled vacations. We will use our last few dollars saved. We will find the representation among us and a grassroots campaign will flourish. We didn't ask for this fight. But the gloves are coming off. We do not come in violence, but we are angry. You will represent us or you will be replaced with someone who will. There are candidates among us who will rise like a Phoenix from the ashes that you have made of our constitution.
Democrat, Republican, independent, libertarian. Understand this. We don't care. Political parties are meaningless to us. Patriotic Americans are willing to do right by us and our Constitution and that is all that matters to us now. We are going to fire all of you who abuse power and seek more. It is not your power. It is ours and we want it back. We entrusted you with it and you abused it. You are dishonorable. You are dishonest. As Americans we are ashamed of you. You have brought shame to us. If you are not representing the wants and needs of your constituency loudly and consistently, in spite of the objections of your party, you will be fired. Did you hear? We no longer care about your political parties. You need to be loyal to us, not to them. Because we will get you fired and they will not save you. If you do or can represent me, my issues, my views, please stand up. Make your identity known. You need to make some noise about it. Speak up. I need to know who you are. If you do not speak up, you will be herded out with the rest of the sheep and we will replace the whole damn congress if need be one by one. We are coming. Are we coming for you? Who do you represent? What do you represent? Listen. Because we are coming. We the people are coming.

How to explain the stimulus bill -- in a nutshell!!

2009-02-26T14:09:00.001-07:00

Shortly after class, an economics student approaches his economics professor and says,

"I don't understand this stimulus bill. Can you explain it to me?"

The professor replied, "I don't have any time to explain it at my office, but if you come over to my house on Saturday and help me with my weekend project, I'll be glad to explain it to you." The student agreed.

At the agreed-upon time, the student showed up at the professor's house. The professor stated that the weekend project involved his backyard pool.

They both went out back to the pool, and the professor handed the student a bucket. Demonstrating with his own bucket, the professor said, "First, go over to the deep end, and fill your bucket with as much water as you can." The student did as he was instructed.

The professor then continued, "Follow me over to the shallow end, and then dump all the water from your bucket into it." The student was naturally confused, but did as he was told.

The professor then explained they were going to do this many more times, and began walking back to the deep end of the pool.

The confused student asked, "Excuse me, but why are we doing this?"

The professor matter-of-factly stated that he was trying to make the shallow end much deeper.

The student didn't think the economics professor was serious, but figured that he would find out the real story soon enough.

However, after the 6th trip between the shallow end and the deep end, the student began to become worried that his economics professor had gone mad. The student finally replied, "All we're doing is wasting valuable time and effort on unproductive pursuits. Even worse, when this process is all over, everything will be at the same level it was before, so all you'll really have accomplished is the destruction of what could have been truly productive action!"

The professor put down his bucket and replied with a smile, "Congratulations. You now understand the stimulus bill."

Sydney Financial Group

2009-02-07T11:30:00.002-07:00

I just got off the phone with Jeremy Hoop, a representative from Sydney Financial Group. A company what claims they can help you pay off your mortgage faster. The basic concept I understand and agree with. What I don't like is how one Jeremy treated me on the phone call. To solve my concerns he catagived me into people like me, rather then helping thinking thru the logic. I have been familiar with the basic logic of their system for a few years. In fact if they had a different payment system I would have tried it for a while to see if it works. They don't do that. What they do is do a one lump sum payment of $3,500.00 for a life time membership. And they give a guarntee. The guarntee is that their software does the calculations to get you out of debt faster then anyone with their correct calculations. But their is no standard to test that guarntee. So if find out it does not work, or does not fit your life style, you are just tought out of luck. In my personal opinion the reason you have to do a one lump sum payment is because either it does not work, or there are problems with customer satifaction. Which if it was on a monthly subscribtion bases, they just lost your subscription because you are not happy. I am bring this up because Jeremy compaired to doing this with faith. In a religous context, a religion does not say an all or nothing clause, I admit there are some out there put they are generally religions that are trying to control people. Religions let you grow into them. They start with something small, say don't steal, and principle upon principle you grow in understanding and practices you choose to follow. Not you won't do this, so we will not do anything with you.

50 De-Stimulating Facts

2009-02-06T16:19:00.000-07:00

50 De-Stimulating Facts
Chapter and verse on a bad bill.
By Stephen Spruiell & Kevin Williamson
Senate Democrats acknowledged Wednesday that they do not have the votes to pass the stimulus bill in its current form. This is unexpected good news. The House passed the stimulus package with zero Republican votes (and even a few Democratic defections), but few expected Senate Republicans (of whom there are only 41) to present a unified front. A few moderate Democrats have reportedly joined them.The idea that the government can spend the economy out of a recession is highly questionable, and even with Senate moderates pushing for changes, the current package is unlikely to see much improvement. Nevertheless, this presents an opportunity to remove some of the most egregious spending, to shrink some programs, and to add guidelines where the initial bill called for a blank check. Here are 50 of the most outrageous items in the stimulus package:VARIOUS LEFT-WINGERYThe easiest targets in the stimulus bill are the ones that were clearly thrown in as a sop to one liberal cause or another, even though the proposed spending would have little to no stimulative effect. The National Endowment for the Arts, for example, is in line for $50 million, increasing its total budget by a third. The unemployed can fill their days attending abstract-film festivals and sitar concerts.
Then there are the usual welfare-expansion programs that sound nice but repeatedly fail cost-benefit analyses. The bill provides $380 million to set up a rainy-day fund for a nutrition program that serves low-income women and children, and $300 million for grants to combat violence against women. Laudable goals, perhaps, but where’s the economic stimulus? And the bill would double the amount spent on federal child-care subsidies. Brian Riedl, a budget expert with the Heritage Foundation, quips, “Maybe it’s to help future Obama cabinet secretaries, so that they don’t have to pay taxes on their nannies.”Perhaps spending $6 billion on university building projects will put some unemployed construction workers to work, but how does a $15 billion expansion of the Pell Grant program meet the standard of “temporary, timely, and targeted”? Another provision would allocate an extra $1.2 billion to a “youth” summer-jobs program—and increase the age-eligibility limit from 21 to 24. Federal job-training programs—despite a long track record of failure—come in for $4 billion total in additional funding through the stimulus.Of course, it wouldn’t be a liberal wish list if it didn’t include something for ACORN, and sure enough, there is $5.2 billion for community-development block grants and “neighborhood stabilization activities,” which ACORN is eligible to apply for. Finally, the bill allocates $650 million for activities related to the switch from analog to digital TV, including $90 million to educate “vulnerable populations” that they need to go out and get their converter boxes or lose their TV signals. Obviously, this is stimulative stuff: Any economist will tell you that you can’t get higher productivity and economic growth without access to reruns of Family Feud.Summary:$50 million for the National Endowment for the Arts$380 million in the Senate bill for the Women, Infants and Children program$300 million for grants to combat violence against women$2 billion for federal child-care block grants$6 billion for university building projects$15 billion for boosting Pell Grant college scholarships$4 billion for job-training programs, including $1.2 billion for “youths” up to the age of 24$1 billion for community-development block grants$4.2 billion for “neighborhood stabilization activities”$650 million for digital-TV coupons; $90 million to educate “vulnerable populations”
POORLY DESIGNED TAX RELIEFThe stimulus package’s tax provisions are poorly designed and should be replaced with something closer to what the Republican Study Committee in the House has proposed. Obama would extend some of the business tax credits included in the stimulus bill Congress passed about a year ago, and this is good as far as it goes. The RSC plan, however, also calls for a cut in the corporate-tax rate that could be expected to boost wages, lower prices, and increase profits, stimulating economic activity across the board.The RSC plan also calls for a 5 percent across-the-board income-tax cut, which would increase productivity by providing additional incentives to save, work, and invest. An across-the-board payroll-tax cut might make even more sense, especially for low- to middle-income workers who don’t make enough to pay income taxes. Obama’s “Making Work Pay” tax credit is aimed at helping these workers, but it uses a rebate check instead of a rate cut. Rebate checks are not effective stimulus, as we discovered last spring: They might boost consumption, a little, but that’s all they do.
Finally, the RSC proposal provides direct tax relief to strapped families by expanding the child tax credit, reducing taxes on parents’ investment in the next generation of taxpayers. Obama’s expansion of the child tax credit is not nearly as ambitious. Overall, his plan adds up to a lot of forgone revenue without much stimulus to show for it. Senators should push for the tax relief to be better designed.Summary:$15 billion for business-loss carry-backs$145 billion for “Making Work Pay” tax credits$83 billion for the earned income creditSTIMULUS FOR THE GOVERNMENTEven as their budgets were growing robustly during the Bush administration, many federal agencies couldn’t find the money to keep up with repairs—at least that’s the conclusion one is forced to draw from looking at the stimulus bill. Apparently the entire capital is a shambles. Congress has already removed $200 million to fix up the National Mall after word of that provision leaked out and attracted scorn. But one fixture of the mall—the Smithsonian—dodged the ax: It’s slated to receive $150 million for renovations.The stimulus package is packed with approximately $7 billion worth of federal building projects, including $34 million to fix up the Commerce Department, $500 million for improvements to National Institutes of Health facilities, and $44 million for repairs at the Department of Agriculture. The Agriculture Department would also get $350 million for new computers—the better to calculate all the new farm subsidies in the bill (see “Pure pork” below).One theme in this bill is superfluous spending items coated with green sugar to make them more palatable. Both NASA and NOAA come in for appropriations that properly belong in the regular budget, but this spending apparently qualifies for the stimulus bill because part of the money from each allocation is reserved for climate-change research. For instance, the bill grants NASA $450 million, but it states that the agency must spend at least $200 million on “climate-research missions,” which raises the question: Is there global warming in space?The bottom line is that there is a way to fund government agencies, and that is the federal budget, not an “emergency” stimulus package. As Riedl puts it, “Amount allocated to the Census Bureau? $1 billion. Jobs created? None.”Summary:$150 million for the Smithsonian$34 million to renovate the Department of Commerce headquarters$500 million for improvement projects for National Institutes of Health facilities$44 million for repairs to Department of Agriculture headquarters$350 million for Agriculture Department computers$88 million to help move the Public Health Service into a new building$448 million for constructing a new Homeland Security Department headquarters$600 million to convert the federal auto fleet to hybrids$450 million for NASA (carve-out for “climate-research missions”)$600 million for NOAA (carve-out for “climate modeling”)$1 billion for the Census BureauINCOME TRANSFERSA big chunk of the stimulus package is designed not to create wealth but to spread it around. It contains $89 billion in Medicaid extensions and $36 billion in expanded unemployment benefits—and this is in addition to the state-budget bailout (see “Rewarding state irresponsibility” below).The Medicaid extension is structured as a temporary increase in the federal match, but make no mistake: Like many spending increases in the stimulus package, this one has a good chance of becoming permanent. As for extending unemployment benefits through the downturn, it might be a good idea for other reasons, but it wouldn’t stimulate economic growth: It would provide an incentive for job-seekers to delay reentry into the workforce.Summary:$89 billion for Medicaid$30 billion for COBRA insurance extension$36 billion for expanded unemployment benefits$20 billion for food stampsPURE PORKThe problem with trying to spend $1 trillion quickly is that you end up wasting a lot of it. Take, for instance, the proposed $4.5 billion addition to the U.S. Army Corps of Engineers budget. Not only does this effectively double the Corps’ budget overnight, but it adds to the Corps’ $3.2 billion unobligated balance—money that has been appropriated, but that the Corps has not yet figured out how to spend. Keep in mind, this is an agency that is often criticized for wasting taxpayers’ money. “They cannot spend that money wisely,” says Steve Ellis of Taxpayers for Common Sense. “I don’t even think they can spend that much money unwisely.”Speaking of spending money unwisely, the stimulus bill adds another $850 million for Amtrak, the railroad that can’t turn a profit. There’s also $1.7 billion for “critical deferred maintenance needs” in the National Park System, and $55 million for the preservation of historic landmarks. Also, the U.S. Coast Guard needs $87 million for a polar icebreaking ship—maybe global warming isn’t working fast enough.It should come as no surprise that rural communities—those parts of the nation that were hardest hit by rampant real-estate speculation and the collapse of the investment-banking industry—are in dire need of an additional $7.6 billion for “advancement programs.” Congress passed a $300 billion farm bill last year, but apparently that wasn’t enough. This bill provides additional subsidies for farmers, including $150 million for producers of livestock, honeybees, and farm-raised fish.Summary:$4.5 billion for U.S. Army Corps of Engineers$850 million for Amtrak$87 million for a polar icebreaking ship$1.7 billion for the National Park System$55 million for Historic Preservation Fund$7.6 billion for “rural community advancement programs”$150 million for agricultural-commodity purchases$150 million for “producers of livestock, honeybees, and farm-raised fish”RENEWABLE WASTEOpen up the section of the stimulus devoted to renewable energy and what you find is anti-stimulus: billions of dollars allocated to money-losing technologies that have not proven cost-efficient despite decades of government support. “Green energy” is not a new idea, Riedl points out. The government has poured billions into loan-guarantees and subsidies and has even mandated the use of ethanol in gasoline, to no avail. “It is the triumph of hope over experience,” he says, “to think that the next $20 billion will magically transform the economy.”Many of the renewable-energy projects in the stimulus bill are duplicative. It sets aside $3.5 billion for energy efficiency and conservation block grants, and $3.4 billion for the State Energy Program. What’s the difference? Well, energy efficiency and conservation block grants “assist eligible entities in implementing energy efficiency and conservation strategies,” while the State Energy Program “provides funding to states to design and carry out their own energy efficiency and renewable energy programs.”While some programs would spend lavishly on technologies that are proven failures, others would spend too little to make a difference. The stimulus would spend $4.5 billion to modernize the nation’s electricity grid. But as Robert Samuelson has pointed out, “An industry study in 2004—surely outdated—put the price tag of modernizing the grid at $165 billion.” Most important, the stimulus bill is not the place to make these changes. There is a regular authorization process for energy spending; Obama is just trying to take a shortcut around it.Summary:$2 billion for renewable-energy research ($400 million for global-warming research)$2 billion for a “clean coal” power plant in Illinois$6.2 billion for the Weatherization Assistance Program$3.5 billion for energy-efficiency and conservation block grants$3.4 billion for the State Energy Program$200 million for state and local electric-transport projects$300 million for energy-efficient-appliance rebate programs$400 million for hybrid cars for state and local governments$1 billion for the manufacturing of advanced batteries$1.5 billion for green-technology loan guarantees$8 billion for innovative-technology loan-guarantee program$2.4 billion for carbon-capture demonstration projects$4.5 billion for electricity gridREWARDING STATE IRRESPONSIBILITYOne of the ugliest aspects of the stimulus package is a bailout for spendthrift state legislatures. Remember the old fable about the ant and the grasshopper? In Aesop’s version, the happy-go-lucky grasshopper realizes the error of his ways when winter comes and he goes hungry while the industrious ant lives on his stores. In Obama’s version, the federal government levies a tax on the ant and redistributes his wealth to the party-hearty grasshopper, who just happens to belong to a government-employees’ union. This happens through something called the “State Fiscal Stabilization Fund,” by which taxpayers in the states that have exercised financial discipline are raided to subsidize Democratic-leaning Electoral College powerhouses—e.g., California—that have spent their way into big trouble.The state-bailout fund has a built-in provision to channel the money to the Democrats’ most reliable group of campaign donors: the teachers’ unions. The current bill requires that a fixed percentage of the bailout money go toward ensuring that school budgets are not reduced below 2006 levels. Given that the fastest-growing segment of public-school expense is administrators’ salaries—not teachers’ pay, not direct spending on classroom learning—this is a requirement that has almost nothing to do with ensuring high-quality education and everything to do with ensuring that the school bureaucracy continues to be a cash cow for Democrats.Setting aside this obvious sop to Democratic constituencies, the State Fiscal Stabilization Fund is problematic in that it creates a moral hazard by punishing the thrifty to subsidize the extravagant. California, which has suffered the fiscal one-two punch of a liberal, populist Republican governor and a spendthrift Democratic legislature, is in the worst shape, but even this fiduciary felon would have only to scale back spending to Gray Davis–era levels to eliminate its looming deficit. (The Davis years are not remembered as being especially austere.) Pennsylvania is looking to offload much of its bloated corrections-system budget onto Uncle Sam in order to shunt funds to Gov. Ed Rendell’s allies at the county-government level, who will use that largesse to put off making hard budgetary calls and necessary reforms. Alaska is looking for a billion bucks, including $630 million for transportation projects—not a great sign for the state that brought us the “Bridge to Nowhere” fiasco.Other features leap out: Of the $4 billion set aside for the Community Oriented Policing Services—COPS—program, half is allocated for communities of fewer than 150,000 people. That’s $2 billion to fight nonexistent crime waves in places like Frog Suck, Wyo., and Hoople, N.D.The great French economist Frédéric Bastiat called politics “the great fiction through which everybody endeavors to live at the expense of everybody else.” But who pays for the state bailout? Savers will pay to bail out spenders, and future generations will pay to bail out the undisciplined present.In sum, this is an $80 billion boondoggle that is going to reward the irresponsible and help state governments evade a needed reordering of their financial priorities. And the money has to come from somewhere: At best, we’re just shifting money around from jurisdiction to jurisdiction, robbing a relatively prudent Cheyenne to pay an incontinent Albany. If we want more ants and fewer grasshoppers, let the prodigal governors get a little hungry.Summary:$79 billion for State Fiscal Stabilization Fund— Stephen Spruiell is a staff reporter for National Review Online. Kevin Williamson is a deputy managing editor of National Review.

Friendship

2009-01-30T19:24:00.000-07:00

"There is nothing on this earth more to be prized than true friendship."

Saint Thomas Aquinas

My New Spread the Wealth Grading Policy

2009-01-26T10:21:00.001-07:00

My New Spread the Wealth Grading Policy
Mike S. AdamsMonday, January 26, 2009
Good afternoon students! I’m writing you this email to announce that I’m making some changes in the grading policies I announced two weeks ago when I sent an email with an attached course syllabus. As you know, we now have a new president and I thought it would be nice to align our class policies with some of the policies he will be implementing over the next four years. These will be changes you can believe in and, I hope, changes that will inspire hope, which is our most important American value.
Previously, I announced that I would use a ten-point grading scale, which means that 90% of 100 is an “A,” 80% is a “B,” 70% is a “C,” and 60% is enough for a passing grade of “D.” I also announced that I will refrain from using a “plus/minus” system – even though the faculty handbook gives me that option.
The new policy I am announcing today is that those who score above 90 on the first exam will have points deducted and given to students at the bottom of the grade distribution. For example, if a student gets a 99, I will then deduct nine points and give them to the person with the lowest grade. If a person scores 95 I will then deduct five points and give them to the person with the second lowest grade. If someone scores 93 I will then deduct three points and give them to the next lowest person. And so on.
My point, rather obviously, is that any points above 90 are really not needed since you have an “A” regardless of whether you score 90 or 99. Nor am I convinced that you need to “save” those points for a rainy day. Those who are failing, however, need the points – not unlike the failing banks and automakers that need money to avoid the danger of bankruptcy.
After our second examination, I intend to take a more complex approach to the practice of grade redistribution. I will not be looking at your second test scores but, instead, at the average of your first two test scores. In the process, I may well decide to start taking some points from students in the “B” range. For example, if someone has an average of 85 after two tests I may take a few points and give them away to someone who is failing or who is in danger of failing. I think this is fair because the person with an 85 average is probably unlikely to climb up to an “A” or fall down to a “C.” I may be wrong in some individual cases but, of course, my principal concern is not the individual.
By the end of the semester I will abandon any formal guidelines and just redistribute points in a way that seems just, or fair, to me. I will not rely upon any standards other than my very strong and passionate feelings concerning social justice. In the process, I will not merely seek to eliminate inequality. I will also seek to eliminate the possibility of failure.
I know some are concerned that my system may impact their lives in a very profound way. Grade redistribution will undoubtedly cause some grade point average redistribution. And this, in turn, will mean that some people will not get into the law school or medical school of their choice. Or maybe some day you will be represented by a lawyer – or operated on by a doctor – who is not of the highest quality.
These are all, of course, legitimate long-term concerns. But I believe we need to remain focused on the short term. I think my new system will immediately help the self-esteem of those failing or in danger of failing. It should also help the self-esteem of those who are not in danger of failing. After all, it just feels good to give – even if the giving is compelled and not really “giving” in the literal sense.
Finally, I want to note that this idea was also inspired by a former presidential candidate named George McGovern. In a debate with the late William F. Buckley, McGovern said that people who earn more money should pay more taxes. Buckley replied that the rich do pay more in taxes – and more as a percentage of their income. McGovern looked confused.
But I don’t think there’s anything confusing about our pending social responsibilities. Whether we are talking about income or grades it does not matter how much or what percentage we are giving. The question is and should always be “Can we give more?”
Copyright © 2008 Salem Web Network. All Rights Reserved.

'Atlas Shrugged': From Fiction to Fact in 52 Years

2009-01-14T12:49:00.001-07:00

'Atlas Shrugged': From Fiction to Fact in 52 Years
By STEPHEN MOORE
Some years ago when I worked at the libertarian Cato Institute, we used to label any new hire who had not yet read "Atlas Shrugged" a "virgin." Being conversant in Ayn Rand's classic novel about the economic carnage caused by big government run amok was practically a job requirement. If only "Atlas" were required reading for every member of Congress and political appointee in the Obama administration. I'm confident that we'd get out of the current financial mess a lot faster.
Many of us who know Rand's work have noticed that with each passing week, and with each successive bailout plan and economic-stimulus scheme out of Washington, our current politicians are committing the very acts of economic lunacy that "Atlas Shrugged" parodied in 1957, when this 1,000-page novel was first published and became an instant hit.
Rand, who had come to America from Soviet Russia with striking insights into totalitarianism and the destructiveness of socialism, was already a celebrity. The left, naturally, hated her. But as recently as 1991, a survey by the Library of Congress and the Book of the Month Club found that readers rated "Atlas" as the second-most influential book in their lives, behind only the Bible.
For the uninitiated, the moral of the story is simply this: Politicians invariably respond to crises -- that in most cases they themselves created -- by spawning new government programs, laws and regulations. These, in turn, generate more havoc and poverty, which inspires the politicians to create more programs . . . and the downward spiral repeats itself until the productive sectors of the economy collapse under the collective weight of taxes and other burdens imposed in the name of fairness, equality and do-goodism.
In the book, these relentless wealth redistributionists and their programs are disparaged as "the looters and their laws." Every new act of government futility and stupidity carries with it a benevolent-sounding title. These include the "Anti-Greed Act" to redistribute income (sounds like Charlie Rangel's promises soak-the-rich tax bill) and the "Equalization of Opportunity Act" to prevent people from starting more than one business (to give other people a chance). My personal favorite, the "Anti Dog-Eat-Dog Act," aims to restrict cut-throat competition between firms and thus slow the wave of business bankruptcies. Why didn't Hank Paulson think of that?
These acts and edicts sound farcical, yes, but no more so than the actual events in Washington, circa 2008. We already have been served up the $700 billion "Emergency Economic Stabilization Act" and the "Auto Industry Financing and Restructuring Act." Now that Barack Obama is in town, he will soon sign into law with great urgency the "American Recovery and Reinvestment Plan." This latest Hail Mary pass will increase the federal budget (which has already expanded by $1.5 trillion in eight years under George Bush) by an additional $1 trillion -- in roughly his first 100 days in office.
The current economic strategy is right out of "Atlas Shrugged": The more incompetent you are in business, the more handouts the politicians will bestow on you. That's the justification for the $2 trillion of subsidies doled out already to keep afloat distressed insurance companies, banks, Wall Street investment houses, and auto companies -- while standing next in line for their share of the booty are real-estate developers, the steel industry, chemical companies, airlines, ethanol producers, construction firms and even catfish farmers. With each successive bailout to "calm the markets," another trillion of national wealth is subsequently lost. Yet, as "Atlas" grimly foretold, we now treat the incompetent who wreck their companies as victims, while those resourceful business owners who manage to make a profit are portrayed as recipients of illegitimate "windfalls."
When Rand was writing in the 1950s, one of the pillars of American industrial might was the railroads. In her novel the railroad owner, Dagny Taggart, an enterprising industrialist, has a FedEx-like vision for expansion and first-rate service by rail. But she is continuously badgered, cajoled, taxed, ruled and regulated -- always in the public interest -- into bankruptcy. Sound far-fetched? On the day I sat down to write this ode to "Atlas," a Wall Street Journal headline blared: "Rail Shippers Ask Congress to Regulate Freight Prices."
In one chapter of the book, an entrepreneur invents a new miracle metal -- stronger but lighter than steel. The government immediately appropriates the invention in "the public good." The politicians demand that the metal inventor come to Washington and sign over ownership of his invention or lose everything.
The scene is eerily similar to an event late last year when six bank presidents were summoned by Treasury Secretary Hank Paulson to Washington, and then shuttled into a conference room and told, in effect, that they could not leave until they collectively signed a document handing over percentages of their future profits to the government. The Treasury folks insisted that this shakedown, too, was all in "the public interest."
Ultimately, "Atlas Shrugged" is a celebration of the entrepreneur, the risk taker and the cultivator of wealth through human intellect. Critics dismissed the novel as simple-minded, and even some of Rand's political admirers complained that she lacked compassion. Yet one pertinent warning resounds throughout the book: When profits and wealth and creativity are denigrated in society, they start to disappear -- leaving everyone the poorer.
One memorable moment in "Atlas" occurs near the very end, when the economy has been rendered comatose by all the great economic minds in Washington. Finally, and out of desperation, the politicians come to the heroic businessman John Galt (who has resisted their assault on capitalism) and beg him to help them get the economy back on track. The discussion sounds much like what would happen today:
Galt: "You want me to be Economic Dictator?"
Mr. Thompson: "Yes!"
"And you'll obey any order I give?"
"Implicitly!"
"Then start by abolishing all income taxes."
"Oh no!" screamed Mr. Thompson, leaping to his feet. "We couldn't do that . . . How would we pay government employees?"
"Fire your government employees."
"Oh, no!"
Abolishing the income tax. Now that really would be a genuine economic stimulus. But Mr. Obama and the Democrats in Washington want to do the opposite: to raise the income tax "for purposes of fairness" as Barack Obama puts it.
David Kelley, the president of the Atlas Society, which is dedicated to promoting Rand's ideas, explains that "the older the book gets, the more timely its message." He tells me that there are plans to make "Atlas Shrugged" into a major motion picture -- it is the only classic novel of recent decades that was never made into a movie. "We don't need to make a movie out of the book," Mr. Kelley jokes. "We are living it right now."
Mr. Moore is senior economics writer for The Wall Street Journal editorial page.

Running at Recess

2009-01-12T09:29:00.000-07:00

Running at Recess
George Will
Sunday, January 11, 2009
WASHINGTON -- Called to a Florida school that could not cope, police led the disorderly student away in handcuffs, all 40 pounds of her 5-year-old self. In a Solomonic compromise, schools in Broward County, Fla., banned running at recess. Long Beach, N.J., removed signs warning swimmers about riptides, although the oblivious tides continued. The warning label on a five-inch fishing lure with a three-pronged hook says, "Harmful if swallowed"; the label on a letter opener says, "Safety goggle recommended."
No official at the Florida school would put a restraining arm around the misbehaving child lest he or she be sued, as a young member of Teach for America was, for $20 million (the school settled for $90,000), because the teacher put a hand on the back of a turbulent seventh-grader to direct him to leave the classroom. Another teacher's career was ruined by accusations arising from her having positioned a child's fingers on a flute. A 2004 survey reported that 78 percent of middle and high school teachers have been subjected to legal threats from students bristling with rights. Students, sensing the anxiety that seizes schools when law intrudes into incidental relations, challenge teachers' authority.
Someone hurt while running at recess might sue the school district for inadequate supervision of the runner, as Broward Country knows: It settled 189 playground lawsuits in five years. In Indiana, a boy did what boys do: He went down a slide head first -- and broke his femur. The school district was sued for inadequate supervision. Because of fears of such liabilities, all over America playgrounds have been stripped of the equipment that made them fun. So now in front of televisions and computer terminals sit millions of obese children, casualties of what attorney and author Philip Howard calls "a bubble wrap approach to child rearing" produced by the "cult of safety." Long Beach removed the warning signs because it is safer to say nothing: Reckless swimmers injured by the tides might sue, claiming that the signs were not sufficiently large or shrill or numerous, or something. Only a public outcry got the signs restored.
Defensive, and ludicrous, warning labels multiply because aggressiveness proliferates. Lawsuits express the theory that anyone should be able to sue to assert that someone is culpable for even an idiotic action by the plaintiff, such as swallowing a fishing lure.
A predictable byproduct of this theory is brazen cynicism, encouraged by what Howard calls trial lawyers "congregating at the intersection of human tragedy and human greed." So:
A volunteer for a Catholic charity in Milwaukee ran a red light and seriously injured another person. Because the volunteer did not have deep pockets, the injured person sued the archdiocese -- successfully, for $17 million.
The thread connecting such lunacies is a fear permeating American life. It is, alas, a sensible fear arising from America's increasingly perverse legal culture that is the subject of what surely will be 2009's most needed book on public affairs -- Howard's "Life Without Lawyers: Liberating Americans from Too Much Law."
A nation in which the proportion of lawyers in the work force almost doubled between 1970 and 2000 has become ludicrously dense with laws. Now legal self-consciousness is stifling the exercise of judgment. Today's entitlement culture inculcates the idea that everyone is entitled to a life without danger, disappointment or aggravation. Any disagreement or annoyance can be aggressively "framed in the language of legal deprivation."
Law is essential to, but can stifle, freedom. Today, Howard writes, "Americans increasingly go through the day looking over their shoulders instead of where they want to go." The land of the free and the home of the brave has become "a legal minefield" through which we timidly tiptoe lest we trigger a legal claim. What should be routine daily choices and interactions are fraught with legal risk.
Time was, rights were defensive. They were to prevent government from doing things to you. Today, rights increasingly are offensive weapons wielded to inflict demands on other people, using state power for private aggrandizement. The multiplication of rights, each lacking limiting principles, multiplies nonnegotiable conflicts conducted with the inherent extremism of rights rhetoric, on the assumption, Howard says, "that society will somehow achieve equilibrium if it placates whomever is complaining."
But in such a society, dazed by what Howard calls "rule stupor" and victimized by litigious "victims," the incentives are for intensified complaining. Read Howard's book, and weep for the death of common sense.
Copyright © 2008 Salem Web Network. All Rights Reserved.

Billy Graham's Prayer For Our Nation

2008-12-16T11:42:00.001-07:00

Billy Graham's Prayer For Our Nation
THIS MAN SURE HAS A GOOD VIEW OF WHAT'S HAPPENING TO OUR COUNTRY! 'Heavenly Father, we come before you today to ask your forgiveness and to seek your direction and guidance. We know Your Word says, 'Woe to those who call evil good,' but that is exactly what we have done. We have lost our spiritual equilibrium and reversed our values. We have exploited the poor and called it the lottery. We have rewarded laziness and called it welfare. We have killed our unborn and called it choice. We have shot abortionists and called it justifiable. We have neglected to discipline our children and called it building self esteem. We have abused power and called it politics. We have coveted our neighbor's possessions and called it ambition. We have polluted the air with profanity and pornography and called it freedom of expression. We have ridiculed the time-honored values of our forefathers and called it enlightenment. Search us, Oh God, and know our hearts today; cleanse us from every sin and Set us free. Amen!'
Commentator Paul Harvey aired this prayer on his radio program, 'The Rest of the Story,' and received a larger response to this program than any other he has ever aired. With the Lord's help, may this prayer sweep over our nation and wholeheartedly become our desire so that we again can be called 'One nation under God.' Think about this: If you forward this prayer to everyone on your e-mail list, in less than 30 days it would be heard by the world. (It's worth a try!) One Nation Under God.

Are We Ailing from Too Much Deregulation?

2008-12-10T10:02:00.000-07:00

Are We Ailing from Too Much Deregulation?
David R. Henderson
David R. Henderson is a research fellow with the Hoover Institution and an associate professor of economics at the Naval Postgraduate School in Monterey, California. He was previously the senior economist for energy policy and health policy with President Reagan's Council of Economic Advisers. He is the editor of The Concise Encyclopedia of Economics.
Americans May be Losing Faith in Free Markets" reads the title of a July 16 "news analysis" by Los Angeles Times reporter Peter G. Gosselin. "Wave Goodbye to the Invisible Hand" is the title of an August 1 article by Pulitzer Prize–winning Washington Post columnist Steven Pearlstein.
This recent trend in economic reporting actually began with an April 13 article by New York Times economics reporter Peter S. Goodman titled "A Fresh Look at the Apostle of Free Markets." Goodman's article, which I examined at length on the Cato@Liberty blog, was full of misinformation, not just about his subject, Milton Friedman, but also about economic thought and about the state of the U.S. economy. The newer articles continue the trend. And they're all wrong.
Many journalists claim that the U.S. economy since the late 1970s has been very free, with little regulation; that this absence of regulation has caused markets to fail; that there was a consensus in favor of little regulation; and that, now, this consensus is fading. On all these counts, the reports are false. Specifically, the U.S. economy has not been free since before the New Deal of the 1930s. Even before the 1930s, the U.S. economy was "mixed"—that is, a combination of economic freedom and government regulation—and Franklin Roosevelt's New Deal altered the "mix" substantially toward regulation and away from freedom. The deregulation of the late 1970s and 1980s reversed some of the regulations that came with the New Deal and some that preceded it, but the net amount of regulation has been much higher in the alleged era of deregulation than it was during the post–National Recovery Admnistration New Deal. Moreover, most of the apparent "market failures" that these articles refer to fall into one of two categories: Either they are not market failures at all, but market successes, or they are failures that are due to government regulation. Also, the consensus has not shifted from deregulation to regulation: there never was a consensus in favor of deregulation. There was a consensus in favor of deregulation among economists and a minority of politicians in the late 1970s and early 1980s, but never among the majority of politicians. Finally, most of the problems that have happened in the U.S. economy in the last few years strengthen the case for economic freedom and against government control.
Consider some specifics. Pearlstein writes: For the past 25 years, the United States has put its faith in open, unregulated and lightly taxed markets, and there's little doubt that, over time, that model has expanded economic output and improved economic efficiency. But what Americans have also come to realize is that the same model is less adept at providing other things that we value highly—things like safety, fairness, economic security and environmental sustainability.
There are two main problems with that two-sentence paragraph: the first sentence and the second sentence.
An Era of Deregulation?
Take the first sentence. "Unregulated markets" for the past 25 years? The Federal Register, which lists new regulations, averaged 72,844 pages annually during the Carter years from 1977 to 1980. These were presumably, by Pearlstein's 25-year standard, the last time before now that Americans didn't have "faith" in open, unregulated markets. Then the average fell to 54,335 during the Reagan years, rose to 59, 527 during the Bush I years, to 71,590 during the Clinton years, and, finally, to a record 75,526 during the administration of that great believer in laissez-faire, George W. Bush. It's true that when governments deregulate, they must announce those changes in the Federal Register, too, and so some of the pages represent genuine deregulation. But most of the pages were new regulations, no matter what president was in power at the time. So, far from moving away from regulation, the U.S. economy became even more regulated during Pearlstein's alleged 25-year era of light regulation.
Of course, the number of pages in the Federal Register is a crude measure of regulation. But it's not the only measure we need rely on. Veronique de Rugy and Melinda Warren, in "Regulatory Agency Spending Reaches New Height," an August 2008 report by the Mercatus Center and the Weidenbaum Center, found that between 1980 and 2007, roughly the years that Pearlstein labels "unregulated," the number of full-time employees of U.S. government regulatory agencies increased 63 percent, from 146,139 to 238,351. During that same time, the U.S. population rose from 226.5 million to about 301 million, an increase of only 33 percent. Moreover, according to de Rugy and Warren, U.S. government spending on regulation alone (not including compliance costs, a much bigger number) tripled, from $13.5 billion to $40.8 billion (all in 2000- year dollars.) As a percent of GDP, spending on regulation rose from 0.26 percent to 0.35 percent, a 35-percent increase. Some deregulation.
One could argue that we need to distinguish here between different kinds of regulation. Often people refer to "economic regulation" when they mean restrictions on whether new firms can enter businesses or that require firms to get government permission before setting their prices. If this is what they mean, then there is a case to be made that, in substantial sectors of the economy, there is less government regulation now than before the late 1970s. There has been substantial deregulation at the federal level of airlines, trucking, railroads, oil, and natural gas, to name five large sectors. And indeed, as we shall see later, this deregulation has had, on net, good effects.
What was the nature of this new regulation? The biggest growth came in so-called "homeland security," where spending more than quintupled, from $2.9 billion in 1980 to $16.6 billion in 2007 (all in real 2000 dollars). The second-largest growth rate was in regulation of finance and banking, where spending almost tripled, rising from $725 million to $2.07 billion. Together, regulation of homeland security and of finance and banking now account for over half of federal regulatory spending.
Markets vs. Government
Also incorrect is Pearlstein's second sentence. Free markets have done much better than governments at providing safety, fairness, economic security, and environmental sustainability. The reason, for three out of the four, is simple. Economic freedom tends to lead to economic growth, as Pearlstein himself admits in the above quote, and economic growth leads to more safety, more economic security, and more demand for environmental quality. Safety and environmental quality are what economists call "normal goods." As our real incomes rise, we want more of them. Over the 20th century, as our real incomes rose, we workers demanded more safety. And we got it. As economist W. Kip Viscusi notes in "Job Safety," published in The Concise Encyclopedia of Economics, as U.S. per capita disposable income per year rose from $1,085 in 1933 to $3,376 in 1970 (all in 1970 prices), death rates on the job fell from 37 per 100,000 workers to 18 per 100,000. Note that all of this preceded the Occupational Safety and Health Administration, which began in 1970. This shouldn't be surprising. As workers, we show our demand for safety by the wage premium we insist on to take a given risk. As real incomes rose, this wage premium rose. Employers found it cheaper to avoid some of the risk premium by reducing risk—that is, by increasing safety. In short, there is and has been a "market for safety."
The case with environmental quality is similar. Past some income level, environmental quality is almost certainly a normal good, that is, a good that people demand more of as their income increases. But demand does not guarantee supply. Why not? One major factor is that so much of the environment is a "commons," a resource that everyone can use but no one owns. As Garrett Hardin pointed out in his classic 1968 article "The Tragedy of the Commons," when no one owns a resource, it will be overused because no one has much incentive not to overuse it. One obvious solution is to transform, to the extent possible, the commons into private property. This has been done with rivers, lakes, and land, but is hard to do with air and oceans. But certainly we could go much further toward private ownership than we have until now, turning rivers, for example, into private property, as is done in Scotland. Scotland, not coincidentally, has pristine rivers. So note the irony. Contra Pearlstein, one reason that we haven't had the environmental quality we have demanded is that overregulation has prevented private ownership.
On the issue of economic security, the wealthier we are, the more secure we are. And because, as Pearlstein himself admits, economic freedom creates wealth, it necessarily creates security. Virtually no one in America ever needs to worry any more about starving. That is in part due to the welfare state but is mainly due to the riches created by relatively free markets. Of course, if, by "economic security," Pearlstein means confidence that one's income will never fall, then he's right that markets don't lead to that. Nor does government regulation. Government regulation of the economy's money supply, high tariffs, high taxes, and regulations that kept wage rates high all caused the Great Depression or contributed to its length.
Freedom and Fairness
Pearlstein objects that economic freedom does not lead to fairness, but it does. One of the fairest things in life is that people reap what they sow, getting the benefits when they make good decisions and bearing the costs when they make bad ones. Markets create that fairness every day. And what makes Pearlstein's argument ironic is that elsewhere in his article he writes that "government has had to step in to rescue the markets from their excesses and prevent a meltdown of the financial system." If he really believes that these are excesses and if he really wants fairness, why does he think that the government should bail people out from their mistakes? Some of the people whom the government is bailing out are very wealthy people who will retain more of that wealth because of the bailouts. Many of the people paying taxes for the bailouts are middle-income people who acted responsibly. Just what is Pearlstein's view of fairness, anyway?
In his article, Gosselin details three factors that are "pushing people to favor more regulation"—the high price of gasoline, the fall in house prices, and the dismal performance of the stock market for most of the current decade. If Gosselin were simply stating that these factors have made people more favorable to regulation, he might have a point. But that's not all he does. He seems to take the side of those who see these three factors as market failures. On gasoline prices, although he points out that most economists think these prices are due to "booming global demand meeting limited global supply," he dismisses this reasoning, arguing that "the price run-ups seem out of whack with demand, which has increased only about 1% worldwide." But Gosselin is confusing demand and consumption. It's consumption of oil that has increased a little. Demand has increased much more than consumption. That's why the price rose. A standard exercise in introductory economics classes is to show students that when supply is fairly inelastic and demand increases a lot, the price will rise a lot, and the actual amount produced and consumed will rise just a little. That's what has happened in the world oil market. Moreover, why has global oil supply been so limited? There are three main factors, all of which are entirely due to regulation. The first factor is OPEC, an organization of governments that regulates the supply of oil. OPEC was formed, incidentally, in response to President Eisenhower's regulations on oil imports, which discriminated against imports from the countries that formed OPEC. The second factor is that almost all oil-producing countries in the world have government-run oil industries. The third factor is the U.S. government's restrictions on offshore drilling for oil and on oil development in the Arctic National Wildlife Refuge. Whether one favors or opposes these restrictions on drilling, the point is that they do constrain the supply of oil and do, therefore, cause the price of oil to be higher than otherwise.
Interestingly, Gosselin leaves out the major price declines that have occurred in some of the most unregulated or newly deregulated parts of the economy: computing power (there is little regulation of the computer industry) and clothing (there has been a major shift toward free trade in clothing.)
Fannie, Freddie, and the Housing Crunch
On housing prices, Gosselin claims that "the rise in house prices and the recent plunge grew out of an almost unregulated corner of the mortgage market—the one for riskier loans." But in fact much of this problem arose from regulation. Jeffrey Hummel and I detailed how in Investors' Business Daily ("Blame the Feds, Not the Fed, For Subprime Mortgages," March 23, 2008). Federal government regulation contributed in three ways. First, the federal government helped cause the boom in housing prices by helping cause moral hazard: people taking risks because they know that if things turn out badly, someone else will bear some of the cost. The federal government's semiautonomous mortgage agencies—Fannie Mae, Freddie Mac, and Ginnie Mae—all buy and resell mortgages. Of the more than $15 trillion in mortgages in existence in early 2008, about one third were owned by, or were securitized by, Fannie Mae, Freddie Mac, Ginnie Mae, the Federal Housing and Veterans Administration and other government agencies that subsidize mortgages.
Although Fannie Mae and Freddie Mac were no longer government agencies during the time period at issue, they were government- sponsored enterprises. Many buyers of their repackaged loans, therefore, assumed an implicit federal-government guarantee. That assumption, as we now know, was all too true. This implicit guarantee caused less scrutiny by lenders than otherwise, which helped drive up housing prices.
The federal government's second contribution to the increase in housing prices was the Community Reinvestment Act. This act, first passed in 1977 and beefed up in 1995, requires banks to lend in high-risk areas that they otherwise would avoid. Banks that fail to comply pay fines and have more difficulty getting approval for mergers and branch expansions. As Stan Liebowitz, a University of Texas economist, has pointed out, a Fannie Mae Foundation report enthusiastically singled out one mortgage lender that followed "the most flexible underwriting criteria permitted." That lender's loans to low-income people had grown to $600 billion by 2003. Its name? Countrywide, the largest U.S. mortgage lender and one of the lenders in the most trouble for its lax lending practices.
Finally, a little-noted change in regulations by the comptroller of the currency in December 2005 acted as the trigger. The comptroller made it mandatory for banks to require minimum payments on credit card balances, causing increases of at least 50 percent for most cards and as much as 100 percent on others. Many people who hold subprime mortgages are people for whom a higher monthly payment on a credit card would be a problem. Whereas before this regulation, many people's priorities would have been mortgage first, credit card second, the new regulation caused many borrowers to reverse the order. Thus the comptroller's seemingly small increase in regulation had the unintended effect of causing some mortgage borrowers to default.
This is not to say, of course, that private businesses never do anything stupid unless it is caused by bad government policy. Certainly, many actors in the private sector put their and other people's money at risk in absurd way. It is safe to say, though, that in the case of the subprime mess, regulation and government subsidies deserve much of the blame.
Why Regulation Fails
Moreover, notably absent from all four earlier-mentioned articles is an argument for why regulation would work or how deregulation fails. I have already provided evidence of how badly regulation has worked in oil and in the housing market. But there's more to say. There are two main reasons that regulation generally works out badly. One is that the regulators have little incentive to get things right. Indeed, when their regulations fail, they often use this fact to argue for more power and more regulation. Astonishingly, the argument often works. The second reason is that regulatory agencies are often captured by the politically powerful and used to stomp out competition. The recent regulations on housing finance, for example, require mortgage brokers to be licensed. That will reduce competition in mortgage brokering and enhance the incomes of existing mortgage brokers.
And we have powerful evidence of the beneficial effects of deregulation. Air fares, for example, according to Brookings Institution economists Clifford Winston and Steven Morrison, are 22-percent lower than they would have been had regulation continued. Brookings economist Robert Crandall and Mercatus economist Jerry Ellig estimated in the late 1990s that when the lower air fares are adjusted for the decline in quality and amenities, passengers saved a cool $19 billion a year. In other words, the majority of us prefer lower fares to higher fares, more meals, and emptier airplanes. According to Hoover Institution economist Thomas G. Moore, between 1977, the year before deregulation of trucking began, and 1982, inflation-adjusted rates for truckloadsize shipments fell by 25 percent and service quality improved. And, of course, because of decontrol of oil and gasoline prices under presidents Carter and Reagan, increases in world oil prices have been passed on to consumers rather than suppressed, so that the time-killing line-ups for gasoline in the 1970s have not been repeated.
It's possible that I'm being uncharitable in interpreting Gosselin. Perhaps his tone simply reflects the tone of Americans whom he sees as souring on economic freedom. But shouldn't economic journalists, whatever else they do, get the facts right? And the three overriding facts are: (1) we have not had a period of light regulation, (2) deregulation didn't fail, and (3) regulation makes things worse.
This article originally appeared in the November/December 2008 edition of Cato Policy Report.

Why American Car Companies Have Failed

2008-12-09T08:44:00.000-07:00

A Japanese company (Toyota) and an American company (Ford Motors)decided to have a canoe race on the Missouri River. Both teamspracticed long and hard to reach their peak performance before the race.On the big day, the Japanese won by a mile.The Americans, very discouraged and depressed, decided to investigatethe reason for the crushing defeat. A management team made up of seniormanagement was formed to investigate and recommend appropriate action.Their conclusion was the Japanese had 8 people rowing and 1 personsteering, while the American team had 7 people steering and 2 peoplerowing.Feeling a deeper study was in order; American management hired aconsulting company and paid them a large amount of money for a secondopinion.They advised, of course, that too many people were steering the boat,while not enough people were rowing.Not sure of how to utilize that information, but wanting to preventanother loss to the Japanese, the rowing team's management structurewas totally reorganized to 4 steering supervisors, 2 area steeringsuperintendents and 1 assistant superintendent steering manager.They also implemented a new performance system that would give the 2people rowing the boat greater incentive to work harder. It was calledthe 'Rowing Team Quality First Program,' with meetings, dinners and freepens for the rowers. There was discussion of getting new paddles,canoes and other equipment, extra vacation days for practices andbonuses. The pension program was trimmed to 'equal the competition' andsome of the resultant savings were channeled into morale boostingprograms and teamwork posters.The next year the Japanese won by two miles.Humiliated, the American management laid-off one rower, halteddevelopment of a new canoe, sold all the paddles, and cancelled allcapital investments for new equipment. The money saved was distributedto the Senior Executives as bonuses.The next year, try as he might, the lone designated rower was unable toeven finish the race (having no paddles,) so he was laid off forunacceptable performance, all canoe equipment was sold and the nextyear's racing team was out-sourced to India.Sadly, the End.Here's something else to think about: Ford has spent the last thirtyyears moving all its factories out of the US, claiming they can't makemoney paying American wages.TOYOTA has spent the last thirty years building more than a dozen plantsinside the US. The last quarter's results: TOYOTA makes 4 billion inprofits while Ford racked up 9 billion in losses.Ford folks are still scratching their heads, and collecting bonuses...

"Jolting" the Economy

2008-12-01T11:23:00.001-07:00

"Jolting" the Economy
Thomas Sowell
Tuesday, November 25, 2008

Barack Obama says that we have to "jolt" the economy. That certainly makes sense, if you take the media's account of the economy seriously-- but should the media be taken seriously?
Amid all the political and media hysteria, national output has declined by less than one-half of one percent. In fact, it may not have declined even that much-- or at all-- when the statistics are revised later, as they very often are.
We are not talking about the Great Depression, when output dropped by one-third and unemployment soared to 25 percent.
What we are talking about is a golden political opportunity for politicians to use the current financial crisis to fundamentally change an economy that has been successful for more than two centuries, so that politicians can henceforth micro-manage all sorts of businesses and play Robin Hood, taking from those who are not likely to vote for them and transferring part of their earnings to those who will vote for them.
For that, the politicians need lots of hype, and that is being generously supplied by the media.
Whatever the merits of trying to shore up some financial institutions, in order to prevent a major disruption of the credit flows that keep the whole economy going, what has in fact been done has been to create a huge pot of money-- hundreds of billions of dollars-- that politicians can use to give out goodies hither and yon, to whomever they please for whatever reason they please.
No doubt we could all use a few billion dollars every now and then. But the question of who actually gets it will be strictly in the hands of Barack Obama, Nancy Pelosi and Harry Reid. It is one of the few parts of the legacy of the Bush administration that the Democrats are not likely to criticize.
Much as we may deplore partisanship in Washington, bipartisan disasters are often twice as bad as partisan disasters-- and this is a bipartisan disaster in the making.
Too many people who argue that there is a beneficial role for the government to play in the economy glide swiftly from that to the conclusion that the government will in fact confine itself to playing such a role.
In the light of history, this is a faith which passeth all understanding. Even in the case of the Great Depression of the 1930s, increasing numbers of economists and historians who have looked back at that era have concluded that, on net balance, government intervention prolonged the Great Depression.
Many of those who have, over the years, praised the fact that this was the first time that the federal government took responsibility for trying to get the country out of a depression do not ask what seems like the logical follow-up question: Did this depression therefore end faster than other depressions where the government stood by and did nothing?
The Great Depression of the 1930s was in fact the longest-lasting of all our depressions.
Government policy in the 1930s was another bipartisan disaster. Despite a myth that Herbert Hoover was a "do nothing" president, he was the first President of the United States to step in to try to put the economy back on track.
With the passing years, it has increasingly been recognized that what FDR did was largely a further extension of what Hoover had done. Where Hoover made things worse, FDR made them much worse.
Herbert Hoover did what Barack Obama is proposing to do. Hoover raised taxes on high-income people and put restrictions on international trade, in order to try to save American jobs. It didn't work then and it is not likely to work now.
Perhaps the most disastrous of all the counterproductive policies of the federal government was the National Industrial Recovery Act under FDR, which set out to do exactly what the politicians today want to do-- micro-manage businesses.
Fortunately, the Supreme Court declared that Act unconstitutional, sparing the country an even bigger disaster.
Today, it is unlikely that the courts will let anything as old-fashioned as the Constitution stand in the way of "change." In short, the economy today has some serious problems but things are not desperate, though they can be made desperate by politicians.
Copyright © 2008 Salem Web Network. All Rights Reserved.

It's Priceless

2008-11-25T14:43:00.001-07:00

It's Priceless
By Thomas Sowell
November 18, 2008
Wouldn't it be wonderful to live in a world where there were no prices?
If you happened to want a Rolex or a Rolls-Royce, you could just go get one-- or two if you wanted-- and not have to worry about ugly little things like price tags.
There is such a world. It is the world of political rhetoric. No wonder so many people are attracted to that world. It would be a great place to live.
After Arthur Goldberg had served on the Supreme Court, he lamented that more of society's problems could not be dealt with as that court dealt with them-- by reaching a decision and then declaring, "It is so ordered."
Politics offers something similar. Theoretically, political decisions are limited by budgets. But for many experienced politicians, that limit is mostly theoretical.
Government budgets, after all, are only projections of what is supposed to happen, not a hard and fast record of what has in fact happened. And seldom will the public or the media do anything so mean-spirited as go back and compare what the budget said would happen with what actually happened.
Moreover, politicians can put certain large expenditures "off budget" for any number of noble-sounding reasons. And if you have long experience in using political rhetoric, nothing is easier than coming up with noble-sounding reasons.
If you could put it "off budget," wouldn't you buy a second home at the beach or maybe a yacht to go out on the water? Why not live a little-- or a lot?
Politicians have more ways of escaping from prices than Houdini had ways of escaping from locks. When savvy pols want to hand out goodies, but don't want to take responsibility for raising taxes to pay for them, they can tax people who can't vote-- namely the next generation-- by getting the money by selling government bonds that future taxpayers will have to redeem.
Even such deficit spending leaves a record, however-- a national debt that is the ghost of Christmas past. But politicians can even get around that.
The most politically painless way to hand out goodies, without taking responsibility for their costs, is to pass a law saying that somebody else must provide those goodies at their expense, while the politicians take credit for generosity and compassion.
Employers are ideal targets for such mandates, since there are always more employees than employers, and that is what counts on election day. Whether it is health insurance, time off with pay or whatever, these mandates on employers can be washed down with a little rhetoric about business' "social responsibilities."
Where those "social responsibilities" come from is not a problem. It sounds good, and that is good enough for politics.
Some people may go away mad if they are ignored. Costs are not like that. You can ignore them all you want and they still won't go away.
While you are enjoying all the goodies that politicians are sending your way, you may notice that your taxes are going up or that the money you earn or the money you have saved won't buy as much as it used to.
Costs that are passed on to businesses can get passed on again to their customers in higher prices. Money that the government prints to spend itself reduces the value of the money in your wallet or in your bank account.
If you are someone looking for a job-- maybe a young person entering the labor force or a woman coming back into the labor force after spending a few years taking care of a small child--- you may find that there aren't as many jobs available as there used to be before employers had to pay for "social responsibilities," in addition to paying for the value of an employee's work.
Desperate times can call for desperate measures, so maybe you will try to find out from some economist what is going on. You may not get any much better explanation than "There is no free lunch"-- which is one of many reasons why economists are not popular.
But there really is no free lunch, except in the world of political rhetoric, a world that so many want to be in, where they can play Santa Claus without even the cost of buying a costume.
---
Thomas Sowell is a senior fellow at the Hoover Institution, Stanford University, Stanford, CA 94305. His Web site is www.tsowell.com.
COPYRIGHT 2008 CREATORS SYNDICATE, INC.

God is Like...

2008-11-20T12:12:00.001-07:00

A fifth grade teacher in a Christian school asked her class to look at TV commercials and see if they could use them in some way to communicate ideas about God. Here are some of the results: scroll down.
God is like
BAYER ASPIRIN, He works miracles. God is like a FORD,He's got a better idea.God is like COKE,
He's the real thing. (This is great)

God is like HALLMARK CARDS, He cares enough to send His very best. God is like TIDE, He gets the stains out that others leave behind. God is like GENERAL ELECTRIC,He brings good things to life. God is like SEARS,He has everything.God is like ALKA-SELTZER,Try Him, you'll like Him.God is like SCOTCH TAPE ,You can't see Him, but you know He's there. God is likeDELTA,He's ready when you are.
God is like ALLSTATE,You're in good hands with Him. God is likeVO-5 Hair Spray, He holds through all kinds of weather. God is like DIAL SOAP,Aren't you glad you have Him? Don't you wish everybody did? (that one is my favorite)

God is like the U.S. POST OFFICE,Neither rain, nor snow, nor sleet nor ice will keep Him from His appointed destination.

God is likeChevrolet. . . .the heart beat of America

God is like Maxwell House, Good to the very last drop
God is like Bounty. . . . He is the quicker picker upper. . can handle the tough jobs. . .and He won't fall apart on you BLESSINGS FROM MY HOUSE TO YOUR HOUSE

A Quiet Windfall For U.S. Banks With Attention on Bailout Debate, Treasury Made Change to Tax Policy

2008-11-12T08:51:00.000-07:00

A Quiet Windfall For U.S. Banks With Attention on Bailout Debate, Treasury Made Change to Tax Policy
By Amit R. PaleyWashington Post Staff WriterMonday, November 10, 2008; A01
The financial world was fixated on Capitol Hill as Congress battled over the Bush administration's request for a $700 billion bailout of the banking industry. In the midst of this late-September drama, the Treasury Department issued a five-sentence notice that attracted almost no public attention.
But corporate tax lawyers quickly realized the enormous implications of the document: Administration officials had just given American banks a windfall of as much as $140 billion.
The sweeping change to two decades of tax policy escaped the notice of lawmakers for several days, as they remained consumed with the controversial bailout bill. When they found out, some legislators were furious. Some congressional staff members have privately concluded that the notice was illegal. But they have worried that saying so publicly could unravel several recent bank mergers made possible by the change and send the economy into an even deeper tailspin.
"Did the Treasury Department have the authority to do this? I think almost every tax expert would agree that the answer is no," said George K. Yin, the former chief of staff of the Joint Committee on Taxation, the nonpartisan congressional authority on taxes. "They basically repealed a 22-year-old law that Congress passed as a backdoor way of providing aid to banks."
The story of the obscure provision underscores what critics in Congress, academia and the legal profession warn are the dangers of the broad authority being exercised by Treasury Secretary Henry M. Paulson Jr. in addressing the financial crisis. Lawmakers are now looking at whether the new notice was introduced to benefit specific banks, as well as whether it inappropriately accelerated bank takeovers.
The change to Section 382 of the tax code -- a provision that limited a kind of tax shelter arising in corporate mergers -- came after a two-decade effort by conservative economists and Republican administration officials to eliminate or overhaul the law, which is so little-known that even influential tax experts sometimes draw a blank at its mention. Until the financial meltdown, its opponents thought it would be nearly impossible to revamp the section because this would look like a corporate giveaway, according to lobbyists.
Andrew C. DeSouza, a Treasury spokesman, said the administration had the legal authority to issue the notice as part of its power to interpret the tax code and provide legal guidance to companies. He described the Sept. 30 notice, which allows some banks to keep more money by lowering their taxes, as a way to help financial institutions during a time of economic crisis. "This is part of our overall effort to provide relief," he said.
The Treasury itself did not estimate how much the tax change would cost, DeSouza said.
A Tax Law 'Shock'
The guidance issued from the IRS caught even some of the closest followers of tax law off guard because it seemed to come out of the blue when Treasury's work seemed focused almost exclusively on the bailout.
"It was a shock to most of the tax law community. It was one of those things where it pops up on your screen and your jaw drops," said Candace A. Ridgway, a partner at Jones Day, a law firm that represents banks that could benefit from the notice. "I've been in tax law for 20 years, and I've never seen anything like this."
More than a dozen tax lawyers interviewed for this story -- including several representing banks that stand to reap billions from the change -- said the Treasury had no authority to issue the notice.
Several other tax lawyers, all of whom represent banks, said the change was legal. Like DeSouza, they said the legal authority came from Section 382 itself, which says the secretary can write regulations to "carry out the purposes of this section."
Section 382 of the tax code was created by Congress in 1986 to end what it considered an abuse of the tax system: companies sheltering their profits from taxation by acquiring shell companies whose only real value was the losses on their books. The firms would then use the acquired company's losses to offset their gains and avoid paying taxes.
Lawmakers decried the tax shelters as a scam and created a formula to strictly limit the use of those purchased losses for tax purposes.
But from the beginning, some conservative economists and Republican administration officials criticized the new law as unwieldy and unnecessary meddling by the government in the business world.
"This has never been a good economic policy," said Kenneth W. Gideon, an assistant Treasury secretary for tax policy under President George H.W. Bush and now a partner at Skadden, Arps, Slate, Meagher & Flom, a law firm that represents banks.
The opposition to Section 382 is part of a broader ideological battle over how the tax code deals with a company's losses. Some conservative economists argue that not only should a firm be able to use losses to offset gains, but that in a year when a company only loses money, it should be entitled to a cash refund from the government.
During the current Bush administration, senior officials considered ways to implement some version of the policy. A Treasury paper in December 2007 -- issued under the names of Eric Solomon, the top tax policy official in the department, and his deputy, Robert Carroll -- criticized limits on the use of losses and suggested that they be relaxed. A logical extension of that argument would be an overhaul of 382, according to Carroll, who left his position as deputy assistant secretary in the Treasury's office of tax policy earlier this year.
Yet lobbyists trying to modify the obscure section found that they could get no traction in Congress or with the Treasury.
"It's really been the third rail of tax policy to touch 382," said Kevin A. Hassett, director of economic policy studies at the American Enterprise Institute.
'The Wells Fargo Ruling'
As turmoil swept financial markets, banking officials stepped up their efforts to change the law.
Senior executives from the banking industry told top Treasury officials at the beginning of the year that Section 382 was bad for businesses because it was preventing mergers, according to Scott E. Talbott, senior vice president for the Financial Services Roundtable, which lobbies for some of the country's largest financial institutions. He declined to identify the executives and said the discussions were not a concerted lobbying effort. Lobbyists for the biotechnology industry also raised concerns about the provision at an April meeting with Solomon, the assistant secretary for tax policy, according to talking points prepared for the session.
DeSouza, the Treasury spokesman, said department officials in August began internal discussions about the tax change. "We received absolutely no requests from any bank or financial institution to do this," he said.
Although the department's action was prompted by spreading troubles in the financial markets, Carroll said, it was consistent with what the Treasury had deemed in the December report to be good tax policy.
The notice was released on a momentous day in the banking industry. It not only came 24 hours after the House of Representatives initially defeated the bailout bill, but also one day after Wachovia agreed to be acquired by Citigroup in a government-brokered deal.
The Treasury notice suddenly made it much more attractive to acquire distressed banks, and Wells Fargo, which had been an earlier suitor for Wachovia, made a new and ultimately successful play to take it over.
The Jones Day law firm said the tax change, which some analysts soon dubbed "the Wells Fargo Ruling," could be worth about $25 billion for Wells Fargo. Wells Fargo declined to comment for this article.
The tax world, meanwhile, was rushing to figure out the full impact of the notice and who was responsible for the change.
Jones Day released a widely circulated commentary that concluded that the change could cost taxpayers about $140 billion. Robert L. Willens, a prominent corporate tax expert in New York City, said the price is more likely to be $105 billion to $110 billion.
Over the next month, two more bank mergers took place with the benefit of the new tax guidance. PNC, which took over National City, saved about $5.1 billion from the modification, about the total amount that it spent to acquire the bank, Willens said. Banco Santander, which took over Sovereign Bancorp, netted an extra $2 billion because of the change, he said. A spokesman for PNC said Willens's estimate was too high but declined to provide an alternate one; Santander declined to comment.
Attorneys representing banks celebrated the notice. The week after it was issued, former Treasury officials now in private practice met with Solomon, the department's top tax policy official. They asked him to relax the limitations on banks even further, so that foreign banks could benefit from the tax break, too.
Congress Looks for Answers
No one in the Treasury informed the tax-writing committees of Congress about this move, which could reduce revenue by tens of billions of dollars. Legislators learned about the notice only days later.
DeSouza, the Treasury spokesman, said Congress is not normally consulted about administrative guidance.
Sen. Charles E. Grassley (R-Iowa), ranking member on the Finance Committee, was particularly outraged and had his staff push for an explanation from the Bush administration, according to congressional aides.
In an off-the-record conference call on Oct. 7, nearly a dozen Capitol Hill staffers demanded answers from Solomon for about an hour. Several of the participants left the call even more convinced that the administration had overstepped its authority, according to people familiar with the conversation.
But lawmakers worried about discussing their concerns publicly. The staff of Sen. Max Baucus (D-Mont.), chairman of the Finance Committee, had asked that the entire conference call be kept secret, according to a person with knowledge of the call.
"We're all nervous about saying that this was illegal because of our fears about the marketplace," said one congressional aide, who like others spoke on condition of anonymity because of the sensitivity of the matter. "To the extent we want to try to publicly stop this, we're going to be gumming up some important deals."
Grassley and Sen. Charles E. Schumer (D-N.Y.) have publicly expressed concerns about the notice but have so far avoided saying that it is illegal. "Congress wants to help," Grassley said. "We also have a responsibility to make sure power isn't abused and that the sensibilities of Main Street aren't left in the dust as Treasury works to inject remedies into the financial system."
Carol Guthrie, spokeswoman for the Democrats on the Finance Committee, said it is in frequent contact with the Treasury about the financial rescue efforts, including how it exercises authority over tax policy.
Lawmakers are considering legislation to undo the change. According to tax attorneys, no one would have legal standing to file a lawsuit challenging the Treasury notice, so only Congress or Treasury could reverse it. Such action could undo the notice going forward or make it clear that it was never legal, a move that experts say would be unlikely.
But several aides said they were still torn between their belief that the change is illegal and fear of further destabilizing the economy.
"None of us wants to be blamed for ruining these mergers and creating a new Great Depression," one said.
Some legal experts said these under-the-radar objections mirror the objections to the congressional resolution authorizing the war in Iraq.
"It's just like after September 11. Back then no one wanted to be seen as not patriotic, and now no one wants to be seen as not doing all they can to save the financial system," said Lee A. Sheppard, a tax attorney who is a contributing editor at the trade publication Tax Analysts. "We're left now with congressional Democrats that have spines like overcooked spaghetti. So who is going to stop the Treasury secretary from doing whatever he wants?"

An Open Letter to my Friends on the Left

2008-11-12T08:47:00.000-07:00

An Open Letter to my Friends on the Left
Steven Horwitz
Department of EconomicsSt. Lawrence Universitysghorwitz@stlawu.edu
September 28, 2008
My friends,
In the last week or two, I have heard frequently from you that the current financial mess has been caused by the failures of free markets and deregulation. I have heard from you that the lust after profits, any profits, that is central to free markets is at the core of our problems. And I have heard from you that only significant government intervention into financial markets can cure these problems, perhaps once and for all. I ask of you for the next few minutes to, in the words of Oliver Cromwell, consider that you may be mistaken. Consider that both the diagnosis and the cure might be equally mistaken.
Consider instead that the problems of this mess were caused by the very kinds of government regulation that you now propose. Consider instead that effects of the profit motive that you decry depend upon the incentives that institutions, regulations, and policies create, which in this case led profit-seekers to do great damage. Consider instead that the regulations that may have been the cause were supported by, as they have often been throughout US history, the very firms being regulated, mostly because they worked to said firms' benefit, even as they screwed the rest of us. Consider all of this as you ask for more of the same in the name of fixing the problem. And finally, consider why you would ever imagine that those with wealth and power wouldn't rig a new regulatory process in their favor.
One of the biggest confusions in the current mess is the claim that it is the result of greed. The problem with that explanation is that greed is always a feature of human interaction. It always has been. Why, all of a sudden, has greed produced so much harm? And why only in one sector of the economy? After all, isn't there plenty of greed elsewhere? Firms are indeed profit seekers. And they will seek after profit where the institutional incentives are such that profit is available. In a free market, firms profit by providing the goods that consumers want at prices they are willing to pay. (My friends, don't stop reading there even if you disagree - now you know how I feel when you claim this mess is a failure of free markets - at least finish this paragraph.) However, regulations and policies and even the rhetoric of powerful political actors can change the incentives to profit. Regulations can make it harder for firms to minimize their risk by requiring that they make loans to marginal borrowers. Government institutions can encourage banks to take on extra risk by offering an implicit government guarantee if those risks fail. Policies can direct self-interest into activities that only serve corporate profits, not the public.
Many of you have rightly criticized the ethanol mandate, which made it profitable for corn growers to switch from growing corn for food to corn for fuel, leading to higher food prices worldwide. What's interesting is that you rightly blamed the policy and did not blame greed and the profit motive! The current financial mess is precisely analogous.
No free market economist thinks "greed is always good." What we think is good are institutions that play to the self-interest of private actors by rewarding them for serving the public, not just themselves. We believe that's what genuinely free markets do. Market exchanges are mutually beneficial. When the law messes up by either poorly defining the rules of the game or trying to override them through regulation, self-interested behavior is no longer economically mutually beneficial. The private sector then profits by serving narrow political ends rather than serving the public. In such cases, greed leads to bad consequences. But it's bad not because it's greed/self-interest rather because the institutional context within which it operates channels self-interest in socially unproductive ways.
This, my friends, is exactly what has brought us to the mess we are now in.
To call the housing and credit crisis a failure of the free market or the product of unregulated greed is to overlook the myriad government regulations, policies, and political pronouncements that have both reduced the "freedom" of this market and channeled self-interest in ways that have produced disastrous consequences, both intended and unintended. Let me briefly recap goverment's starring role in our little drama.
For starters, Fannie Mae and Freddie Mac are "government sponsored enterprises". Though technically privately owned, they have particular privileges granted by the government, they are overseen by Congress, and, most importantly, they have operated with a clear promise that if they failed, they would be bailed out. Hardly a "free market." All the players in the mortgage market knew this from early on. In the early 1990s, Congress eased Fannie and Freddie's lending requirements (to 1/4th the capital required by regular commercial banks) so as to increase their ability to lend to poor areas. Congress also created a regulatory agency to oversee them, but this agency also had to reapply to Congress for its budget each year (no other financial regulator must do so), assuring that it would tell Congress exactly what it wanted to hear: "things are fine." In 1995, Fannie and Freddie were given permission to enter the subprime market and regulators began to crack down on banks who were not lending enough to distressed areas. Several attempts were made to rein in Fannie and Freddie, but Congress didn't have the votes to do so, especially with both organizations making significant campaign contributions to members of both parties. Even the New York Times as far back as 1999 saw exactly what might happen thanks to this very unfree market, warning of a need to bailout Fannie and Freddie if the housing market dropped.
Complicating matters further was the 1994 renewal/revision of the Community Reinvestment Act of 1977. The CRA requires banks to to make a certain percentage of their loans within their local communities, especially when those communities are economically disadvantaged. In addition, Congress explicitly directed Fannie and Freddie to expand their lending to borrowers with marginal credit as a way of expanding homeownership. What all of these did together was to create an enormous profit and political incentives for banks and Fannie and Freddie to lend more to riskier low-income borrowers. However well-intentioned the attempts were to extend homeownership to more Americans, forcing banks to do so and artificially lowering the costs of doing so are a huge part of the problem we now find ourselves in.
At the same time, home prices were rising making those who had taken on large mortgages with small down payments feel as though they could handle them and inspiring a whole variety of new mortagage instruments. What's interesting is that the rise in prices affected most strongly cities with stricter land-use regulations, which also explains the fact that not every city was affected to the same degree by the rising home values. These regulations prevented certain kinds of land from being used for homes, pushing the rising demand for housing (fueled by the considerations above) into a slowly responding supply of land. The result was rapidly rising prices. In those areas with less stringent land-use regulations, the housing price boom's effect was much smaller. Again, it was regulation, not free markets, that drove the search for profits and was a key contributor to the rising home prices that fueled the lending spree.
While all of this was happpening, the Federal Reserve, nominally private but granted enormous monopoly privileges by government, was pumping in the credit and driving interest rates lower and lower. This influx of credit further fueled the borrowing binge. With plenty of funds available, thanks to your friendly monopoly central bank (hardly the free market at work), banks could afford to continue to lend riskier and riskier.
The final chapter of the story is that in 2004 and 2005, following the accounting scandals at Freddie, both Freddie and Fannie paid penance to Congress by agreeing to expand their lending to low-income customers. Both agreed to acquire greater amounts of subprime and Alt-A loans, sending the green light to banks to originate them. From 2004 2003 [corrected on 10/19/08] to 2006, the percentage of loans in those riskier categories grew from 8% to 20% of all US mortgage originations. And the quality of these loans were dropping too: downpayments were getting progressively smaller and more and more loans carried low starter interest rates that would adjust upward later on. The banks were taking on riskier borrowers, but knew they had a guaranteed buyer for those loans in Fannie and Freddie, back, of course, by us taxpayers. Yes, banks were "greedy" for new customers and riskier loans, but they were responding to incentives created by well-intentioned but misguided government interventions. It is these interventions that are ultimately responsible for the risky loans gone bad that are at the center of the current crisis, not the "free market."
The current mess is thus clearly shot through and through with government meddling with free markets, from the Fed-provided fuel to the CRA and land-use regulations to Fannie and Freddie creating an artificial market for risky mortgages in order to meet Congress's demands for more home-ownership opportunities for low-income families. Thanks to that intervention, many of those families have not only lost their homes, but also the savings they could have held onto for a few more years and perhaps used to acquire a less risky mortgage on a cheaper house. All of these interventions into the market created the incentive and the means for banks to profit by originating loans that never would have taken place in a genuinely free market.
It is worth noting that these regulations, policies, and interventions were often gladly supported by the private interests involved. Fannie and Freddie made billions while home prices rose, and their CEOs got paid lavishly. The same was true of the various banks and other mortgage market intermediaries who helped spread and price the risk that was in play, including those who developed all kinds of fancy new financial instruments all designed to deal with the heightened risk of default the intervention brought with it. This was a wonderful game they were playing and the financial markets were happy to have Fannie and Freddie as voracious buyers of their risky loans, knowing that US taxpayer dollars were always there if needed. The history of business regulation in the US is the history of firms using regulation for their own purposes, regardless of the public interest patina over the top of them. This is precisely what happened in the housing market. And it's also why calls for more regulation and more intervention are so misguided: they have failed before and will fail again because those with the profits on the line are the ones who have the resources and access to power to ensure that the game is rigged in their favor.
I know, my friends, that you are concerned about corporate power. So am I. So are many of my free-market economist colleagues. We simply believe, and we think history is on our side, that the best check against corporate power is the competitve marketplace and the power of the consumer dollar (framed, of course, by legal prohibitions on force and fraud). Competition plays mean, nasty corporations off against each other in a contest to serve us. Yes, they still have power, but its negative effects are lessened. It is when corporations can use the state to rig the rules in their favor that the negative effects of their power become magnified, precisely because it has the force of the state behind it. The current mess shows this as well as anything ever has, once you realize just what a large role the state played. If you really want to reduce the power of corporations, don't give them access to the state by expanding the state's regulatory powers. That's precisely what they want, as the current battle over the $700 billion booty amply demonstrates.
This is why so many of us committed to free markets oppose the bailout. It is yet another example of the long history of the private sector attempting to enrich itself via the state. When it does so, there are no benefits to the rest of us, unlike what happens when firms try to get rich in a competitive market. Moreover, these same firms benefited enormously from the regulatory interventions they supported and that harmed so many of us. The eventual bursting of the bubble and their subsequent losses are, to many of us, their just desserts for rigging the game and eventually getting caught. To reward them again for their rigging of the game is not just morally unconscionable, it is very bad econonmic policy, given that it sends a message to other would-be riggers that they too will get rewarded for wreaking havoc on the US economy. There will be short-term pain if we don't bailout these firms, but that is the hangover price we pay for 15 years or more of binge lending. The proposed bailout cannot prevent the pain of the hangover; it can only conceal it by shifting and dispersing it among the taxpayers and an economy weakened by the borrowing, taxing, and/or inflation needed to pay for that $700 billion. Better we should take our short-term pain straight up and clean out the mistakes of our binge and then get back to the business of free markets without creating an unchecked Executive branch monstrosity trying to "save" those who profited most from the binge and harming innocent taxpayers in the process.
What I ask of you my friends on the left is to not only continue to work with us to oppose this or any similar bailout, but to consider carefully whether you really want to entrust the same entity who is the predominant cause of this crisis with the power to attempt to cure it. New regulatory powers may look like the solution, but that's what people said when the CRA was passed, or when Fannie and Freddie were given new mandates. And the very firms who are going to be regulated will be first in line to determine how those regulations get written and enforced. You can bet which way that game is going to get rigged.
I know you are tempted to think that the problems with these regulations are the fault of the individuals doing the regulating. If only, you think, Obama can win and we can clean out the corrupt Republicans and put ethical, well-meaning folks in place. Think again. For one thing, almost every government intervention at the root of this crisis took place with a Democratic president or a Democratic-controlled Congress in place. Even when the Republicans controlled Congress, President Clinton worked around it to change the rules to allow Fannie and Freddie into the higher-risk loan market. My point here is not to pin the blame for the current crisis on the Democrats. That blame goes around equally. My point is that hoping that having the "right people" in power will avoid these problems is both naive and historically blind. As much as corporate interests were relevant, they were aided and abetted, if unintentionally, by well-meaning attempts by basically good people to do good things.The problem is that there were a large number of undesirable unintended consequences, most of which were predictable and predicted. It doesn't matter which party is captaining the ship: regulations come with unintended consequences and will always tend to be captured by the private interests with the most at stake. And history is full of cases where those with a moral or ideological agenda find themselves in political fellowship with those whose material interests are on the line, even if the two groups are usually on opposite sides. This is the famous "Baptists and Bootleggers" phenomenon.
If you've made it this far, I am most grateful. Whether or not you accept the whole argument I've laid out here, I do ask one thing of you: the story I told at the start of the role of government intervention in this mess is true, whatever your grander conclusions about the causes and cures are. Even if you don't buy my argument that more regulation isn't the cure, to blame this mess on "the free market" should now strike you as an obvious falsehood and I would hope, in the spirit of fair play, that you would stop making that claim as you speak and write about the ongoing events of the last two weeks. We can disagree in good faith about what to do next, and we can disagree in good faith about the degree to which government intervention caused the problems, but blaming a non-existent free market for a crisis that clearly was to some extent the result of government's extensive interventions in that market is unfair. So if I have persuaded you of nothing else, I hope deeply that I have persuaded you of that.
In the end, all I can ask of you is that you continue to think this through. Explaining this crisis by greed won't get you far as greed, like gravity, is a constant in our world. Explaining it as a failure of free markets faces the obvious truth that these markets were far from free of government. Consider that you may be mistaken. Consider that perhaps government intervention, not free markets, caused profit-seekers to undertake activities that harmed the economy. Consider that government intervention might have led banks and other organizations to take on risks that they never should have. Consider that government central banks are the only organizations capable of fueling this fire with excess credit. And consider that various regulations might have forced banks into bad loans and artificially pushed up home prices. Lastly, consider that private sector actors are quite happy to support such intervention and regulation because it is profitable.
Those of us who support free markets are not your enemies right now. The real problem here is the marriage of corporate and state power. That is the corporatism we both oppose. I ask of you only that you consider whether such corporatism isn't the real cause of this mess and that therefore you reconsider whether free markets are the cause and whether increased regulation is the solution.
Thanks for reading.
Steve

The 10 Big Lies About America

2008-10-21T11:17:00.001-06:00

The 10 Big Lies About America
By Michael Medved

A quick look at the first 5 lies and the approach the book takes to answering them.1. America's founding brought genocide to Native AmericansDisease, not massacres, caused 95% of the population reduction associated with European contact -- and the claims of deliberate infection (those pesky "small pox blankets") are unsubstantiated, sensationalized and profoundly misleading. The recent explosion of U.S. citizens claiming trendy Indian ancestry indicates that intermarriage and assimilation also claimed far more losses to native numbers than any non-existent program of deliberate extermination. 2. U.S. bears unique and lasting guilt for the crime of slaverySlavery was an evil, eternal and universal institution; the U.S. played no unique role in establishing it or benefiting from it, but did play a major, disproportionate part in achieving its abolition. Less than 5% of all African captives transported across the Atlantic were ever bound for British North America or the new United States. American wealth also stemmed from industrialization and immigrant labor far more than slavery; that's why the Northern States enjoyed every economic advantage over the South on the eve of the War Between the States.3. The Founders intended a secular, not Christian, nationColonists didn't come to the New World to escape religion, but to establish their own religious utopias, in which faith and government inevitably intertwined. Anyone doubting the deeply religious nature of early America should consider the patriotic songs our citizens have always sung -- from "Chester," the real marching song of the Revolution ("New England's God Forever Reigns"), to "America the Beautiful" ("God Shed His Grace on Thee"), to "The Star Spangeld Banner" (last verse: "And This Be Our Motto: In God is Our Trust"), to "The Battle Hymn of the Republic" ("In the beauty of the lilies Christ was born across the sea"). For the first three hundred years since Plymouth Rock, no one ever confused a secular government (which the First Amendment demands) with a secular society.

4. America has always been a multicultural society, strengthened by diversityFrom the beginning, our founders hailed a new American identity ("this new man") that involved leaving past cultures and traditions behind. Until the 1960's, virtually all national leaders understood that assimilation (or, more proudly, "Americanization") strengthened the country, while honoring old-loyalties (Teddy Roosevelt's dreaded "hyphenated American") undermined the society's ideals. The term "The Melting Pot" came from a hit Broadway play that can still inspire and referred to the forging of unbreakable metal -- not a style of cooking.5. Corporate America oppresses ordinary citizensThere's nothing "Un-American" about corporations -- in fact, these economic organizations (like "The Virginia Company") actually launched our first colonies in Jamestown, Plymouth and elsewhere. Every aspect of U.S. power, prosperity and comfort depends on the economic progress of big business. The public reverence for "small business" and resentment of "big business" makes no sense, since all the most successful small businesses eventually get big. Corporations brought hope and advancement to far more Americans than politicians, social workers or even community organizers.

Release Date: November 18, 2008

Spending Our Way Into Oblivion

2008-10-20T08:48:00.000-06:00

Spending Our Way Into Oblivion
By Harris R. Sherline
October 20, 2008
How much longer can the United States continue to spend more money than it takes in, and how much longer can we continue our spendthrift ways before something literally gives? The numbers are getting so big that they are beyond comprehension.
For example, billions and trillions of dollars are almost impossible to understand. Generally, we seem to know what a million dollars can buy. We see the number in the prices of real estate and homes, or perhaps the statistics about various businesses. But, we rarely see big numbers illustrated in terms that are easier to visualize. For example, a billion dollars is 1,000 times one million, and a trillion is a million times a million.
Considering a billion dollars in terms that may be easier to grasp, at an average of $1,000 per month, based on U.S. Social Security Administration statistics, it would cover the social security benefits for over 83,000 seniors (age 65 and over) for one year, and a trillion dollars could pay social security benefits for every senior in America, a total of about 36.8 million, for over two-and-a-quarter years.
America's politicians are rapidly spending our way into oblivion. Almost a trillion dollars for the Bailout package, including 25 billion for the auto industry, 150 billion for the Federal Deposit Insurance Corporation (FDIC), an 85 billion loan to insurance giant, A.I.G., along with millions of dollars of "pork" for Hollywood producers, stockcar race track owners, Caribbean rum producers, Alaskan fishermen, and who knows what else. Remember, this bill was about 450 pages of text, and since it was handed to Congress only about one day before it was approved, it's obvious that no one read it or really knew what was buried in it.
In addition, two bills sponsored by Barack Obama are currently working their way through Congress: the Jubilee Act (S. 2166) would cancel as much as another $75 billion worth of Third World Debt and the Global Poverty Act (S. 2433), at an estimated cost of $845 billion.
All this adds up to about two trillion dollars, enough to pay Social Security benefits to the entire senior population for more than four-and-a-half years. We are told the money comes from borrowing, which amounts to putting more currency into circulation.
The ultimate result is inflation. How much and how fast is anyone's guess, but history is clear about what happens to governments that increase the supply of their currency without appropriate controls and corresponding increases in production. It's simply a matter of too much money chasing too few goods.
Argentina experienced chronic inflation from 1949 through the 1980s. Hyperinflation exploded to almost 5,000 percent in1989, when government expenditures reached 35.6 percent of GDP (Gross Domestic Product) and subsequently topped out at over 20,000 percent.
A more contemporary example is Zimbabwe, where hyperinflation reached 12,000 percent in 2006, then increased to the point where a single Zimbabwean dollar was eventually denominated as about $10 trillion. The government was finally forced to lop ten zeros from their currency so the calculators could handle the numbers.
When this happens, people refuse to hold their own nation's currency and convert their money to other assets that they believe will hold their value as their currency continues to rapidly depreciate. In Argentina, wealthy citizens tried to deposit their money in American banks or they bought stock in American companies. The less wealthy attempted to hold U.S. $100 bills or bought houses or gold or commodities, such as rice -- anything to get rid of their pesos. They also tried to offset the consequences of unbridled inflation by indexing contracts, which adjusted payments to compensate for the rise in prices over time.
The bottom line is that the currency of a nation that is experiencing runaway inflation becomes worthless, productivity decreases, capital takes flight, and there are a variety of other consequences, such as the government refusing to redeem the bonds it has issued, etc.
The U.S. is rapidly headed down this track. Running continuous deficits and issuing bonds far in excess of our ability to pay is the beginning of the cycle. We've been doing this since WWII, and Americans instinctively know that it's not right. They may not be financial experts, but they know a con when they see one, and most of them seem to recognize what's happening now with the "$700 Billion Bailout" and have been protesting very vocally. Unfortunately, only a few members of Congress have been listening.
It's not too late to stop the train, if common sense is allowed to prevail. If not, we can only look forward to more and higher inflation, just as in Argentina or Zimbabwe, with all the consequences that go with it.
---
NOTE: Read more of Harris Sherline's commentaries on his blog at "opinionfest.com.

Funny

2008-10-09T12:48:00.000-06:00

The Lone Ranger and Tonto went camping in thedesert.
After they got their tent all set up, both men fell sound asleep.
Some hours later, Tonto wakes the Lone Ranger and says, Kemo Sabe, looktowards sky, what you see? The Lone Ranger replies, I see millions ofstars.
What that tell you, asked Tonto.
The Lone Ranger ponders for a minute then says, astronomically speaking, ittells me there are millions of galaxies and potentially billions of planets.
Astrologically, it tells me that Saturn is in Leo.
Time wise, it appears to be approximately a quarter past three in themorning.
Theologically, the Lord is all-powerful and we are small and insignificant.
Meteorologically, it seems we will have a beautiful day tomorrow. What doesit tell you, Tonto?
You dumber than buffalo snot. It means someone stole the tent.

The Bailaholics

2008-10-07T14:02:00.001-06:00

The Bailaholics
Chuck Norris
Tuesday, October 07, 2008

Tombstone, Ariz., has nothing on Washington, D.C. Friday's financial OK Corral took place when federal politicians had a standoff over the mother of all bailout bills. Bullets called ballots were fired from both congressional houses and the White House. And when the smoke cleared, the bad guys appeared: Bush, Paulson, Barney Frank, Pelosi, Dodd and most of the other members of the House and the Senate, including Obama and even McCain.
The truth is most members of Congress voted to pass the bill but don't have a clue what is in this 500-plus-page legislation, which was birthed in the White House just two weeks ago as an infant of only three pages. Then it was voted down at the Capitol a week later in its adolescent-sized 100 pages. And of course, in good bureaucratic fashion, it met the criteria to be mature when it was more than five times that size and packed with governmental goodies. And the president signed it just an hour after receiving it from Capitol Hill Friday. I guess that speed-reading course paid off.
In the fine print, inserted between the lines of that 500-plus-page bill, are loads of fiscal additives and more financial toxic relief. H.R. 1424 -- the Emergency Economic Stabilization Act of 2008, which now has been signed into law -- officially includes more than $112 billion in political hors d'oeuvres and pork-barrel teasers and sweeteners that have absolutely no direct relation to the Wall Street bailout but were included to bribe congressional naysayers and others to get on the greed train:
--$6 million in tax breaks for wooden-arrow manufacturers in Oregon.
--$148 million in tax breaks for wool-producing companies.
--$128 million in tax breaks for the manufacturers of car-racing tracks.
--$10 million in tax breaks for small television and film producers.
--$223 million in tax breaks for Alaskan fishermen.
--$33 million in tax breaks for corporations operating in American Samoa.
--$192 million in tax breaks for rum producers in Puerto Rico and the Virgin Islands.
What the &$=/?! And that's just a drop in the bailout bucket. And we the taxpayers are just supposed to sit back and take it in the arrears?
Shockingly -- or maybe not so -- both Democratic and Republican nominees for president, self-professed agents of reform, followed the cattle call to back the bailout. Sen. Obama, who claims to be the messiah of change, sure is showing his true colors in two huge decisions: his appointment of politics-as-usual Joe Biden and his vote to pass this economic bailout bill and drive us deeper into debt. And quite frankly, Sen. McCain also is disappointing me at this point. At the Republican convention, John talked about bringing the power back to the people. So he chose Sarah Palin and finally gained my respect and vote by picking this Washington outsider. But when he had the perfect opportunity to side with the majority of Americans, who didn't want to incur a trillion dollars more in debt, he voted for not only the bilking bailout but also the earmarks and pork-barrel projects packed inside.
John, you gained my vote with your conservative choice in Gov. Palin; don't lose my vote (and others' votes) by your return to politics as usual. For many of us, you have one last chance in the debates. You must choose radical reformation. This is a time for maverette Sarah to stand up to maverick McCain and say, "Enough is enough!" Speak up, Gov. Palin. Please speak up!
All is not lost yet. We still have a voice in this bailout; it's at the ballot box in November's elections. The remedy for our country is clear. Congress doesn't need another bailout but a roundhouse kick right out the door. I plead with you to join me and millions of others in a voter revolution to oust political and congressional corruption and stalemate. If the members of Congress from your states or districts voted to pass this bailout bill and gamble nearly $1 trillion of our children's and grandchildren's money -- in addition to showing the reckless fiscal behavior of stuffing such a bill with perks and pork -- you must not re-elect them. If your representatives voted for this economically rotten (not rescue) bill, vote them out in November by voting for new blood that has a track record of fiscal prudence and consistently will vote for constitutional limitations of government, reductions of big government (deficits, budgets, spending and taxes), reformation of the tax code (by providing a "fair tax" or its equivalent) and a constitutional amendment for a mandated balanced federal budget.
Despite the heartbreaking passage of this bill, thank God 161 representatives and 25 senators opposed it and weren't enticed by the pseudo-urgent Wall Street panic, their own re-election pressures, or the Senate's pork-barrel schmoozing. For example, I commend Rep. Don Young, R-Alaska, who voted "no" for the emergency economic bill despite the fact that the tax break for Alaskan fishermen was inserted to sway him to bite at the bailout. Rep. Young is correct in a letter to his constituents: "This bill is nothing more than a slippery slope to socialism."
One thing is apparent: Alaska can produce some great Americans.
Copyright © 2008 Salem Web Network. All Rights Reserved.

Welfare State Failures Are At Bottom Of The Crisis

2008-10-06T11:10:00.001-06:00

Welfare State Failures Are At Bottom Of The Crisis
By Star Parker
October 6, 2008
As our financial markets totter, as homes go into foreclosure, as Wall Street executives lose millions, as Americans have more and more difficulty getting loans, can anyone be happy?
Certainly. Those on the left who now, with unbounded glee, pen obituaries for the free market.
One can sense their joy as they have, they think, the last laugh.
Bernie Sanders, the far left senator from Vermont, was almost giddy on Larry Kudlow's TV show recently to hear free-marketer Kudlow endorse the bailout and tell Kudlow that he is glad to see he has become a socialist.
The Washington Post's Harold Meyerson writes, "The old order -- the Reagan-age institutions built on the premise that the market can do no wrong and the government no right -- is dying."
And, of course, there's the thrill in seeing greedy Wall Street capitalists laid bare for the heartless, exploitive monsters they are and see justice done as they fall by the free market sword by which they lived!
But, in fact, what we are watching is not a failure of markets, but the latest failure of the welfare state. The sad part is how few who wield political power seem to understand, or want to understand, that this is what's happened.
As the details behind the current debacle are unraveled, we see how government created one more entitlement -- the right to own a house -- and then devised an array of programs to subsidize in various ways "affordable housing." Like all welfare programs, the subsidies succeeded in influencing behavior, but the wrong behavior.
The greedy part, or, if one wishes to be forgiving, the confused part, of the Wall Street guys is their willingness to play ball with politicians over these years in turning our free country into a welfare state. Wall Street has regularly been a generous contributor to politicians who love to grow government and use it as a tool for social policy.
These smart investment bankers, commercial bankers, and traders could have gotten plenty rich, and stayed that way, by encouraging solid institutions to build our country properly. If anyone should appreciate the power of freedom and markets and want to encourage the proper role of government, the integrity of private property, and the care and nurturing of American families, you'd think it would be our financiers.
But instead of recognizing basics -- the principles of limited government and traditional values -- and fighting political pressures to undermine these basics, our financiers were happy to support the welfare state model.
They should have appreciated, as we must appreciate today, that the problem is not a failure of freedom and markets but of eroding the pillars and principles that make them possible and functional.
The best housing program this nation could have is for the government to stay out, let the price of real estate and credit reflect true realities of supply, demand, and risk, and let private people decide for themselves what they need to do and how hard they need to work to acquire what they want.
As the institution of government grows, we sadly watch the collapse of the institutions that really sustain growth of home ownership: American marriage and families.
According to the Census Bureau, the single largest incidence of homeownership, 86.3 percent, is among married-couple families. Yet, traditional families now amount to barely more than a quarter of our households.
And, sadly and ironically, the problem of family structure is most severe in low- income communities where government housing policy has been most targeted.
Social and economic policy are not separate universes but part of one fabric of institutions and laws that sustain freedom and prosperity.
Those who want to use the current crisis as an excuse to expand government and welfare state policies contribute to laying the foundation for our next crisis.
---
Star Parker is president of CURE, Coalition on Urban Renewal and Education (www.urbancure.org) and author of three books. She can be reached at parker(at)urbancure.org. For more stories visit scrippsnews.com
--------------------
Note -- The opinions expressed in this column are those of the author and do not necessarily reflect the opinions, views, and/or philosophy of GOPUSA.

Pain & Fear

2008-09-30T11:31:00.002-06:00

If pain is nature's way of saying "Stop!" then fear is natur's way saying "Be careful."

Market Directions

2008-09-30T10:57:00.000-06:00

Market Directions
September 21, 2008
A Brief History of the Financial Crisis

The outlines of the financial and credit crisis are clear though the blame will be argued and discussed far into the future. Three primary causes played out over the past decade culminating in the tumultuous events of the past two weeks with the American Federal Government on Friday putting forth a plan to buy the housing based bad debt of the entire United States financial system.

In the early part of this decade the Federal Reserve held interest rates at historically low levels for three years. In the mortgage industry increasingly lax credit standards were encouraged by government pressure to lend to marginal customers. Finally Wall Street firms became enamored of the profitability and supposed safety of their securitized credit derivative instruments, not only originating many products but also stocking their balance sheets with them.

In the aftermath of the 9/11 attacks in 2001 the Federal Reserve cut the Fed Funds rate in half, to 1.75%. The rate would stay below 2.0% for almost three years. Those low nominal rates, negative in real inflation adjusted terms, stoked a building and buying boom in housing that developed into a huge speculative bubble.

When the Fed brought rates back to 5.25% at the end of June 2006, the bubble began to deflate; the housing based credit crisis began a little more than a year later. Market bubbles always burst. Perhaps the fall of the housing market now seems preordained. But at the time the risk of the dicey mortgages spread throughout the financial system was disguised by the financially engineered instruments that had repackaged the questionable bits with higher quality debt, supposedly insuring the whole against default.

Starting in the closing years of the Clinton Administration the Community Redevelopment Act, a Carter Era program, was used to force banks to lend to mortgage customers formerly considered ineligible for loans. In pursuit of a social goal, universal home ownership, banks either lowered credit standards and granted mortgages or faced fines and business penalties for 'redlining'. Banks by and large complied with government dictates.

Two of the government sponsored enterprises (GSEs) in the mortgage field, the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) bought much of the bank mortgage debt and sold it back to the market with their implied government guarantee behind it. The banks and loan companies used the cash obtained to sponsor more loans and keep the housing bubble inflating. As with the banks, the GSEs also brought some of this debt onto their balance sheets. All in all these two GSEs held title to or guaranteed upwards of 70% of residential mortgages in the United States. Their mortgage paper is endemic on the balance sheets of the world's financial institutions.

The nozzle through which much of the air inflating the housing bubble passed was the asset backed collateralized debt obligation (CDO) fashioned by Wall Street's leading investment houses and banks. Combining different types and grades of debt in one instrument these complex securities were supposed to reduce risk of the whole below the level of the individual pieces. Their complexity often rendered them opaque to the rating agencies whose rankings customers buying the securities relied on for risk measurement. Usually sold with default insurance these securities had one major flaw, their balance sheet value was assessed not by the value of the underlying income streams but by their sale price in the secondary market. If there were no market, if no one were willing to buy these securities, the theoretical book value fell to zero.

As the housing market stagnated and then fell, the value of those securities with housing components dropped as default rates on mortgages rose. But housing prices in the US have only declined on average about 20%. How could such a large but not catastrophic decline threaten the very foundations of the financial system? The crux is the mark to market nature of the security. As the financial markets progressively lost faith in asset backed securities and as housing prices continued to fall bids for these securities became scarce. The lower the prices for the securities the more capital the firm had to set aside to meet regulatory limits. The firms that owned large amounts of these securities were caught in a downward spiral of devalued securities requiring ever large amounts of the firm’s capital for support which progressively undermined the worth of the firm’s stock and market confidence in the firm's solvency which in turn demanded more capital support.

The United States has had market bubbles before, but none shook the financial system to its core and threatened the financial system. What has been different this time? The factor that levered a serious housing market bubble and collapse into a threat to the entire US and indeed world financial system was the asset-backed derivative. These new and poorly understood instruments were embraced by the financial world for their touted safety and for their high return. Yet their safety, the quality of their financial analysis and most importantly the underlying assumptions were completely untested.

Chief among the assumptions underpinning these derivative securities was the mark to market rule for valuation. Imposed by regulators in the aftermath of the failure of Enron it posits, natural enough in normal times, a functioning secondary market. Its purpose was to insure realistic pricing for securities. All is fine with the rule unless there is no market. As with the failure of Long Term Credit, it was the assumption that there will always be a functioning orderly market that was at fault. Markets are not always rational, they are voluntary and they are psychological. People and firms do not have to participate. When enough market participants choose abstinence the market collapses and all calculations that depend on market pricing are void.

Markets are reflections of the faith and credit of their participants. When that is lost no amount of financial engineering can make up for the loss of liquidity. In a panic the market vanishes. The asset backed derivative made the stability of the entire financial system beholden to its least stable component, the psychology of the market.

Joseph Trevisani
FX Solutions, LLC
Chief Market Analyst

The Ant and The Grasshopper, 2008 Edition

2008-09-29T11:57:00.001-06:00

The Ant and The Grasshopper, 2008 Edition
Michelle Malkin
Friday, September 26, 2008
With what looks like imminent passage of the Mother of All Bailouts (following on the heels of a year's worth of government-funded rescues of private homeowners, lenders, insurers and automakers), Washington has turned Aesop's famous fable about prudence and hard work on its head. The time is ripe for a revised 2008 edition of "The Ant and the Grasshopper:"
In a meadow on a hot summer's day, a Grasshopper was chirping and carousing his time away. He watched scornfully as an Ant nearby struggled to store up large kernels of food and build a secure nest. The Ant pulled overtime shifts to pay off his loans and accumulate retirement funds for the future.
"Give it a rest," the Grasshopper said. "Why bother saving and slaving and toiling and moiling? Let's party!" The Ant demurred: "I am planning ahead for winter, and you should do the same." The Grasshopper blew off the Ant, squandered his supplies the rest of the season and abandoned his home while on vacation (paid for by tapping every last cent of his home equity gain) instead of holding down a job.
When winter came, the Grasshopper's pantry was empty, and his shelter ruined from neglect. The Ant, weary from planting, harvesting, and stocking up for months, was dining comfortably in his nest.
Cold, hungry, jobless, facing foreclosure and up to his two pairs of eyeballs in debt, the Grasshopper limped to the Association of Community Winged Insects for Rescue Now and demanded recourse. The office was swamped with thousands just like him. ACWIRN immediately put the Grasshopper to work registering dead ants as new voters.
Funded with tax dollars from the rest of the meadow's residents, ACWIRN organized mass protests at the Bank of Antamerica, ambushed its top officials at their private homes, harassed their children and demanded that the meadow's politicians halt all foreclosures ("We must keep Grasshoppers in their houses!") and outlaw discriminatory lending practices against starving, homeless Grasshoppers ("Well-stocked shelters are basic insect rights!")
The banking industry capitulated; the Orthoptera Lobby secured hundreds of millions of dollars in housing earmarks, grants and counseling subsidies to support the Grasshoppers with the shadiest credit and employment histories. Antie Mae, the meadow's government-backed home lending giant, fueled the push for increased insect homeownership in the name of biodiversity. Its executives cooked the books and headed for the hills. Katie Cricket and the Mainstream Meadow Media joined the grievance-for-profit circus, profiling Grasshopper sob stories and drumming up ratings as bewildered Ants wondered who was looking out for them.
The banks drowned in toxic debt. More Grasshoppers fell behind on their mortgage payments. Bailout mania and panic gripped the meadow.
Our little Ant, minding his own business, heard a knock on his door one late winter night a year later. It was his old, sneering Grasshopper neighbor. With ACWIRN's presidential candidate, Barack Cicada, now in office, the Grasshopper had been hired by the meadow as a tax collector.
"I'm here to take your provisions," the Grasshopper cackled.
But it was the Ant who had the last laugh. "I've learned my lesson," he told his shiftless friend. "Why bother saving and slaving and toiling and moiling? I've spent all my savings. I'm walking away from my mortgage. Thrift is for suckers," the Ant said as he headed out the door, leaving the Grasshopper empty-handed.
Copyright © 2008 Salem Web Network. All Rights Reserved.

How We Can Clean Up a Lot of the Economic Problems

2008-09-29T11:56:00.001-06:00

Who do you go to when you are having problems with money?

-I go to my accountant. Dave Ramsey is one of my accountants because he has saved me more money than anyone I have ever listened to. Because of his counsel I am nearly out of debt and not that panicked about what is going on in the markets. Let’s look at his advice on the bailout plan:

How We Can Clean Up a Lot of the Economic Problems
Dave Ramsey
Remember Enron, WorldCom, Adelphia, and other companies had artificially put assets on the books? They'd say something was worth $10M when they bought it, but eventually it decreased in value, and they never updated the value in the books. That was part of the fraud. Under current laws at that time, they were all convicted and put in jail for fraud.
Then we got all mad and made all these new laws that are coming out the wazoo called Sarbanes-Oxley. It's a huge, massive law but the idea is that we were going to mandate ethics to corporate America because apparently they didn't have any, according to the Enron failure. It's now a total pain in the butt to execute it in a publicly traded company.
It didn't work because you can't cause ethics to happen. However, it does make each company each day restate what their assets are worth if sold on the market. This accounting procedure is mark to market accounting--you need to remember that. It's a good concept and keeps companies from having loaded balance sheets.
How This Affects Us Today
However, it's part of what's caused this in the news now. Merrill Lynch was sitting with $30 billion tied up in sub-prime loans with houses. Stupid! They get what they deserve for doing that, and I'm with you on that. Those houses didn't become worthless all of a sudden because those people couldn't sell their bonds. Since they couldn't sell them, they basically gave them away for 22 cents on the dollar. Now do you think all those houses lost 80% of their value underneath that deal? No, they didn't, so they gave them away for 22 cents on the dollar (about $6 billion total) because there was no market for them. Nobody wants to buy sub-prime bonds because they suck. They're junk bonds. But at 22 cents on the dollar, it's a bargain because even if you foreclosed on every one of the houses in there, you'd probably get $20 billion back out of $30 billion, and so the company that bought those for $6 billion got a deal! But there's no market for them. That's where these companies are stuck. They can't sell this stuff, but accounting-wise, they've had to mark it down to market and it's frozen the marketplace.
Economist Wesbury is saying that if we change that one rule and don't force them to mark down to market value and just let them hold on to all the stuff, and say just on sub-primes for this period of time you can change that rule -- a temporary change -- that'll free the market up. It's seized right now; it's frozen. This will thaw it out and get it going again. He says that'll solve 60% of the problem ... and I think he's right.
That one accounting rule is what made Merrill Lynch sell out. That one accounting rule is what's driving other ones into the dirt. Would you rather let them change their accounting rule or loan them $700 billion for us to buyout their bad paper?
I'd rather them work their own crap out than have us bail them out with $700 billion of our tax dollars.
I don't like giving them any money or any help with my tax dollars. But I'd rather see that than see the whole thing turn completely upside down in a fruit basket turnover than have a whole meltdown or something and freak out here in the middle of the election season. Why don't we just take the FHA insurance program and extend it across these sub-primes? What that means is that you and I are guaranteeing the lender that they're not going to lose as much or any money on those mortgages. Now I don't like guaranteeing them, but I like it better than buying them. In other words, instead of $700 billion in tax-payer debt going out there to bail out these companies, just extend the insurance out. You could probably do that for less than $40 billion. It's like a 95% savings!
If the government insured those mortgages, they would then be marketable. And could sell them. And the companies would stay afloat. And we, the people, don't have to get into the mortgage business. Now we're going to get in there a little bit because of the insurance on those getting foreclosed on. But foreclosures aren't causing this. This is being caused because these companies are frozen and seized up. We've got to let some of the steam come off and put some oil in there to get this thing moving again. We can do that without going into debt $700 billion.
Here's Your Plan
Call your Congressman. Call your Senator. Tell them to change the mark-to-market accounting law and to extend insurance but extend no loans. If they extend loans - if they borrow the money on the national debt in order for us to all go into the mortgage business a trillion dollars - you're going to fire their butts and send them home.
I've talked with several people today, and it's on the tables in Washington, but it's not something you're going to see on TV. If you'll let your Congressmen know you know about this and that you'll vote against them if they don't vote to change the mark-to-market law and you'll contribute your money to make sure they never serve in office again. That's what you need to tell them early and often.
If you're pissed, this is the time to step up and do something about it, America! You can stop this! It's being railroaded down your throat, but you can stop them if you call them in mass starting now. READY ... SET ... GO!
Contact:
Your representative
Your senators
Senate committee