Saturday, May 30, 2009
Stop Covering Up And Kill The CRA
...Dead wrong. But the mainstream media believe it, and have attacked those, including this paper, who dare to tell the truth about the crisis. Already the debacle has erased $13 trillion in wealth, while putting taxpayers on the hook for up to $8 trillion in bailouts.
"The latest salvo from conservatives began via a Sept. 15 editorial in Investor's Business Daily, titled 'The Real Culprits In This Meltdown,' " grumbled a column distributed by Scripps Howard News Service. "Its editorial blamed President Clinton for today's mess."
As we said, Clinton beefed up the CRA and used it to force banks to subsidize poor communities with close to $1 trillion in high-risk loans and other commitments that flouted underwriting rules.
Yet, somehow, these media-driven myths keep getting in the way of actual facts, such as:
Fact: The 1977 law was only lightly enforced until Clinton added teeth to it in 1994 and launched an anti-redlining campaign against banks, led by Ludwig, Housing Secretary Henry Cisneros (and later Andrew Cuomo) and Attorney General Janet Reno that lasted into this decade.
Minority homeownership rates, which had been flat, began a steep rise in 1995, and home prices soon followed, stoked by easier lending. Numerous bank officials complain that they still feel pressured by CRA regulators to make inner-city loans they know are at great risk of defaulting.
Myth: The CRA could not have led to financial Armageddon, because the overwhelming share of subprime mortgages came from lenders that were not banks and not regulated by the CRA.
Fact: Nearly 4 in 10 subprime loans between 2004 and 2007 were made by CRA-covered banks such as Washington Mutual and IndyMac. And that doesn't include loans made by subprime lenders owned by banks, which were in effect covered by the CRA.
Last year, when the bubble burst, bank subprime loans totaled $142 billion, dwarfing those made by lenders.
What's more, the biggest subprime lender, Countrywide, while not subject to the law, still came under federal pressure to make risky loans in minority communities.
Clinton created a separate department at HUD to police "fair lending" at Fannie and Freddie and also at lenders like Countrywide, which became Fannie's biggest client. In 1994, Countrywide became the nation's first mortgage lender to sign with HUD a "Declaration of Fair Lending Principles and Practices."
As a result, Countrywide made more loans to minorities than any other lender — and not surprisingly, was one of the first lenders swamped by loan defaults....
The Financial Crisis, Free Markets, and the Nirvana Fallacy
...I won't dispute that many market actors--banks, bond rating agencies, mortgage companies, etc.--hardly acquitted themselves well during the housing bubble and resulting financial crash. But exactly which government actors acquitted themselves well? The public-private Fannie and Freddie Frankensteins, which helped inflate the bubble and whose bailouts will cost taxpayers tens of billions of dollars? The Treasury Department, which failed to do anything proactive to prevent the crisis, and ultimate whose reaction to it under Paulsen ranged from subdued panic to hyperactive panic? The Federal Reserve, whose monetary policies were probably the biggest villain in the whole fiasco, and whose chairman famously argued, absurdly, that housing prices nationwide could not go down because they never had before (and even more absurdly based his policies on such nonsense)? Congress, which pushed Fannie and Freddie to make ever more risky loans, berated (and regulated) financial companies for not generously lending to subprime borrowers, and not only prevented the Bush Administration from reforming Fannie and Freddie but gave them even more lending authority just as the crisis was emerging? And which then passed a "stimulus" bill full of longstanding Democratic priorities but rather short on actual stimulus? State and local governments, which spent lavishly when bubble-related tax revenues were way up, and almost none of which prudently planned for the bubble's bursting? And which bought into the "everyone should own a house mentality" to the extent that they were disinclined to use their existing regulatory powers to rein in crazy mortgage practices (like 0 down, option arms to insolvent borrowers) and indeed barely prosecuted rampant bubble-time mortgage fraud?
Sure, if you compare actual market actors to imaginary perfect government officials, government is going to come out looking like a mighty good alternative. But if you compare actual market actors to actual government actors, it hardly seems that the financial crisis shows the latter's superiority to the former, nor does it support the idea that turning over more and more of the economy to the tender mercies of government regulation is likely to benefit the public.
Where's The Crisis?
...Peterson is not opposing Waxman-Markey because he's a skeptic of global warming. Nothing so noble as that. His opposition is purely political. He wants parliamentary power over the bill. Should he fail to get it, he's willing to sink the legislation.
Which brings up the question: If global warming were a grave threat, wouldn't getting a CO2 emissions restriction law passed and signed take precedence over lawmakers' objections on behalf of their constituents?
The fact that Peterson and so many Democrats would rather have no bill than to let it become law without input from the Agriculture Committee exposes the global warming scare: It's not about the environment — it's about power and politics.
This isn't the first time that lawmakers have demonstrated the true nature of the "fight" against global warming. In order to pick up enough Democratic support to move his bill out of committee, Energy and Commerce Chairman Henry Waxman granted emissions exemptions to carbon-producing companies in some districts held by uncommitted lawmakers from his party. If a real calamity were at hand, wouldn't he have resisted compromise?...
Exploding debt threatens America
Standard and Poor’s decision to downgrade its outlook for British sovereign debt from “stable” to “negative” should be a wake-up call for the US Congress and administration. Let us hope they wake up.
Under President Barack Obama’s budget plan, the federal debt is exploding. To be precise, it is rising – and will continue to rise – much faster than gross domestic product, a measure of America’s ability to service it. The federal debt was equivalent to 41 per cent of GDP at the end of 2008; the Congressional Budget Office projects it will increase to 82 per cent of GDP in 10 years. With no change in policy, it could hit 100 per cent of GDP in just another five years.
“A government debt burden of that [100 per cent] level, if sustained, would in Standard & Poor’s view be incompatible with a triple A rating,” as the risk rating agency stated last week....
The CRA Scam and its Defenders
...Gordon is incensed that a few "analysts," including myself and Professor Stan Liebowitz of the University of Dallas, have argued that the bursting of the housing bubble has caused the chickens to come home to roost, so to speak, after thirty years of government policy pressuring banks to make tens of billions of dollars in bad loans to people with low (or nonexistent) credit ratings. Neither Liebowitz nor I have argued that every last bad loan out there is a CRA loan, but Gordon implies that we do in a rather feeble attempt to construct a straw-man argument.
Gordon cites Fed bureaucrat Janet Yellen as the source of a "killer statistic" that absolves the government of all guilt: "Independent mortgage companies" which are not covered by the CRA made many more "high-priced loans" to borrowers with bad credit than did CRA-regulated banks, she says. Well, so what? Even if Yellen is correct, that does not mean that CRA-regulated loans have not caused tens of billions of dollars in defaults.
Moreover, Yellen and Gordon don't seem to understand what an "independent mortgage company" is. Many of these companies are like the one in which my next-door neighbor is employed: they are middlemen who arrange mortgage loans for borrowers — including "subprime" borrowers — with banks, including CRA-regulated banks. Some killer statistic.
By ignoring the role of the Fed in creating the whole housing-market mess, Gordon's pronouncement that it is entirely a result of "market failure" is laughable on its face. He also flatly denies that CRA lending has had anything to do with why so many uncreditworthy borrowers have defaulted now that the Fed-generated housing bubble has burst. This, too, is an untenable position....
...In order to try to diversify the risk of these loans, the Federal Home Loan Mortgage Company ("Freddie Mac") pioneered the "securitization" of bundles of these high-risk loans so that they could be sold on secondary markets. Such "securitization" exploded during the 1990s as a result of government regulation. As Fed Chairman Ben Bernanke himself stated in a March 30, 2007 speech entitled "The Community Reinvestment Act: Its Evolution and New Challenges" (published online by the Fed),
Securitization of affordable housing loans expanded, as did the secondary market for these loans, in part reflecting a 1992 law that required the government-sponsored enterprises, Fannie Mae and Freddie Mac, to devote a large percentage of their activities to meeting affordable housing goals. (p. 3).
In 1994 the Riegle-Neal Interstate Banking and Branching Efficiency Act loosened up the regulatory barriers to bank mergers. Consequently, said Bernanke, "As public scrutiny of bank merger and acquisition activity escalated, advocacy groups [like ACORN] increasingly used the public comment process to protest bank applications on CRA grounds." In other words, there was a burst of additional legalized extortion perpetrated by the Fed and its pet "activist organizations" beginning in the mid-1990s. As a result, says Bernanke, "banks began to devote more resources to their CRA programs." What an understatement.
Also in 1995, the US Treasury Department created the multibillion-dollar "Community Development Financial Institutions" fund to "provide banks with access [i.e., taxpayers' dollars] to new opportunities to finance community economic development" as "encouraged" by the CRA, said the Fed chairman.
The government also "streamlined" the regulatory requirements for CRA loans in 1995, allowing — and indeed pressuring — banks to make such loans without the benefit of many traditional credit-worthiness criteria, such as the size of the mortgage payment relative to income, savings history, and even income verification! Instead, the Fed told banks that participation in a credit-counseling program, many of which are federally funded, could be used as "proof" of a low-income applicant's ability to make his mortgage payments. In other words, federal bank regulators required banks to make bad loans based on nonexistent credit standards.
In his April 26 New York Post article on the CRA entitled "The Real Scandal," Professor Liebowitz explains how the government's Fannie Mae Foundation singled out one bank in particular as the role model for all other banks in America in terms of its commitment to CRA lending: Countrywide, the nation's largest mortgage lender, had committed to $600 billion in low-income or "subprime" loans as of 2003. Today, Countrywide is essentially bankrupted and has been merged with Bank of America....
Everybody Else Did It
...In February 2004, while Republican colleagues warned of the systemic risks posed by Fannie Mae and Freddie Mac, Mr. Dodd pronounced the mortgage market "one of the great success stories of all time." A year later, the Connecticut Democrat voted against a reform that would have limited the size of Fan and Fred's mortgage portfolios. Now that Fan and Fred have collapsed at a cost to taxpayers that could run to $200 billion or more, Mr. Dodd is also under fire for accepting sweetheart loans from Countrywide Financial, the subprime mortgage factory....
...Speaking of blame, another scheduled witness is Eugene Ludwig, who was Bill Clinton's Comptroller of the Currency in the 1990s. In 2000, Haverford College's magazine reported that "Ludwig remains proudest . . . of his efforts to compel bank compliance with fair-lending laws and his revitalization of the Community Reinvestment Act (CRA), a 1977 law requiring banks to invest in poorer neighborhoods and improve lending and service to low- and moderate-income borrowers. Although branded an 'activist' for his vigorous support of the act . . . he points to the cold, hard facts to justify his tactics. After just one Justice Department referral in the OCC's previous 129 years, Ludwig's tenure witnessed 27 fair-lending cases, resulting in tens of millions of dollars in fines against violators." Will he testify today that noneconomic loans were entirely the fault of bankers?...
Dodd and Countrywide
...Former Countrywide Financial loan officer Robert Feinberg says Mr. Dodd knowingly saved thousands of dollars on his refinancing of two properties in 2003 as part of a special program the California mortgage company had for the influential. He also says he has internal company documents that prove Mr. Dodd knew he was getting preferential treatment as a friend of Angelo Mozilo, Countrywide's then-CEO.
That a "Friends of Angelo" program existed is not in dispute. It was crucial to the boom that Countrywide enjoyed before its fortunes turned. While most of the company was aggressively lending to risky borrowers and off-loading those mortgages in bulk to Fannie Mae and Freddie Mac, Mr. Feinberg's department was charged with making sure those who could influence Fannie and Freddie's appetite for risk were sufficiently buttered up. As a Banking Committee bigshot, Mr. Dodd was perfectly placed to be buttered....
...Mr. Feinberg, who oversaw "Friends of Angelo" from 2000 to 2004, begs to differ. He told us that as the loan officer in charge he was supposed to make sure that the "VIP" clients knew at every step of the process that they were getting a special deal because they were "Friends of Angelo."
"People are referred into that department as 'very important people.' You're told that your loan is priced from Angelo. As the 'Friends of Angelo department,' [the department] has to give them a sense of importance and explain the reduction of fees and the rate as a result of being a 'Friend of Angelo,'" he says. According to a report by Dan Golden in Condé Nast Portfolio in August, other VIPs included Senator Kent Conrad. Mr. Golden reported that "Countrywide also offered special discounts to congressional staffers involved in housing issues."
As to Mr. Dodd, Mr. Feinberg says he spoke to the Senator once or twice and mostly to his wife and that like other FOAs Mr. Dodd got "a float down," which means that even after he had a preferred rate, when the prevailing rate dropped just before the closing, his rate was reduced again. Regular borrowers would pay extra for a last-minute adjustment, but not FOAs. "They were aware of it because they were notified and when they went to the closing they would see it," Mr. Feinberg says, adding that he "always let people in the program know that they were getting a very good deal because they were 'Friends of Angelo.'" All of this matters because Mr. Dodd was one of those encouraging Fan and Fred to plunge into "affordable housing" loans made by companies like Countrywide.
One indicator of his influence is the $165,400 in campaign contributions -- more than to any other politician -- that Fan and Fred have given him since 1989, according to the Center for Responsive Politics. These contributions are legal. But favors like those Mr. Dodd is alleged to have received may not be. Mr. Feinberg says he went public with his story because when he heard Senator Dodd on TV talking about predatory lending, he felt it was "hypocritical" and he says, "I just thought, 'This is wrong.'"...
The Countrywide Bailout Explained
We have been calling Sen. Chris Dodd’s (D-CT) housing bailout bill “The Wall Street Bailout Enhancement Act” for over a month now. In particular, we have singled out Countrywide Financial as the bank with most to gain from the federal government’s generosity. ...
...According to company documents and emails, the V.I.P.’s received better deals than those available to ordinary borrowers. … Senator Dodd received two loans in 2003 through Countrywide’s V.I.P. program. He borrowed $506,000 to refinance his Washington townhouse, and $275,042 to refinance a home in East Haddam, Connecticut. Countrywide waived three-eighths of a point, or about $2,000, on the first loan, and one-fourth of a point, about $700, on the second, according to internal documents. Both loans were for 30 years, with the first five years at a fixed rate.
The interest rate on the loans, originally pegged at 4.875%, was reduced to 4.25% on the Washington home and 4.5% on the Connecticut property by the time the loans were funded. The lower rates save the senator about $58,000 on his Washington residence over the life of the loan, and $17,000 on the Connecticut home. ...
...Yesterday's Journal reports that Fitch Ratings looked at mortgages bundled into securities between 2005 and 2007 and managed by some 30 mortgage companies. Fitch found that a conservative projection was that between 65% and 75% of modified subprime loans will fall delinquent by 60 days or more within 12 months of having been modified to keep the borrowers in their homes. This is an even worse result than previous reports by federal regulators. Even loans whose principal was reduced by as much as 20% were still redefaulting in a range of 30% to 40% after 12 months.
The reasons for the high redefault rate aren't surprising. Many of the borrowers never could afford these homes in the first place, yet the political pressure has been strong to modify loans even for these borrowers. As home prices continue to fall in some markets, borrowers remain underwater and many of them simply walk away from the home and thus redefault.
This study has to come as a blow to the Federal Deposit Insurance Corporation, which has invested a great deal of political capital in the modification thesis...
...This is all based on a Keynesian type of macro analysis. As we know, most of the stimulus spending does not take place until next year and beyond, so the short-run gains are puny. On the other hand, the big increase in the projected deficit creates the expectation of higher interest rates, which raises interest rates now. These higher interest rates serve to weaken the economy.
According to this standard analysis, the stimulus is going to hurt GDP now, when we could use the most help. Much of the spending will kick in a year or more from now, with multiplier effects following afterward, when the economy will need little, if any, stimulus.
This is the flaw with using spending rather than tax cuts as a stimulus. The lags are longer when you use spending.
Of course, if the real goal is to promote government at the expense of civil society and to create a one-party state in which business success is based on political favoritism, then the stimulus is working exactly as intended....
Accountants, Washington Helping Banks Fluff Profits
Look for another rosy round of profits when banks turn in their numbers for the second quarter ending in June when it will be legal for them to improve their balance sheets by shifting losses into the future, thanks to new accounting rules passed by a one-vote margin by the Financial Accounting Standards Board (FASB).
It's just one in a series of changes made to accounting rules that allow banks to shift or ignore losses or pretend that liabilities aren't liabilities. The struggle for control of the financial recovery -- where the money goes, how it's counted and who survives -- is nothing short of war. Truth has been the first casualty.
The latest rule change allows banks to split losses into ones that they recognize immediately and others that are pushed down the road and may pop up on the books later. It passed in April with barely any notice from the press. The accounting tricks allow banks, which may otherwise be deemed insolvent, to continue to operate. It's a hell of a time to be an accountant....
Yes, the Community Reinvestment Act Really Did Help Cause the Housing Crisis
...Yet the FDIC has turned up the heat on Petrucelli's bank, giving it an apparently rare "needs to improve rating," for not making more risky loans under the Community Reinvestment Act. Here is how the FDIC puts it: “There are no apparent financial or legal impediments that would limit the bank’s ability to help meet the credit needs of its assessment area. The FDIC examiners also faulted East Bridgewater "for not advertising and marketing its loan products enough. The bank, which does not have a Web site, offers fixed-rate mortgages."
Me: How many East Bridgewaters are out there that knuckled under to the pressure and started handing out mortgages to whomever? ...
Monday, May 25, 2009
Don't Ask, Don't Tell
For 40 years, the Episcopal Church of Texas turned a blind eye to a priest who was sexually molesting male students.
..."I wrote them a letter, and I said, 'That's a big mistake. You guys are going to get bit in the ass for starting a scholarship in Jim Tucker's name,'" Haslanger says.
This warning was summarily ignored. A single accusation of child molestation was not going to gum up the gears of the fund-raising machine.
But about ten years later, another accusation surfaced. And another. And then another, this one from the Episcopal church and school in Houston where Tucker worked after St. Stephen's.
That's when the Episcopal Diocese of Texas went back and looked at Woodruff's notes from his 1993 talk with Haslanger. And that's when diocesan officials figured they had a problem on their hands: It looked like, for the past 40 years, a series of diocesan and school authorities had conspired to cover up allegations of sexual abuse. Now the school and diocese are facing a $45 million lawsuit for that cover-up. And now, say Haslanger and the other two plaintiffs, the diocese is abusing them all over again....
...During a July 2007 Houston Press interview about the allegations against Tucker, diocese spokeswoman Carol Barnwell chuckled over the idea of a "conspiracy." How ludicrous.
Either Barnwell wasn't being candid, or her boss didn't fill her in on the fact that the diocese had hired a risk analysis company to investigate the allegations and had, three months earlier, outlined clear evidence that there was in fact a conspiracy among St. Stephen's and diocesan authorities. And, in September 2007, the diocese released a summary of that investigation, which substantiated Haslanger's claim that he told Becker about the abuse in 1966, and that Becker did nothing.
Instead, Becker's response to continued allegations was to tell the St. Stephen's community that Tucker had heart disease and was leaving Austin for St. James Episcopal Church in Houston. Apparently, this satisfied everyone — no one questioned why Houston was better for his heart than Austin.
Then again, Becker's word was gold, especially among the more progressive families who sent their children to St. Stephen's. According to a 2000 article in Focus on St. Stephen's (an alumni publication), when Becker "was offered the position of headmaster [in 1957], he accepted on one condition — that the school 'remove race as a criterion for admission.'" The school had long been coeducational, but, reflective of the time, the school's trustees found the idea of black students studying alongside white students unpalatable...
Facts and myths about Obama's preventive detention proposal
...When Bush supporters used to justify Bush/Cheney detention policies by arguing that it's normal for "Prisoners of War" to be held without trials, that argument was deeply misleading. And it's no less misleading when made now by Obama supporters. That comparison is patently inappropriate for two reasons: (a) the circumstances of the apprehension, and (b) the fact that, by all accounts, this "war" will not be over for decades, if ever, which means -- unlike for traditional POWs, who are released once the war is over -- these prisoners are going to be in a cage not for a few years, but for decades, if not life.
Traditional "POWs" are ones picked up during an actual military battle, on a real battlefield, wearing a uniform, while engaged in fighting. The potential for error and abuse in deciding who was a "combatant" was thus minimal. By contrast, many of the people we accuse in the "war on terror" of being "combatants" aren't anywhere near a "battlefield," aren't part of any army, aren't wearing any uniforms, etc. Instead, many of them are picked up from their homes, at work, off the streets. In most cases, then, we thus have little more than the say-so of the U.S. Government that they are guilty, which is why actual judicial proceedings before imprisoning them is so much more vital than in the standard POW situation.
Anyone who doubts that should just look at how many Guantanamo detainees were accused of being "the worst of the worst" yet ended up being released because they did absolutely nothing wrong. Can anyone point to any traditional POW situation where so many people were falsely accused and where the risk of false accusations was so high? For obvious reasons, this is not and has never been a traditional POW detention scheme.
During the Bush era, that was a standard argument among Democrats, so why should that change now?...
...If you really think about the argument Obama made yesterday -- when he described the five categories of detainees and the procedures to which each will be subjected -- it becomes manifest just how profound a violation of Western conceptions of justice this is. What Obama is saying is this: we'll give real trials only to those detainees we know in advance we will convict. For those we don't think we can convict in a real court, we'll get convictions in the military commissions I'm creating. For those we can't convict even in my military commissions, we'll just imprison them anyway with no charges ("preventively detain" them).
Giving trials to people only when you know for sure, in advance, that you'll get convictions is not due process. Those are called "show trials." In a healthy system of justice, the Government gives everyone it wants to imprison a trial and then imprisons only those whom it can convict. The process is constant (trials), and the outcome varies (convictions or acquittals).
Obama is saying the opposite: in his scheme, it is the outcome that is constant (everyone ends up imprisoned), while the process varies and is determined by the Government (trials for some; military commissions for others; indefinite detention for the rest). The Government picks and chooses which process you get in order to ensure that it always wins. A more warped "system of justice" is hard to imagine....
Hailing the leader as a War President and the powers that go with it
In a February, 2004 interview with Tim Russert, George Bush provoked much derision by proudly declaring himself to be what he called a "war president." This week, Newsweek's Editor Jon Meacham interviewed Barack Obama, adopted Bush's label and applied it to Obama, asking him:
Can anything get you ready to be a war president?
Nothing excites our media stars more than saluting and fetishizing the President as a "War President" and "Commander-in-Chief" (David Broder today, in his column entitled "Obama in Command": Obama is "continuing, with minor modifications, the policies and practices of his Republican predecessor . . . . Obama's liberal critics are right. He is a different man now. He has learned what it means to be commander in chief"). But isn't the phrase "war president" a complete redundancy when it comes to the U.S.? Which American presidents were not "war presidents"? ...
...In any event, the U.S. is, more or less, a nation permanently at war. One can debate whether all or some of our wars are good or not, but what can't be debated is that we fight wars far, far more than any other country -- basically, continuously. That's just a fact. After Bush 41's invasion of Panama, R.W. Apple wrote on the front page of The New York Times that the invasion "constituted a Presidential initiation rite" whereby:
For better or for worse, most American leaders since World War II have felt a need to demonstrate their willingness to shed blood to protect or advance what they construe as the national interest.
In other words, there's no such thing as an American President who is not a "war President." We never go more than a few years without some kind of a direct war, and are always waging covert and indirect ones. American presidents are inherently "war presidents." We don't really have any other kind. To vest a specific power in a President on the ground that he's a "War President" is to vest that power in presidents generally and permanently.
That's why this media construct that things are different for "war presidents" -- we have to give "war presidents" greater power and leeway; demand less transparency and accept more secrecy; acquiesce to abridgments of civil liberties when "America is at war"; and, coming soon under the Change banner, allow them the right to imprison people indefinitely with no trials even beyond "war zones" -- is so manipulative and misleading. It implies that "America at war" is some sort of unusual and temporary circumstance rather than what it is: our permanent state of affairs. ...
Obama's civil liberties speech
Obama's speech this morning, like most Obama speeches, made pretty points in rhetorically effective ways about the Constitution, our values, transparency, oversight, the state secrets privilege, and the rule of law. But his actions, in many critical cases, have repeatedly run afoul of those words. And while his well-crafted speech can have a positive impact on our debate and contained some welcome and rare arguments from a high-level political leader -- changes in the terms of the debate are prerequisites to changes in policy and the value of rhetoric shouldn't be understated -- they're still just words until his actions become consistent with them.
Worse, Obama repeatedly invoked the paradigm of The War on Terror to justify some extreme policies -- see my post of earlier today on this practice -- beginning with his rather startling declaration that he will work to create a system of "preventive detention" for accused Terrorists without a trial, in order to keep locked up indefinitely people who, in his words, "cannot be prosecuted yet who pose a clear danger to the American people." In other words, even as he paid repeated homage to "our values" and "our timeless ideals," he demanded the power (albeit with unspecified judicial and Congressional oversight) to keep people in prison with no charges or proof of any crime having been committed, all while emphasizing that this "war" will continue for at least ten years. ...
Saturday, May 23, 2009
Weakland says he didn't know priests' abuse was crime
In the early years of the sex abuse scandal in Milwaukee, retired Archbishop Rembert G. Weakland says in his soon-to-be released memoir, he did not comprehend the potential harm to victims or understand that what the priests had done constituted a crime.
"We all considered sexual abuse of minors as a moral evil, but had no understanding of its criminal nature," Weakland says in the book, "A Pilgrim in a Pilgrim Church," due out in June.
Weakland said he initially "accepted naively the common view that it was not necessary to worry about the effects on the youngsters: either they would not remember or they would 'grow out of it.' "...
Friday, May 22, 2009
Who’s Going to Buy Your Debt, Mr. President?
... Britain was warned by Standard & Poor’s Ratings Service that it may lose its coveted triple-A credit rating, triggering a drop in U.K. bonds and sparking global fears about the consequences of massive debts being incurred by the U.S. and other major nations as they try to dig out from the economic crisis.
The announcement quickly sent waves across the Atlantic. Investors initially dumped U.K. bonds and the pound, heading for the relative safety of U.S. Treasurys. But within hours, worries about an onslaught of new U.S. bond sales and the security of America’s own triple-A rating drove down the prices of U.S. Treasurys.
The yield of the benchmark U.S. 10-year bond, which moves in the opposite direction to the price, rose by 0.15 percentage point from Wednesday to 3.355%, its highest level in six months.
The relative gloom about the U.K. and the U.S. was apparent Thursday in the market for credit-default swaps, where investors can buy and sell insurance against sovereign defaults. Five years of insurance on $10 million in U.K. debt jumped to around $81,000 a year, from $72,000 earlier in the day. U.S. debt insurance cost the equivalent of $37,500 — in the same range as France at $38,000, and Germany at $35,000....
...China is growing more picky about which American debt it is willing to finance, and is changing laws to make it easier for Chinese companies to invest abroad the billions of dollars they take in each year by exporting to America. For its part, the United States is becoming relatively less dependent on Chinese financing.
…Financial statistics released by both countries in recent days show that China paradoxically stepped up its lending to the American government over the winter even as it virtually stopped putting fresh money into dollars.
This combination is possible because China has been exchanging one dollar-denominated asset for another — selling the debt of government-sponsored enterprises like Fannie Mae and Freddie Mac in a hurry to buy Treasuries. While this has been clear for months, new data shows that China is also trading long-term Treasuries for short-term notes, highlighting Beijing’s concerns that inflation will erode the dollar’s value in the long run as America amasses record debt....
Light Cars Are Dangerous Cars
...The great irony of Mr. Obama's fuel efficiency proposals is that they may worsen emissions of these harmful gases. By the White House's own calculation (which many observers believe to be quite conservative), the new rules, when combined with earlier proposed increases in Corporate Average Fuel Economy (CAFE) standards, will increase the average price of a new car by $1,300. Herein lies the problem.
In today's automobile fleet, the majority of the pollution comes from the oldest, dirtiest cars. In fact, the dirtiest 10% of the cars account for more than 50% of smog and carbon monoxide. The dirtiest one-third of the fleet accounts for more than 80% of the pollution. ...
...An economic phenomenon called "price elasticity of demand" is well established when it comes to automobile purchases. In other words, if you raise the price of new cars, people will buy fewer of them or, at a minimum, put off the purchase for a year or so while they drive the old clunker for a few thousand more miles. And fewer new cars means more pollution, which can cause significant health problems. Yet environmentalists and the press have ignored this issue, so as not to inject a note of complexity or doubt into the chorus of glee that greeted the president's attack on greenhouse-gas emissions....
...The Obama fuel efficiency plan may also contribute to a significant increase in highway deaths as vehicles are required to quickly meet the new CAFE standard and will likely become lighter in weight as a result. According to a study completed in 2001 by the National Research Council (NRC), the last major increase in CAFE standards, mandated by the Energy Policy and Conservation Act of 1975, required about a 50% increase in fuel economy (to 27.5 mpg by model year 1985 from an average of 18 mpg in 1978). The NRC study concluded that the subsequent downsizing and down-weighting of vehicles, "while resulting in significant fuel savings, also resulted in a safety penalty." Specifically, the NRC estimated that in 1993 there were between 1,300 and 2,600 motor vehicle crash deaths that would not have occurred if cars were as heavy as they were in 1976....
Class Warfare Against the Financially Responsible
Earlier, the Obama Administration pushed through $250 billion in mortgage bailouts, to bail out even some high-income borrowers with normal mortgage payments, and forced financial institutions it took over in the name of fiscal responsibility, like Freddie Mac, to run up billions in losses bailing out irresponsible borrowers.
Now, it’s applying the same destructive, redistributionist philosophy to credit cards.
Commercial lawyer John Hinderaker notes that with Obama’s support, “Congress has just enacted new credit card regulations intended to limit banks’ ability to collect money from distressed or incompetent customers. The New York Times explains the consequences:
‘It will be a different business,’ said Edward L. Yingling, the chief executive of the American Bankers Association, which has been lobbying Congress for more lenient legislation on behalf of the nation’s biggest banks. ‘Those that manage their credit well will in some degree subsidize those that have credit problems.’...
The Climate-Industrial Complex
Some business leaders are cozying up with politicians and scientists to demand swift, drastic action on global warming. This is a new twist on a very old practice: companies using public policy to line their own pockets.
The tight relationship between the groups echoes the relationship among weapons makers, researchers and the U.S. military during the Cold War. President Dwight Eisenhower famously warned about the might of the "military-industrial complex," cautioning that "the potential for the disastrous rise of misplaced power exists and will persist." He worried that "there is a recurring temptation to feel that some spectacular and costly action could become the miraculous solution to all current difficulties."
This is certainly true of climate change. We are told that very expensive carbon regulations are the only way to respond to global warming, despite ample evidence that this approach does not pass a basic cost-benefit test. We must ask whether a "climate-industrial complex" is emerging, pressing taxpayers to fork over money to please those who stand to gain.
This phenomenon will be on display at the World Business Summit on Climate Change in Copenhagen this weekend. The organizers -- the Copenhagen Climate Council -- hope to push political leaders into more drastic promises when they negotiate the Kyoto Protocol's replacement in December.
The opening keynote address is to be delivered by Al Gore, who actually represents all three groups: He is a politician, a campaigner and the chair of a green private-equity firm invested in products that a climate-scared world would buy.
Naturally, many CEOs are genuinely concerned about global warming. But many of the most vocal stand to profit from carbon regulations. The term used by economists for their behavior is "rent-seeking."...
FCC’s Warrantless Household Searches Alarm Experts
You may not know it, but if you have a wireless router, a cordless phone, remote car-door opener, baby monitor or cellphone in your house, the FCC claims the right to enter your home without a warrant at any time of the day or night in order to inspect it.
That’s the upshot of the rules the agency has followed for years to monitor licensed television and radio stations, and to crack down on pirate radio broadcasters. And the commission maintains the same policy applies to any licensed or unlicensed radio-frequency device.
“Anything using RF energy — we have the right to inspect it to make sure it is not causing interference,” says FCC spokesman David Fiske. That includes devices like Wi-Fi routers that use unlicensed spectrum, Fiske says.
The FCC claims it derives its warrantless search power from the Communications Act of 1934, though the constitutionality of the claim has gone untested in the courts. That’s largely because the FCC had little to do with average citizens for most of the last 75 years, when home transmitters were largely reserved to ham-radio operators and CB-radio aficionados. But in 2009, nearly every household in the United States has multiple devices that use radio waves and fall under the FCC’s purview, making the commission’s claimed authority ripe for a court challenge....
...But if inspectors should notice evidence of unrelated criminal behavior — say, a marijuana plant or stolen property — a Supreme Court decision suggests the search can be used against the resident. In the 1987 case New York v. Burger, two police officers performed a warrantless, administrative search of one Joseph Burger’s automobile junkyard. When he couldn’t produce the proper paperwork, the officers searched the grounds and found stolen vehicles, which they used to prosecute him. The Supreme Court held the search to be legal....
Fund Managers Burned by Obama Now Say They Are Wary
May 20 (Bloomberg) -- Hedge fund manager George Schultze says he may avoid lending to any more unionized companies after being burned by President Barack Obama in Chrysler LLC’s bankruptcy.
Obama put Chrysler under court protection on April 30 after lenders balked at a proposal giving them about 29 cents on the dollar for their $6.9 billion in debt. The investors said the president’s plan favored a union retiree medical fund whose claims ranked behind them for repayment. It was offered a 55 percent equity stake in the automaker.
Pacific Investment Management Co., Barclays Capital and Fridson Investment Advisors have joined Schultze Asset Management LLC in saying lenders may be unwilling to back unionized companies with underfunded pension and medical obligations, such as airlines and auto-industry suppliers, because Chrysler’s creditors failed to block Obama’s move. The reluctance may put additional pressure on borrowers seeking capital in the worst financial crisis since the Great Depression.
“Lenders will have to figure out how to price this risk,” Schultze, 39, said in a telephone interview from his office in Purchase, New York. “The obvious one is: Don’t lend to a company with big legacy liabilities or demand a much higher rate of interest because you may be leapfrogged in a bankruptcy.” ...
Banking Committee Democrats Threaten Private Businessman
...The day after the Times article ran, Frey received a threatening letter signed by six Democrats on the House Financial Services Committee. The letter reads:
Dear Mr. Frey:
We were outraged to read in today’s New york Times that you are actively opposing our efforts to achieve a diminution in foreclosures by voluntary efforts. Your decision is a serious threat to our efforts to respond to the current economic crisis, and we strongly urge you to reverse it. Given the importance of this to the economy and to what it means for future regulatory efforts, we have set a hearing for November 12, and we invite you to now testify. We believe it is essential for our policymaking function for you to appear at such a hearing, and if this can not be arranged on a vountary basis, then we will purse further steps.
For the hedge fund industry, which has flourished for much of the past decade, to take steps so actively in opposition to what is currently in the national economic interest is deeply troubling and will clearly have serious implications for the rules by which we operate in the future if this posture of obstruction of our efforts is maintained.
We very much hope you will be able to tell us very soon that you have reversed your position of trying to obstruct the operation of the bill that was overwhelmingly passed by Congress and signed by the President this summer, and we hope you will also affirm your presence at the hearing on November 12.
The letter is signed by Rep. Barney Frank (D-Mass.), Rep. Paul Kanjorski (D-Penn.), Rep. Maxine Waters (D-Calif.), Rep. Luis Gutierrez (D-Ill.), Rep. Carolyn Maloney (D-N.Y.), and Rep. Melvin Watt (D-N.C.)....
...Human beings are as good at devising ex post facto explanations for big disasters as they are bad at anticipating those disasters. It is indeed impressive how rapidly the economists who failed to predict this crisis — or predicted the wrong crisis (a dollar crash) — have been able to produce such a satisfying story about its origins. Yes, it was all the fault of deregulation.
There are just three problems with this story. First, deregulation began quite a while ago (the Depository Institutions Deregulation and Monetary Control Act was passed in 1980). If deregulation is to blame for the recession that began in December 2007, presumably it should also get some of the credit for the intervening growth. Second, the much greater financial regulation of the 1970s failed to prevent the United States from suffering not only double-digit inflation in that decade but also a recession (between 1973 and 1975) every bit as severe and protracted as the one we’re in now. Third, the continental Europeans — who supposedly have much better-regulated financial sectors than the United States — have even worse problems in their banking sector than we do. The German government likes to wag its finger disapprovingly at the “Anglo Saxon” financial model, but last year average bank leverage was four times higher in Germany than in the United States. Schadenfreude will be in order when the German banking crisis strikes.
We need to remember that much financial innovation over the past 30 years was economically beneficial, and not just to the fat cats of Wall Street. New vehicles like hedge funds gave investors like pension funds and endowments vastly more to choose from than the time-honored choice among cash, bonds and stocks. Likewise, innovations like securitization lowered borrowing costs for most consumers. And the globalization of finance played a crucial role in raising growth rates in emerging markets, particularly in Asia, propelling hundreds of millions of people out of poverty.
The reality is that crises are more often caused by bad regulation than by deregulation. For one thing, both the international rules governing bank-capital adequacy so elaborately codified in the Basel I and Basel II accords and the national rules administered by the Securities and Exchange Commission failed miserably. It was the Basel system of weighting assets by their supposed riskiness that essentially allowed the Enronization of banks’ balance sheets, so that (for example) the ratio of Citigroup’s tangible on- and off-balance-sheet assets to its common equity reached a staggering 56 to 1 last year. The good health of Canada’s banks is due to better regulation. Simply by capping leverage at 20 to 1, the Office of the Superintendent of Financial Institutions spared Canada the need for bank bailouts.
The biggest blunder of all had nothing to do with deregulation. For some reason, the Federal Reserve convinced itself that it could focus exclusively on the prices of consumer goods instead of taking asset prices into account when setting monetary policy. In July 2004, the federal funds rate was just 1.25 percent, at a time when urban property prices were rising at an annual rate of 17 percent. Negative real interest rates at this time were arguably the single most important cause of the property bubble.
All of these were sins of commission, not omission, by Washington, and some at least were not unrelated to the very considerable political contributions and lobbying expenditures of the financial sector. Taxpayers, therefore, should beware. It is more than a little convenient for America’s political class to blame deregulation for this financial crisis and the resulting excesses of the free market. Not only does that neatly pass the buck, but it also creates a justification for . . . more regulation. The old Latin question is highly apposite here: Quis custodiet ipsos custodes? — Who regulates the regulators? Until that question is answered, calls for more regulation are symptoms of the very disease they purport to cure.
Obama Aids Labor With Policy Shifts, Key Appointments
After decades of decline, Big Labor now has reason to be optimistic about the future: It has fast friends in the White House.
California officials recently learned just what that meant when they tried to trim the pay of state health workers. A top union got the administration to tell California to back down.
The debt-ridden state had sought to trim $74 million from its budget by reducing its contribution to home health workers' pay from $12.10 an hour to $10.10.
The Obama administration subsequently told them in an April 15 conference call that if the wages were cut it could endanger $6.8 billion in federal stimulus funds.
President Barack Obama speaks Thursday during a town hall meeting in Rio Rancho, New Mexico.
Also on the call were the Service Employees International Union's associate general counsel and two California union officials, one a lobbyist.
The SEIU had lobbied the administration to step in. Many of the workers are SEIU members....
Onward Christian Soldiers! (slideshow)
AND HE SHALL BE JUDGED
on the morning of Thursday, April 10, 2003, Donald Rumsfeld’s Pentagon prepared a top-secret briefing for George W. Bush. This document, known as the Worldwide Intelligence Update, was a daily digest of critical military intelligence so classified that it circulated among only a handful of Pentagon leaders and the president; Rumsfeld himself often delivered it, by hand, to the White House. The briefing’s cover sheet generally featured triumphant, color images from the previous days’ war efforts: On this particular morning, it showed the statue of Saddam Hussein being pulled down in Firdos Square, a grateful Iraqi child kissing an American soldier, and jubilant crowds thronging the streets of newly liberated Baghdad. And above these images, and just below the headline secretary of defense, was a quote that may have raised some eyebrows. It came from the Bible, from the book of Psalms: “Behold, the eye of the Lord is on those who fear Him…To deliver their soul from death.”
This mixing of Crusades-like messaging with war imagery, which until now has not been revealed, had become routine. On March 31, a U.S. tank roared through the desert beneath a quote from Ephesians: “Therefore put on the full armor of God, so that when the day of evil comes, you may be able to stand your ground, and after you have done everything, to stand.” On April 7, Saddam Hussein struck a dictatorial pose, under this passage from the First Epistle of Peter: “It is God’s will that by doing good you should silence the ignorant talk of foolish men.”
These cover sheets were the brainchild of Major General Glen Shaffer, a director for intelligence serving both the Joint Chiefs of Staff and the secretary of defense. In the days before the Iraq war, Shaffer’s staff had created humorous covers in an attempt to alleviate the stress of preparing for battle. Then, as the body counting began, Shaffer, a Christian, deemed the biblical passages more suitable. Several others in the Pentagon disagreed. At least one Muslim analyst in the building had been greatly offended; others privately worried that if these covers were leaked during a war conducted in an Islamic nation, the fallout—as one Pentagon staffer would later say—“would be as bad as Abu Ghraib.”
But the Pentagon’s top officials were apparently unconcerned about the effect such a disclosure might have on the conduct of the war or on Bush’s public standing. When colleagues complained to Shaffer that including a religious message with an intelligence briefing seemed inappropriate, Shaffer politely informed them that the practice would continue, because “my seniors”—JCS chairman Richard Myers, Rumsfeld, and the commander in chief himself—appreciated the cover pages....
Obama's latest effort to conceal evidence of Bush era crimes
It's difficult to react much to Obama's complete reversal today of his own prior decision to release photographs depicting extreme detainee abuse by the United States. He's left no doubt that this is what he does: ever since he was inaugurated, Obama has taken one extreme step after the next to keep concealed both the details and the evidence of Bush's crimes, including rendition, torture and warrantless eavesdropping. The ACLU's Amrit Singh -- who litigated the thus-far-successful FOIA lawsuit to compel disclosure of these photographs -- is exactly right:
The reversal is another indication of a continuance of the Bush administration policies under the Obama administration. President Obama's promise of accountability is meaningless, this is inconsistent with his promise of transparency, it violates the government's commitment to the court. People need to examine these abusive photographs, but also the government officials need to be held accountable....
... For all of you defend-Obama-at-all-cost cheerleaders who are about to descend into my comment section and other online venues to explain how Obama did the right thing because of National Security, I have this question: if you actually want to argue that concealing these photographs is the right thing to do, then you must have been criticizing Obama when, two weeks ago, he announced that he would release them. Otherwise, it's pretty clear that you don't have any actual beliefs other than: "I support what Obama does because it's Obama who does it." So for those arguing today that concealing these photographs is the right thing to do: were you criticizing Obama two weeks ago for announcing he would release these photographs?...
Obama's Risky Debt
Just how much government debt does a president have to endorse before he's labeled "irresponsible"? Well, apparently much more than the massive amounts envisioned by President Obama. The final version of his 2010 budget, released last week, is a case study in political expediency and economic gambling.
Let's see. From 2010 to 2019, Obama projects annual deficits totaling $7.1 trillion; that's atop the $1.8 trillion deficit for 2009. By 2019, the ratio of publicly held federal debt to gross domestic product (GDP, or the economy) would reach 70 percent, up from 41 percent in 2008. That would be the highest since 1950 (80 percent). The Congressional Budget Office, using less optimistic economic forecasts, raises these estimates. The 2010-19 deficits would total $9.3 trillion; the debt-to-GDP ratio in 2019 would be 82 percent.
But wait: Even these totals may be understated. By various estimates, Obama's health plan might cost $1.2 trillion over a decade; Obama has budgeted only $635 billion. Next, the huge deficits occur despite a pronounced squeeze of defense spending. From 2008 to 2019, total federal spending would rise 75 percent, but defense spending would increase only 17 percent. Unless foreign threats recede, military spending and deficits might both grow.
Except from crabby Republicans, these astonishing numbers have received little attention -- a tribute to Obama's Zen-like capacity to discourage serious criticism. Everyone's fixated on the present economic crisis, which explains and justifies big deficits (lost revenue, anti-recession spending) for a few years. Hardly anyone notes that huge deficits continue indefinitely. ...
Sunday, May 17, 2009
Saturday, May 16, 2009
Washington's Wealth Boom
Take a look at this map. The areas shaded in red are the 100 wealthiest counties in America according to per capita income. At first glance, it's a little misleading, because in the American West, counties tend to be larger in geographic area. But look closely, and you'll see that after the New York City metropolitan area, the largest cluster of wealth in the U.S. is huddled around Washington, D.C.
If we look at household income, the picture grows starker. After the 2000 Census, the richest county in America was Douglas County, Colorado. By 2007, Douglas County had fallen to sixth. The new top three are now Loudon County, Virginia; Fairfax County, Virginia; and Howard County, Maryland. All three are suburbs or exurbs of Washington, D.C. In 2000, 14 of the 100 richest counties were in the Washington, D.C., area. In 2007, it was nine of the richest 20....
...As for federal employees, according to the Bureau of Labors Statistics, as of January 2007, there were 284,000 federal employees living in the Washington, D.C. area, up from 268,000 in 2000. The Cato Institute's Chris Edwards estimates that in 2005, the average federal employee made $106,579 per year including benefits, about twice as much as the average person makes in the private sector. Federal wage are also rising at about twice the rate they are in the private sector.
What about contractors?New York University's Paul C. Light estimates about 7.6 million people earned their paycheck through federal government contracts in 2005, a 50 percent increase since 2002. That increase in contractors doesn't seem to be trimming the number of full-time government jobs, either. The civil service workforce increased over that period, too, though not nearly as dramatically. Taxpayers paid $400 billion to federal contractors in 2007, double what they paid in 2000. Less than half those contracts were won with competitive bidding....
Don't Blame Deregulation For Housing Mess
...When the housing boom was going along merrily, Rep. Barney Frank was proud to be one of those who were pushing Fannie Mae and Freddie Mac into more adventurous financial practices, in the name of "affordable housing."
In 2003 he said:
"I believe that we, as the federal government, have probably done too little rather than too much to push them to meet the goals of affordable housing and to set reasonable goals."
"I want to roll the dice a little bit more in this situation towards subsidized housing."
In other words, when things were looking good, he was happy to acknowledge the role of the federal government in pushing the housing market in a direction it would not have taken on its own.
But, after the risky mortgage-lending practices fostered by government intervention led to massive defaults and foreclosures that caused financial institutions to collapse or be bailed out, Frank changed his tune completely.
By 2007, his line was now that "the subprime crisis demonstrates the serious negative economic and social consequences that result from too little regulation."
By 2008, his line was that the financial crisis was caused by "bad decisions that were made by people in the private sector."
When television financial reporter Maria Bartiromo reminded Frank of his statements in earlier years, he simply denied making the statements she quoted and blamed "right-wing Republicans who took the position that regulation was always bad."...
Judicial Watch Forces Release of Bank Bailout Documents
# "CEO Talking Points" used by former Treasury Secretary Hank Paulson confirming that the nine bank CEOs present at the October 13 meeting had no choice but to accede to the government's demands for equity stakes and the resulting government control. The talking points emphasize that "if a capital infusion is not appealing, you should be aware your regulator will require it in any circumstance." Suggested edits of the "talking points" by Tim Geithner, then-New York Fed President, were withheld by the Obama Treasury Department.
# "Major Financial Institution Participation Commitments" signed by the nine bankers on October 13. The CEOs not only hand wrote their institution's names but also hand wrote multi-billion dollar amounts of "preferred shares" to be issued to the government.
Hersh: Children sodomized at Abu Ghraib, on tape
After Donald Rumsfeld testified on the Hill about Abu Ghraib in May, there was talk of more photos and video in the Pentagon's custody more horrific than anything made public so far. "If these are released to the public, obviously it's going to make matters worse," Rumsfeld said. Since then, the Washington Post has disclosed some new details and images of abuse at the prison. But if Seymour Hersh is right, it all gets much worse.
Hersh gave a speech last week to the ACLU making the charge that children were sodomized in front of women in the prison, and the Pentagon has tape of it. The speech was first reported in a New York Sun story last week, which was in turn posted on Jim Romenesko's media blog, and now EdCone.com and other blogs are linking to the video. We transcribed the critical section here (it starts at about 1:31:00 into the ACLU video.) At the start of the transcript here, you can see how Hersh was struggling over what he should say:
"Debating about it, ummm ... Some of the worst things that happened you don't know about, okay? Videos, um, there are women there. Some of you may have read that they were passing letters out, communications out to their men. This is at Abu Ghraib ... The women were passing messages out saying 'Please come and kill me, because of what's happened' and basically what happened is that those women who were arrested with young boys, children in cases that have been recorded. The boys were sodomized with the cameras rolling. And the worst above all of that is the soundtrack of the boys shrieking that your government has. They are in total terror. It's going to come out." ...
The 81% Tax Increase
...Most Americans believe that the Social Security trust fund contains a pot of money that is sitting somewhere earning interest to pay their benefits when they retire. On paper this is true; somewhere in a Treasury Department ledger there are $2.4 trillion worth of assets labeled "Social Security trust fund."
The problem is that by law 100% of these "assets" are invested in Treasury securities. Therefore, the trust fund does not have any actual resources with which to pay Social Security benefits. It's as if you wrote an IOU to yourself; no matter how large the IOU is it doesn't increase your net worth.
This fact is documented in the budget, which says on page 345: "The existence of large trust fund balances … does not, by itself, increase the government's ability to pay benefits. Put differently, these trust fund balances are assets of the program agencies and corresponding liabilities of the Treasury, netting to zero for the government as a whole."
Consequently, whether there is $2.4 trillion in the Social Security trust fund or $240 trillion has no bearing on the federal government's ability to pay benefits that have been promised. In a very technical sense, it would lose the ability to pay benefits in excess of current tax revenues once the trust fund is exhausted. But long before that date Congress would simply change the law to explicitly allow general revenues to be used to pay Social Security benefits, something it could easily do in a day.
The trust fund is better thought of as budget authority giving the federal government legal permission to use general revenues to pay Social Security benefits when current Social Security taxes are insufficient to pay current benefits--something that will happen in 2016. Effectively, general revenues will finance Social Security when the trust fund redeems its Treasury bonds for cash to pay benefits.
What really matters is not how much money is in the Social Security trust fund or when it is exhausted, but how much Social Security benefits have been promised and how much total revenue the government will need to pay them....
...To summarize, we see that taxpayers are on the hook for Social Security and Medicare by these amounts: Social Security, 1.3% of GDP; Medicare part A, 2.8% of GDP; Medicare part B, 2.8% of GDP; and Medicare part D, 1.2% of GDP. This adds up to 8.1% of GDP. Thus federal income taxes for every taxpayer would have to rise by roughly 81% to pay all of the benefits promised by these programs under current law over and above the payroll tax.
Since many taxpayers have just paid their income taxes for 2008 they may have their federal returns close at hand. They all should look up the total amount they paid and multiply that figure by 1.81 to find out what they should be paying right now to finance Social Security and Medicare.
To put it another way, the total unfunded indebtedness of Social Security and Medicare comes to $106.4 trillion. That is how much larger the nation's capital stock would have to be today, all of it owned by the Social Security and Medicare trust funds, to generate enough income to pay all the benefits that have been promised over and above future payroll taxes. But the nation's total private net worth is only $51.5 trillion, according to the Federal Reserve. In effect, we have promised the elderly benefits equal to more than twice the nation's total wealth on top of the payroll tax....
Friday, May 15, 2009
How ObamaCare Will Affect Your Doctor
...The Lewin Group, a health-care policy research and consulting firm, estimates that enrollment in the public option will reach 131 million people if it's open to everyone and pays Medicare rates, as many expect. Fully two-thirds of the privately insured will move out of or lose coverage. As patients shift to a lower-paying government plan, doctors' incomes will decline by as much as 15% to 20% depending on their specialty.
Physician income declines will be accompanied by regulations that will make practicing medicine more costly, creating a double whammy of lower revenue and higher practice costs, especially for primary-care doctors who generally operate busy practices and work on thinner margins. For example, doctors will face expenses to deploy pricey electronic prescribing tools and computerized health records that are mandated under the Obama plan. For most doctors these capital costs won't be fully covered by the subsidies provided by the plan.
Government insurance programs also shift compliance costs directly onto doctors by encumbering them with rules requiring expensive staffing and documentation. It's a way for government health programs like Medicare to control charges. The rules are backed up with threats of arbitrary probes targeting documentation infractions. There will also be disproportionate fines, giving doctors and hospitals reason to overspend on their back offices to avoid reprisals.
The 60% of doctors who are self-employed will be hardest hit. That includes specialists, such as dermatologists and surgeons, who see a lot of private patients. But it also includes tens of thousands of primary-care doctors, the very physicians the Obama administration says need the most help.
Doctors will consolidate into larger practices to spread overhead costs, and they'll cram more patients into tight schedules to make up in volume what's lost in margin. Visits will be shortened and new appointments harder to secure. It already takes on average 18 days to get an initial appointment with an internist, according to the American Medical Association, and as many as 30 days for specialists like obstetricians and neurologists.
Right or wrong, more doctors will close their practices to new patients, especially patients carrying lower paying insurance such as Medicaid. Some doctors will opt out of the system entirely, going "cash only." If too many doctors take this route the government could step in -- as in Canada, for example -- to effectively outlaw private-only medical practice....
Unions vs. Taxpayers
...Call it a tale of two economies. Private-sector workers -- unionized and nonunion alike -- can largely see that without compromises they may be forced to join unemployment lines. Not so in the public sector.
Government unions used their influence this winter in Washington to ensure that a healthy chunk of the federal stimulus package was sent to states and cities to preserve public jobs. Now they are fighting tenacious and largely successful local battles to safeguard salaries and benefits. Their gains, of course, can only come at the expense of taxpayers, which is one reason why states and cities are approving tens of billions of dollars in tax increases.
It's not as if we haven't seen this coming. When the movement among public-sector workers to unionize began gathering momentum in the 1950s, some critics, including private-sector labor leaders such as George Meany, observed that government is a monopoly not subject to the discipline of the marketplace. Allowing these workers -- many already protected by civil-service law -- to organize and bargain collectively might ultimately give them the power to hold politicians and taxpayers hostage.
It wasn't long before such fears were realized. By the mid-1960s, dozens of cities across America were wracked by teachers' strikes that closed school systems. Groups like New York City's transit workers walked off the job in 1966, bringing business in Gotham to a near halt. The United Federation of Teachers led an illegal strike which closed down New York City schools in 1968.
Widespread ire against strikes by public workers produced legislation in many states outlawing them. That prompted government workers to retreat from the picket lines into the halls of government. In Washington, they organized political action committees, set up sophisticated lobbying efforts, and used their muscle to help elect sympathetic public officials.
Today, public-sector unions sit atop lists of organizations that devote the most money to lobbying and campaign contributions....
Obama reverses on releasing photos
In a dramatic, high-profile reversal for his young administration, President Barack Obama is seeking to block the release of 44 photographs depicting abuse of detainees in U.S. military custody in Iraq and Afghanistan.
“The publication of these photos would not add any additional benefit to our understanding of what was carried out in the past by small number of individuals,” the president told reporters Wednesday as he left the White House on a two-day trip to the Southwest.
“In fact,' he said, "the most direct consequence of releasing them, I believe, would be to further inflame anti-American opinion and to put our troops in greater danger.”
And, he added, distribution of the photos could also have a “chilling effect on future investigations of detainee abuse.”
The Justice Department had already agreed to release the photos by May 28 in response to a lawsuit, but Obama is shifting course.
“Last week, the president met with his legal team and told them that he did not feel comfortable with the release of the DOD photos because he believes their release would endanger our troops, and because he believes that the national security implications of such a release have not been fully presented to the court,” said a White House official who asked not to be named.
“At the end of that meeting, the president directed his counsel to object to the immediate release of the photos on those grounds,” the official said. ...
Adviser Admits Obama’s Tax Increases May Kill Economic Recovery
Harvard economist Martin Feldstein, who has advised Obama, warns that “the barrage of tax increases proposed in President Barack Obama’s budget could, if enacted by Congress, kill any chance of an early and sustained recovery.” He compares Obama’s tax increases to the ones that contributed to the Great Depression and the “Lost Decade” of economic stagnation and decay in Japan.
Feldstein, who serves on Obama’s economic advisory board, has also “warned of serious inflation and higher taxes down the road” as a result of Obama’s policies.
Feldstein singles out for criticism Obama’s proposed global-warming tax. “Mr. Obama’s biggest proposed tax increase is the cap-and-trade system of requiring businesses to buy carbon dioxide emission permits. . .CBO Director Douglas Elmendorf testified before the Senate Finance Committee on May 7 that the cap-and-trade price increases . . . would cost the average household roughly $1,600 a year, ranging from $700 in the lowest-income quintile to $2,200 in the highest-income quintile.”
That’s a highly regressive tax increase, since lowest-income earners don’t make a third of what highest-income earners make, but they would incur a third as much cost. It’s regressive in the same way as the 1932 excise tax increase by Herbert Hoover that deepened the misery of the Great Depression....
Thursday, May 14, 2009
The Earth stood still, the seas parted and a member of the U.S. political class admitted last week that the Federal Reserve helped to cause the financial meltdown. OK, only the last of those happened, but it's a welcome miracle nonetheless.
The revelation came from Timothy Geithner last Wednesday with PBS's Charlie Rose, who asked the Treasury Secretary: "Looking back, what are the mistakes and what should you have done more of? Where were your instincts right, but you didn't go far enough?"
Mr. Geithner: "We need a little more time to get full perspective."
Mr. Rose: "Right."
Mr. Geithner: "But I would say there were three types of broad errors of policy and policy both here and around the world. One was that monetary policy around the world was too loose too long. And that created this just huge boom in asset prices, money chasing risk. People trying to get a higher return. That was just overwhelmingly powerful."...
...But the real news here is Mr. Geithner's concession that monetary policy was "too loose too long." The Washington crowd has tried to place all of the blame for the panic on bankers, the better to absolve themselves. But as Mr. Geithner notes, Fed policy flooded the world with dollars that created a boom in asset prices and inspired the credit mania. Bankers made mistakes, but in part they were responding rationally to the subsidy for credit created by central bankers....
Tuesday, May 12, 2009
Insolvency for Social Security and Medicare Is Seen Closer
WASHINGTON — The financial outlook for Medicare and Social Security has significantly worsened, as the bad economy and mounting job losses have pushed both programs years closer to insolvency, according to a grim report issued Tuesday by the Obama administration.
The new projection, in an annual report from the programs’ trustees, says that Medicare’s hospital insurance trust fund will be exhausted in 2017, just a year after President Obama would leave office if re-elected to a second term. Last year the trustees said they expected the fund to last until 2019.
The trustees also said that Social Security’s reserves now face depletion in 2037, four years sooner than the previous projection of 2041. The projections assume that there are no changes in current benefits, policies and tax rates. ...
Monday, May 11, 2009
On guns and climate, the elites are out of touch
...Over the last decade, the Gallup organization has been asking Americans whether the seriousness of global warming is generally exaggerated or generally correct. From 1998 to 2007, except for the runup to the 2004 election, they said it was generally serious by roughly a 2-1 margin — 66 to 30 percent in 2006, for example. But in March 2009, that margin slipped to only 57 to 41 percent, with two-thirds of Republicans and nearly half of independents saying concern is exaggerated.
Similarly, last month pollster Scott Rasmussen found that only 34 percent believe that global warming is caused by human activity, while 48 percent said it was caused by long-term planetary trends. That’s almost exactly the opposite of what he found 12 months before — 47 to 34 percent the other way around. However, 48 percent of the group Rasmussen calls the Political Class — in other words, the elite — continues to believe global warming is man-made.
On guns, Gallup has been testing opinion for many years on one extreme proposal that is the goal, usually unstated, of many gun control advocates: banning the possession of handguns. Support was 60 percent in 1960 and 49 percent in 1965. It was as high as 43 percent in the early 1990s, before the Clinton Congress passed the so-called assault weapon ban. In March 2007 it had fallen to 29 percent — a minority, almost a fringe position. In the early 1990s Gallup found that Americans by a 2-1 margin favored stricter gun sale laws over less strict ones or keeping them the same. By fall 2008 they were evenly split.
Some of these shifts in opinion may be responses to events that liberal elites have not deigned to notice. Forty of the 50 states now have concealed weapons laws that allow law-abiding citizens to get permits to carry guns. Gun controllers predicted these would result in traffic shootouts and general mayhem. They haven’t. It turns out that criminals are deterred from attacks less by gun control laws than by the possibility that their intended victims may be armed. As for global warming, many Americans may have noticed that temperatures actually haven’t been rising over the last decade as global warming alarmists predicted. The elites are able to hire armed security guards and jet off on private jets, so they are less likely to notice these things.
I think there’s something else at work here. For liberal elites, belief in gun control and global warming has taken on the character of religious faith. We have sinned (by hoarding guns or driving sport utility vehicles), we must atone (by turning in our guns or recycling), we must repent (by supporting gun control or cap-and-trade schemes). You may notice that the “we” in question is usually the great mass of ordinary American citizens. ...
Obsessive Housing Disorder
...By pushing for lax lending standards, encouraging government enterprises to make mortgages more available, and leaning on private lenders to come up with innovative ways to lend to ever more Americans—using “the mighty muscle of the federal government,” as the president himself put it—Bush had lured millions of people into bad mortgages that they ultimately couldn’t afford, the Times said.
Yet almost everything that the Times accused the Bush administration of doing has been pursued many times by earlier administrations, both Democratic and Republican—and often with calamitous results. The Times’s analysis exemplified our collective amnesia about Washington’s repeated attempts to expand homeownership and the disasters they’ve caused. The ideal of homeownership has become so sacrosanct, it seems, that we never learn from these disasters. Instead, we clean them up and then—as if under some strange compulsion—set in motion the mechanisms of the next housing catastrophe....
...Washington’s, indeed America’s, housing obsession—decades of government and advocacy-group efforts to water down underwriting standards, private mortgage makers’ desire to find new pools of customers as homeownership rates rose, and the rapid growth of securitization of risky loans—carried a steep cost. When the Federal Reserve added low interest rates and plenty of financial liquidity to the mix, the housing boom became a bubble. And then, as everyone knows, the bubble burst in 2008, leading to economic disaster.
Last year, lenders began foreclosure proceedings on some 2.3 million homes, and some experts have predicted that when the current financial crisis has ended, some 8 million homes will have wound up in foreclosure. Though lenders made risky loans to borrowers across the income spectrum, many of the failing mortgages today are in lower- and lower-middle-income neighborhoods. A Federal Reserve Bank of New York study of foreclosures in New Jersey, the state in its region hit hardest by the mortgage collapse, reveals that zip codes with the worst rates are mostly in areas where household income was “concentrated at the lower end of the household income range.”
Yet before we’ve even worked our way through this crisis, elected officials and policymakers are busy readying the next. Barney Frank, the Massachusetts congressman who serves as chair of the House Financial Services Committee, has balked at proposals to privatize Fannie Mae and Freddie Mac, which would eliminate their risk to taxpayers and their susceptibility to political machinations. Why? Simple: the government uses them to subsidize the affordable-housing programs that Frank supports. California congressman Joe Baca, head of the Congressional Hispanic Caucus, also opposes reining in affordable housing lending. “We need to keep credit easily accessible to our minority communities,” he asserts. ...
VIN SUPRYNOWICZ: Obama 'bitterly clinging' to his fake gun numbers
...A week ago, Obama went to Mexico, whined about the United States (and bemoaned before the whole world) the fact that he didn't have the political power to take away our semi-automatics. Nevertheless, that didn't keep him from pushing additional restrictions on American gun owners.
"It's called the Inter-American Convention Against Illicit Manufacturing of and Trafficking in Firearms. ... This imponderable title masks a really nasty piece of work.
"First of all, when the treaty purports to ban the 'illicit manufacture of firearms,' what does that mean?" asks Pratt in a late April GOA release.
"Illicit manufacturing" of firearms is defined as "assembly of firearms [or] ammunition ... without a license ... " "Hence, reloading ammunition -- or putting together a lawful firearm from a kit -- is clearly 'illicit manufacturing.' "
Article VI of the treaty requires "appropriate markings" on firearms. "It is not inconceivable that this provision could be used to require micro-stamping of firearms and/or ammunition -- a requirement which is clearly intended to impose specifications which are not technologically possible or which are possible only at a prohibitively expensive cost," says GOA.
And Article XI of the treaty requires the maintenance of any records, for a "reasonable time," that the government determines to be necessary to trace firearms. "This provision would almost certainly repeal portions of McClure-Volkmer and could arguably be used to require a national registry or database" -- gun registration, the GOA warns....
..."ATF Special Agent William Newell tells Fox News that between 2007 and 2008, around 11,000 guns used in Mexican crimes appeared to come from the United States and were submitted to the ATF for tracing. Of those, only 6,000 could be successfully traced. Of those, only 5,114, according to testimony in Congress by William Hoover, were found to have come from the United States.
"Obama's '90 percent' number refers, not to the percentage of 'guns recovered in Mexico,' as Obama claims, but to the 'percent of the traced firearms' according to an ATF spokeswoman....
Saturday, May 09, 2009
Dodd's Peek-A-Boo Disclosure
Connecticut Senator Chris Dodd has finally, sort of, kind of, ended 193 days of stonewalling about his sweetheart loans from former Countrywide CEO Angelo Mozilo. At least he did if you were a fast reader and were one of the few reporters he invited to his Hartford office yesterday to review -- but not copy or take -- more than 100 pages of documents related to his 2003 mortgage financings through Countrywide's "Friends of Angelo" program.
These are the files that Mr. Dodd pledged to make public after the news broke last summer that the Chairman of the Senate Banking Committee had received preferential treatment from Countrywide. At first, Mr. Dodd denied everything. Later, he conceded that he'd been given special treatment but thought it was "more of a courtesy."
Heck, we'd all love the kind of courtesy that would have saved Mr. Dodd $75,000 over the life of the two loans he refinanced to the tune of $800,000, according to an analysis by Portfolio magazine. The savings came from rock-bottom interest rates and a free "float-down" -- the right to borrow at a lower rate if interest rates fall before you've closed on the loan....
...We don't know whether the documents Mr. Dodd briefly showed yesterday illuminate this mystery or not, because he didn't release them to us, or to the public or his constituents. Perhaps the reporters he allowed to take a quick peak will tell us more. What he did release to everyone was a set of fact sheets that purport to show there was nothing favorable about the terms Mr. Dodd and his wife received from Countrywide, along with a consultant's report that reaches the same conclusion. Mr. Dodd's office did not respond to our request for the documents themselves, which he promised to release more than six months ago....
...Countrywide was for years the biggest single customer of Fannie Mae, the giant government-sponsored mortgage securitizer that has since gone into federal conservatorship. Much of Countrywide's business was built around its ability to sell loans to Fannie, and Mr. Mozilo helped push Fannie to accept dodgier and dodgier paper. Mr. Dodd in turn supported this goal by pressing Fannie to do more for "affordable" housing.
This nexus between Mr. Dodd's public duties and Countrywide's interests is a serious matter involving the Senator's personal ethics and accountability to taxpayers who will be paying for Fannie's bad loans for years to come. If, as Mr. Dodd claims, he has nothing to hide, then why is he still hiding it?
With all due respect Mr. President, that is not true
We, the undersigned scientists, maintain that the case for alarm regarding climate change is grossly overstated. Surface temperature changes over the past century have been episodic and modest and there has been no net global warming for over a decade now.1,2 After controlling for population growth and property values, there has been no increase in damages from severe weather-related events.3 The computer models forecasting rapid temperature change abjectly fail to explain recent climate behavior.4 Mr. President, your characterization of the scientific facts regarding climate change and the degree of certainty informing the scientific debate is simply incorrect....
With all due respect Mr. President, that is not true
Notwithstanding reports that all economists are now Keynesians and that we all support a big increase in the burden of government, we do not believe that more government spending is a way to improve economic performance. More government spending by Hoover and Roosevelt did not pull the United States economy out of the Great Depression in the 1930s. More government spending did not solve Japan's "lost decade" in the 1990s. As such, it is a triumph of hope over experience to believe that more government spending will help the U.S. today. To improve the economy, policy makers should focus on reforms that remove impediments to work, saving, investment and production. Lower tax rates and a reduction in the burden of government are the best ways of using fiscal policy to boost growth....
Despite death threats, objecting Chrysler lenders must disclose identities
...A small group of Chrysler’s lenders who have objected to the Obama administration’s plan for a quick dash through bankruptcy must identify themselves, in spite of death threats, a U.S. judge ruled on Tuesday.
Judge Arthur Gonzalez, who is overseeing Chrysler’s bankruptcy case in Manhattan, said that the lenders must disclose their identities on Wednesday morning, leaving open the possibility that some may change their minds.
"These lenders do not have grounds for (their identity) statement to be sealed," Gonzalez said at the court hearing, saying threats on the Internet did not meet the bar for such a request and that concerns about reputational harm were not subject to protection by the court.
In court papers filed earlier on Tuesday, the group of lenders said they were being blamed unfairly for Chrysler’s failure amid a political backlash. Tom Lauria, the lawyer representing the lenders, said that a public disclosure of the identities of the funds would "force several of these lenders to surrender their legal rights and agree to the government’s illegal plan."
The group, which calls itself the company’s "non-TARP lenders," says its members have taken no bailout money from the government and that the four large banks that agreed to the Chrysler bankruptcy plan do not represent their interests because of their participation in the government support program....
White House puts UAW ahead of property rights
...But my sadness turned to anger later when I heard what bankruptcy lawyer Tom Lauria said on a WJR talk show that morning. “One of my clients,” Lauria told host Frank Beckmann, “was directly threatened by the White House and in essence compelled to withdraw its opposition to the deal under threat that the full force of the White House press corps would destroy its reputation if it continued to fight.”
Lauria represented one of the bondholder firms, Perella Weinberg, which initially rejected the Obama deal that would give the bondholders about 33 cents on the dollar for their secured debts while giving the United Auto Workers retirees about 50 cents on the dollar for their unsecured debts.
This of course is a violation of one of the basic principles of bankruptcy law, which is that secured creditors — those who lended money only on the contractual promise that if the debt was unpaid they’d get specific property back — get paid off in full before unsecured creditors get anything. Perella Weinberg withdrew its objection to the settlement, but other bondholders did not, which triggered the bankruptcy filing.
After that came a denunciation of the objecting bondholders as “speculators” by Barack Obama in his news conference last Thursday. And then death threats to bondholders from parties unknown....
...The same goes for big banks that have received billions in government Troubled Asset Relief Program money. Many of them want to give back the money, but the government won’t let them. They also voted to accept the Chrysler settlement. Nice little bank ya got there, wouldn’t want anything to happen to it.
Left-wing bloggers have been saying that the White House’s denial of making threats should be taken at face value and that Lauria’s statement is not evidence to the contrary. But that’s ridiculous. Lauria is a reputable lawyer and a contributor to Democratic candidates. He has no motive to lie. The White House does.
Think carefully about what’s happening here. The White House, presumably car czar Steven Rattner and deputy Ron Bloom, is seeking to transfer the property of one group of people to another group that is politically favored. In the process, it is setting aside basic property rights in favor of rewarding the United Auto Workers for the support the union has given the Democratic Party. The only possible limit on the White House’s power is the bankruptcy judge, who might not go along....
...Obama’s attitude toward the rule of law is apparent in the words he used to describe what he is looking for in a nominee to replace Justice David Souter. He wants “someone who understands justice is not just about some abstract legal theory,” he said, but someone who has “empathy.” In other words, judges should decide cases so that the right people win, not according to the rule of law....
A Faith for The Nones
...This retreating tide of committment affected nearly every denomination equally, except that it was less severe among evangelicals. While not dramatically increasing their percentage of the American population, evangelicals did increase their percentage among the religious in America. According to Putnam, religious "entrepreneurs" such as Jerry Falwell organized and channeled the conservative religious reaction against the 1960s into the religious right -- the first aftershock.
But this reaction provoked a reaction -- the second aftershock. The politicization of religion by the religious right, argues Putnam, caused many young people in the 1990s to turn against religion itself, adopting the attitude: "If this is religion, I'm not interested." The social views of this younger cohort are not entirely predictable: Both the pro-life and the homosexual-rights movement have made gains. But Americans in their 20s are much more secular than the baby boomers were at the same stage of life. About 30 to 35 percent are religiously unaffiliated (designated "nones," as opposed to "nuns" -- I was initially confused). Putnam calls this "a stunning development." As many liberals suspected, the religious right was not good for religion.
The result of the shock and aftershocks is polarization. The general level of religiosity in America hasn't changed much over the years. But, as Putnam says, "more people are very religious and many are not at all." And these beliefs have become "correlated with partisan politics." "There are fewer liberals in the pews and fewer unchurched conservatives." ...