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The Phony Time-Gap Alibi For The Community Reinvestment Act
Perhaps one of the most misleading points made by those who wish to completely exonerate the Community Reinvestment Act’s role in encouraging lenders to adopt loose standards for mortgages is to insist that a statute originally put in place in 1977 could not have played a role in a housing bubble 25 years later. This point ignores the profound changes in the CRA and related fair housing that occurred in the subsequent years.

In the first place, it should be noted that the attempt to exonerate the CRA seems to turn on the idea that the act didn’t encourage much lending at all. This, of course, runs completely contrary to the advocates of the CRA during the housing boom. Back then, they were bragging about how effective the CRA had been in spurring lending....

...In 1989, President George H.W. Bush signed into law the Financial Institutions Reform Recovery and Enforcement Act that included provisions to increase public oversight of the way the CRA was enforced. Regulators were required to issue public, written performance evaluations of banks, including a system that rated bank compliance as Outstanding, Satisfactory, Needs To Improve or Substantial Non-Compliance. This public scrutiny began to push banks to make more loans to low-income borrowers, a process that often involved putting in place relaxed lending standards.

Shortly afterward, Fannie Mae and Freddie Mac addressed bank fears that the low-income lending with relaxed standards would unduly increase risk by beginning to securitize “affordable” mortgages. This was the beginning of subprime lending. It was the “pull” factor that complimented the “push” factor of the CRA.

The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, which opened the door for interstate banking and encouraged a new wave of banking M&A, made the ratings under the CRA a test for determining whether acquisitions would be allowed. That same year, the Fed refused to allow a Hartford, Connecticut bank to acquire a New Hampshire bank on fair housing and CRA grounds.

This was the first time the Fed had ever taken this kind of action, and it had profound effects through the banking sector. It sent a strong signal to the banks that the Fed would closely scrutinize lending practice, limiting the ability of banks to grow or make acquisitions if they were found to have insufficient low income or minority lending. Banks immediately responded by lowering down payment requirements and using more flexible income criteria.

The CRA defenders like to claim that the statute did not require these things, but the enforcement of the act did. Banks knew what kind of lending would increase their CRA compliance and meet with the approval of the regulators. CRA defenders often like to say that banks didn’t need to adopt standards that involve high loan-to-value ratios, low down payments, and loosey-goosey income tests. But this counter-factual claim is without basis in reality: the defenders cannot point to banks that did pass scrutiny of regulators and received top ratings from regulators without adopting these standards. The fact is that banks loosened standards because that is what regulators required. Any proposals that other strategies could have been employed is simply conjecture and second-guessing.

And there can be no doubt that the regulators were pushing for “no down payment” loans and 100 percent loan-to-value ratios. They also urged automated under-writing and reliance on credit scoring, two more factors that have since been viewed as contributing to overly-risky lending...

...After all, one of the tests for whether banks were engaged in discriminatory lending was whether they had adopted standards that were stricter than those approved of by regulators. Stricter standards were assumed to be evidence of discrimination, and if they had a disparate impact the matter was even worse. So when a Fed governor tells banks that they should be making no down-payment, 100% LTV loans based on credit scores and automated underwriting, we shouldn't be surprised that they started making these kind of loans.

In 1995, regulators began to enforce the CRA in a very different way than they had in the past. Instead of focusing on the process of bank lending, the new regulations were focused on objective performance evaluations. At the same time, regulators began disclosing more information about particular banks. As one commenter put it at the time, “We have learned from 30 years of CRA policy that what is measured gets done.” In short, publicly measuring low-income loans encouraged more of it. And the way regulators advised making low income loans involved features we now regard as toxic....

...In early 2005, largely at the behest of the banking sector, the Office of Thrift Supervision implemented new rules that were widely perceived as weakening the CRA. Supervision of banks with under $1 billion in assets was loosened, and larger banks were allowed to voluntarily reduce the amount of regulator scrutiny of their “investment” and “service”–two long-standing categories of assessment under the CRA.

This had two unintended consequences that would later prove to be very costly. In the first place, it increased CRA scrutiny of larger banks, who were now the main focus of regulators. This put even more pressure on the banks to make CRA loans. Secondly, by allowing banks to de-emphasize “investment” and “service,” the new regulations created an even greater incentive for banks to meet CRA obligations by making home loans.

As we’ve shown elsewhere, the CRA had a clear and strong role in loosening lending standards. Those who claim the long time gap between its original passage are probably ignorant of the profound changes in the law and the way it was enforced...

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E-mails indicate EPA suppressed report skeptical of global warming
The Environmental Protection Agency may have suppressed an internal report that was skeptical of claims about global warming, including whether carbon dioxide must be strictly regulated by the federal government, according to a series of newly disclosed e-mail messages.

Less than two weeks before the agency formally submitted its pro-regulation recommendation to the White House, an EPA center director quashed a 98-page report that warned against making hasty "decisions based on a scientific hypothesis that does not appear to explain most of the available data."

The EPA official, Al McGartland, said in an e-mail message (PDF) to a staff researcher on March 17: "The administrator and the administration has decided to move forward...and your comments do not help the legal or policy case for this decision."

The e-mail correspondence raises questions about political interference in what was supposed to be an independent review process inside a federal agency--and echoes criticisms of the EPA under the Bush administration, which was accused of suppressing a pro-climate change document.

Alan Carlin, the primary author of the 98-page EPA report, said in a telephone interview on Friday that his boss, McGartland, was being pressured himself. "It was his view that he either lost his job or he got me working on something else," Carlin said. "That was obviously coming from higher levels."

E-mail messages released this week show that Carlin was ordered not to "have any direct communication" with anyone outside his small group at EPA on the topic of climate change, and was informed that his report would not be shared with the agency group working on the topic.

"I was told for probably the first time in I don't know how many years exactly what I was to work on," said Carlin, a 38-year veteran of the EPA. "And it was not to work on climate change." One e-mail orders him to update a grants database instead. ...

...Carlin has an undergraduate degree in physics from CalTech and a PhD in economics from MIT. His Web site lists papers about the environment and public policy dating back to 1964, spanning topics from pollution control to environmentally-responsible energy pricing.

After reviewing the scientific literature that the EPA is relying on, Carlin said, he concluded that it was at least three years out of date and did not reflect the latest research. "My personal view is that there is not currently any reason to regulate (carbon dioxide)," he said. "There may be in the future. But global temperatures are roughly where they were in the mid-20th century. They're not going up, and if anything they're going down."

Carlin's report listed a number of recent developments he said the EPA did not consider, including that global temperatures have declined for 11 years; that new research predicts Atlantic hurricanes will be unaffected; that there's "little evidence" that Greenland is shedding ice at expected levels; and that solar radiation has the largest single effect on the earth's temperature. ...

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Southern Baptists tackle member losses
Southern Baptists are facing a membership decline that could shrink the nation’s largest Protestant denomination by nearly half in 40 years, its convention president said Tuesday....

...The denomination is declining at a rate that could shrink its membership from 16.2 million to 8.7 million by 2050, Hunt said. Total membership of Southern Baptist churches was 16,228,438 last year, down nearly 38,400 from 2007, according to LifeWay, the convention’s research and publishing arm....

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Outside Agitator
...Both Klein and Lewis are skeptical about Barack Obama. “I’ve been at rallies and seen him speak, and I feel that feeling that one feels,” Lewis says. “It is thrilling. And it’s churlish not to allow yourself to be thrilled. We crave inspiration, and it’s a bleak life to always be dissecting things. But the main feeling that Obama creates in me is fear, because I see people fooling themselves. If you actually look at his policies, what they reflect is the triumph of the right-wing political paradigm since Reagan, and I think he could set things back dramatically, because for young people who are getting engaged in politics for the first time, for them to be disillusioned is very, very damaging.” Because Klein doesn’t expect much from any politician, she doesn’t spend time wishing Obama were more progressive. “I don’t want to appear too cynical, but when I first saw the ‘Yes We Can’ rock video that Will.I.Am made, my first response was ‘Wow, finally a politician is making ads that are as good as Nike’s,’ ” she says. “The ‘Yes We Can’ slogan means whatever you want it to mean. It’s very ‘Just Do It.’ When you hear it, you catch yourself thinking, Yeah! We’re gonna end torture and shut down Guantánamo and get out of Iraq! And then you think, Wait a minute, is he really saying that? He’s not really saying that, is he? He’s saying we’re going to send more troops to Afghanistan. He’s telling regular people what they want to hear, and then in the back rooms he’s making deals and signing on to the status quo. But if people don’t like where Obama is they should move the center.” To this end, Klein has been taking every opportunity to call for the nationalization of the oil companies. “It’s the job of the left to move the center,” she says. “Get out there and say some crazy stuff! And then, suddenly, it’ll seem more reasonable for politicians to take riskier positions.”...

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White House Weighs Order on Detention
Obama administration officials, fearing a battle with Congress that could stall plans to close the U.S. prison at Guantanamo Bay, are crafting language for an executive order that would reassert presidential authority to incarcerate terrorism suspects indefinitely, according to three senior government officials with knowledge of White House deliberations.

Such an order would embrace claims by former president George W. Bush that certain people can be detained without trial for long periods under the laws of war. Obama advisers are concerned that an order, which would bypass Congress, could place the president on weaker footing before the courts and anger key supporters, the officials said. ...

Obama contemplates Executive Order for detention without charges
...This specific article is even worse than the usual one of its type, since it's particularly uncritical in passing along administration claims without any skepticism (I addressed each of the "justifications" for Obama's preventive detention proposal -- Obama has to do this because of what Bush did; we can't get convictions because of Bush's torture; it's common in War to do things like this, etc. etc. -- here). Worse, the article does not provide any information about the Obama officials whose mission the reporters are dutifully carrying out, so there's no way to assess their motives.

Those journalistic practices produce egregious sentences like this: "'Civil liberties groups have encouraged the administration, that if a prolonged detention system were to be sought, to do it through executive order', the official said." I'd love to know which so-called "civil liberties groups" are pushing the White House for an Executive Order establishing the power of indefinite detention. It's certainly not the ACLU or Center for Constitutional Rights, both of which issued statements vehemently condemning the proposal (ACLU's Anthony Romero: "If President Obama issues an executive order authorizing indefinite detention, he’ll be repeating the same mistakes of George Bush"). ...

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‘The Police Became a Mob’
... Men punched Jude’s face and torso; when he fell to the ground, they kicked his head and thighs. The partygoers behaved as a mob. Not a single person in the house tried to stop the attack or even to call for aid. Jon Clausing, who had slashed Harris’s face, explained his conduct as “just kind of going along with everybody.” That is the way of the mob. Society has police forces to pose a counterweight to mobs, yet here the police became a mob.

Schabel and Martinez were on duty and had not been drinking, so they should have put a stop to the violence. Instead Schabel joined it, while Martinez watched. On being told that Jude had stolen Spengler’s badge, Schabel called Jude a “motherfucker” and stomped on his face until others could hear bones breaking. After telling Martinez “I’m really sorry you have to see this,” Daniel Masarik picked Jude off the ground and kicked him in the crotch so hard that his body left the ground. Jon Bartlett then took one of Schabel’s pens and pressed it into each of Jude’s ear canals, causing severe injury and excruciating pain. The men also broke two of Jude’s fingers by bending them back until they snapped. Spengler put a gun to Jude’s head and said: “I’m the fucking police. I can do whatever I want to do. I could kill you.” Bartlett used a knife to cut off Jude’s jacket and pants, leaving him naked on the street in a pool of his own blood...

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Medicare Costs Are Higher, Not Lower
...Dr. Robert Book, in a new Web Memo entitled “Medicare Administrative Costs Are Higher, Not Lower, Than for Private Insurance,” argues against the claims put forth by Dr. Hacker:

Health care reform is a complex problem, of which administrative costs is only one component. However, for policymakers and ordinary Americans to understand these issues, journalists, analysts, and advocates have an obligation to avoid “playing with numbers”–either through inadvertent misunderstanding of what the numbers represent or through a deliberate choice of misleading numbers that appear to support a desired policy.

The fact is that, in recent years, Medicare administrative costs per beneficiary have substantially exceeded those costs for the private sector, this despite the fact that, as critics note, private insurance is subject to many expenses not incurred by Medicare. Contrary to the claims of public plan advocates, moving millions of Americans from private insurance to a Medicare-like program will result in program administrative costs that are higher per person and higher, not lower, for the nation as a whole....

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"As Naked an Abuse of Government Power as Could be Imagined"
...The controversy centers on Sotomayor's vote in a 2006 eminent domain case, Didden v. Village of Port Chester. New York entrepreneur Bart Didden says Port Chester condemned his land after he refused to pay $800,000 (or grant a 50 percent stake in his business) to a developer hired by the village. One day after Didden refused to pay those bribes, Port Chester began eminent domain proceedings against him.

As University of Chicago law professor Richard Epstein put it, "The case involved about as naked an abuse of government power as could be imagined." But that didn't stop Judge Sotomayor and two of her colleagues on the 2nd Circuit Court of Appeals from upholding the district court decision that ruled in favor of the village....

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Unions’ Health Benefits May Avoid Tax Under Proposal
...The U.S. Senate proposal to impose taxes for the first time on “gold-plated” health plans may bypass generous employee benefits negotiated by unions.

Senate Finance Committee Chairman Max Baucus, the chief congressional advocate of taxing some employer-provided benefits to help pay for an overhaul of the U.S. health system, says any change should exempt perks secured in existing collective- bargaining agreements, which can be in place for as long as five years.

The exception, which could make the proposal more politically palatable to Democrats from heavily unionized states such as Michigan, is adding controversy to an already contentious debate. It would shield the 12.4 percent of American workers who belong to unions from being taxed while exposing some other middle-income workers to the levy. ...

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The Climate Change Climate Change
...Among the many reasons President Barack Obama and the Democratic majority are so intent on quickly jamming a cap-and-trade system through Congress is because the global warming tide is again shifting. It turns out Al Gore and the United Nations (with an assist from the media), did a little too vociferous a job smearing anyone who disagreed with them as "deniers." The backlash has brought the scientific debate roaring back to life in Australia, Europe, Japan and even, if less reported, the U.S.

In April, the Polish Academy of Sciences published a document challenging man-made global warming. In the Czech Republic, where President Vaclav Klaus remains a leading skeptic, today only 11% of the population believes humans play a role. In France, President Nicolas Sarkozy wants to tap Claude Allegre to lead the country's new ministry of industry and innovation. Twenty years ago Mr. Allegre was among the first to trill about man-made global warming, but the geochemist has since recanted. New Zealand last year elected a new government, which immediately suspended the country's weeks-old cap-and-trade program.

The number of skeptics, far from shrinking, is swelling. Oklahoma Sen. Jim Inhofe now counts more than 700 scientists who disagree with the U.N. -- 13 times the number who authored the U.N.'s 2007 climate summary for policymakers. Joanne Simpson, the world's first woman to receive a Ph.D. in meteorology, expressed relief upon her retirement last year that she was finally free to speak "frankly" of her nonbelief. Dr. Kiminori Itoh, a Japanese environmental physical chemist who contributed to a U.N. climate report, dubs man-made warming "the worst scientific scandal in history." Norway's Ivar Giaever, Nobel Prize winner for physics, decries it as the "new religion." A group of 54 noted physicists, led by Princeton's Will Happer, is demanding the American Physical Society revise its position that the science is settled. (Both Nature and Science magazines have refused to run the physicists' open letter.)

The collapse of the "consensus" has been driven by reality. The inconvenient truth is that the earth's temperatures have flat-lined since 2001, despite growing concentrations of C02. Peer-reviewed research has debunked doomsday scenarios about the polar ice caps, hurricanes, malaria, extinctions, rising oceans. A global financial crisis has politicians taking a harder look at the science that would require them to hamstring their economies to rein in carbon....

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Government Health Plans Always Ration Care
Only by expanding government control of health care can we bring down its cost. That's the faulty premise of the various proposals for health reform now being batted around Washington. The claimed cost control depends on politically safe ideas such as preventive care or the adoption of electronic health records. And neither--even according to the Congressional Budget Office--will do much to reduce spending.

If these proposals are implemented and fail to produce savings, government will turn to a less appealing but more familiar tool to cut costs: the regulation of access to drugs and medical services. Medicare is already going down this path. What will be new about government-run health care is the instrument of regulatory control. There will be an omnipotent federal health board. Buried in current reform proposals, this board deserves closer scrutiny.

Our best look at this construct comes from a bill released by the Senate Health, Education, Labor and Pensions (HELP) Committee. The bill calls for a "Medical Advisory Council" to determine what medical products and services are "essential benefits" and those that shouldn't be covered by a public insurance plan....

...Like Medicare's recent decisions to curtail the use of virtual colonoscopies, certain wound-healing devices, and even a branded asthma drug, the board's decisions will be one-size-fits-all restrictions. Such restrictions don't respect variation in preferences and disease, which make costly products suitable for some even if they are wasteful when prescribed to everyone.

Moreover, these health boards prove that policy makers know they'll need to ration care but want to absolve themselves of responsibility. Some in Congress and the Obama administration recently tipped their hand on this goal by proposing to make recommendations of the current Medicare Payment Advisory Committee (MedPAC) legally binding rather than mere advice to Congress. Any new health board's mission will also expand over time, just as MedPAC's mandate grew to encompass medical practice issues not envisioned when it was created.

The idea of an omnipotent board that makes unpopular decisions on access and price isn't a new construct. It's a European import. In countries such as France and Germany, layers of bureaucracy like health boards have been specifically engineered to delay the adoption of new medical products and services, thus lowering spending....

...In short, other countries where government plays a large role in health care aren't shy about rationing. Mr. Obama's budget director has acknowledged that rationing reduces costs. Peter Orszag told Congress last year when he headed the Congressional Budget Office that spending can be "moderated" if "diffusion of existing costly services were slowed."...

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Fannie, Freddie asked to relax condo loan rules: report
Two U.S. Democratic lawmakers want Fannie Mae and Freddie Mac to relax recently tightened standards for mortgages on new condominiums, saying they could threaten the viability of some developments and slow the housing-market recovery, the Wall Street Journal said.

In March, Fannie Mae (FNM.N)(FNM.P) said it would no longer guarantee mortgages on condos in buildings where fewer than 70 percent of the units have been sold, up from 51 percent, the paper said. Freddie Mac (FRE.P)(FRE.N) is due to implement similar policies next month, the paper said.

In a letter to the CEO's of both companies, Representatives Barney Frank, the chairman of the House Financial Services Committee, and Anthony Weiner warned that a 70 percent sales threshold "may be too onerous" and could lead condo buyers to shun new developments, according to the paper.

The legislators asked the companies to "make appropriate adjustments" to their underwriting standards for condos, the paper added....

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Tilting at Green Windmills
The Spanish professor is puzzled. Why, Gabriel Calzada wonders, is the U.S. president recommending that America emulate the Spanish model for creating "green jobs" in "alternative energy" even though Spain's unemployment rate is 18.1 percent -- more than double the European Union average -- partly because of spending on such jobs?

Calzada, 36, an economics professor at Universidad Rey Juan Carlos, has produced a report that, if true, is inconvenient for the Obama administration's green agenda, and for some budget assumptions that are dependent upon it.

Calzada says Spain's torrential spending -- no other nation has so aggressively supported production of electricity from renewable sources -- on wind farms and other forms of alternative energy has indeed created jobs. But Calzada's report concludes that they often are temporary and have received $752,000 to $800,000 each in subsidies -- wind industry jobs cost even more, $1.4 million each. And each new job entails the loss of 2.2 other jobs that are either lost or not created in other industries because of the political allocation -- sub-optimum in terms of economic efficiency -- of capital....

...The president's press secretary, Robert Gibbs, was asked about the report's contention that the political diversion of capital into green jobs has cost Spain jobs. The White House transcript contained this exchange:

Gibbs: "It seems weird that we're importing wind turbine parts from Spain in order to build -- to meet renewable energy demand here if that were even remotely the case."

Questioner: "Is that a suggestion that his study is simply flat wrong?"

Gibbs: "I haven't read the study, but I think, yes."

Questioner: "Well, then. [Laughter.]" ...

...Still, one can be agnostic about both reports while being dismayed by the frequency with which such findings are ignored simply because they question policies that are so invested with righteousness that methodical economic reasoning about their costs and benefits seems unimportant. When the president speaks of "new green energy economies" creating "countless well-paying jobs," perhaps they really are countless, meaning incapable of being counted.

For fervent believers in governments' abilities to control the climate and in the urgent need for them to do so, believing is seeing: They see, through their ideological lenses, governments' green spending as always paying for itself. ..

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California's dubious distinction
If you want to see how the Obama big-government agenda will play out for us in the future, look no further than California, his dream high-tax state which votes overwhelmingly Democrat.

If you follow the Democratic agenda, you end up with financially-strapped states from which businesses and taxpayers are leaving in droves. Even with the highest tax rates in the USA (10 percent plus, not counting city taxes), these states run the biggest deficits. Compare that to the zero income tax state of Texas, which balances its budget and created more jobs in 2008 than all 49 other states combined....

...Hollywood is still in bed smoking a cigarette, celebrating the afterglow of its love affair with Obama. The "environmental president" recently flew his crew out to California ($265,000 in Air Force One costs) for two Democratic fundraisers in L.A. Because Hollywood is always a model of equality and fairness, there were two-tiered donor events.One hosted by Stephen Spielberg and Jeffrey Katzenberg cost $15,000 a head to attend, the other was $1,000 per person, presumably hosted by Carrot Top and Kathy Griffin. Even as they celebrate diversity, egalitarianism and affirmative action, our Hollywood elite feel it important for the nation to not to lose sight of a fundamental truth: there should always be an A-list and a B-list....

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Viewpoint: Questions Arise Over IndyMac Loan Mods
...Perhaps the single largest question for anyone watching the unfolding saga over loan modifications, and the political posturing on Capitol Hill and by regulators over the need to “do more” to help troubled homeowners, has been this: what about IndyMac Federal Bank?

The bank, seized by regulators and placed into the hands of the Federal Deposit Insurance Corp. in August after an Alt-A lending binge left it too vulnerable to a collapse of much of the U.S. mortgage market, has become the veritable poster child for government-led intervention into troubled mortgages. On August 20, FDIC officials rolled out an ambitious plan for mortgage modifications, one they said at the time would set the example for how aggressive loan modifications should work. Implicit in the program was an indictment of existing servicers, who ostensibly weren’t doing enough to help their borrowers....

...Nonetheless, a 50 percent recidivism rate on loan modifications suggests that loan modifications — IndyMac led or not — aren’t usually the sort of world-saving panacea that many regulators and lawmakers expect.

As for the performance results, file them under “patently obvious” to any mortgage market participant that has ever been around loan servicing before. More than a few people versed in the field — myself included — rolled our eyes at the insinuation that the FDIC could do better than other loan servicers at modifying troubled mortgages. While we still don’t know for sure, this type of data is exactly the reason why. It’s not that anyone wishes the FDIC fails in its attempt; Ms. Bair’s heart is in the right place, after all. It’s just that we know better...

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Modified mortgages often re-default
...The FDIC has already modified more than 5,000 delinquent mortgages owned or serviced by failed lender IndyMac /quotes/comstock/11i!idmcq (IDMCQ 0.03, 0.00, -1.54%) and Bair's broader proposal is modeled on those efforts.

Under the IndyMac program, eligible homeowners have been offered more affordable monthly payments through reduced interest rates on the loans, extended amortization and deferred principal payments.

Lender Processing Services told analysts at Keefe, Bruyette & Woods that the results of such modification are often uninspiring.

"Industry evidence indicates that in a majority of instances loan modifications simply delay the timeline from default to foreclosure but don't prevent them from taking place," Nathaniel Otis and William Clark, analysts at KBW, wrote in a note to investors on Tuesday.

For the industry in general, after mortgages are modified roughly 25% go delinquent again after just one post-modification payment and more than half end up delinquent after several post-modification payments, Lender Processing Services told the analysts. ...

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Is Government Health Care Constitutional?
...The Supreme Court created the right to privacy in the 1960s and used it to strike down a series of state and federal regulations of personal (mostly sexual) conduct. This line of cases began with Griswold v. Connecticut in 1965 (involving marital birth control), and includes the 1973 Roe v. Wade decision legalizing abortion.

The court's underlying rationale was not abortion-specific. Rather, the justices posited a constitutionally mandated zone of personal privacy that must remain free of government regulation, except in the most exceptional circumstances. As the court explained in Planned Parenthood v. Casey (1992), "these matters, involving the most intimate and personal choices a person may make in a lifetime, choices central to personal dignity and autonomy, are central to the liberty protected by the Fourteenth Amendment. At the heart of liberty is the right to define one's own concept of existence, of meaning, of the universe, and the mystery of human life."

It is, of course, difficult to imagine choices more "central to personal dignity and autonomy" than measures to be taken for the prevention and treatment of disease -- measures that may be essential to preserve or extend life itself. Indeed, when the overwhelming moral issues that surround the abortion question are stripped away, what is left is a medical procedure determined to be "necessary" by an expectant mother and her physician.

If the government cannot proscribe -- or even "unduly burden," to use another of the Supreme Court's analytical frameworks -- access to abortion, how can it proscribe access to other medical procedures, including transplants, corrective or restorative surgeries, chemotherapy treatments, or a myriad of other health services that individuals may need or desire?

This type of "burden" analysis will be especially problematic for a national health system because, in the health area, proper care often depends upon an individual's unique physical and even genetic history and characteristics. One size clearly does not fit all, but that is the very essence of governmental regulation -- to impose a regularity (if not uniformity) in the application of governmental power and the dispersal of its largess. Taking key decisions away from patient and physician, or otherwise limiting their available choices, will render any new system constitutionally vulnerable.

It is true, of course, that forms of rationing already exist in our current system. No one who has experienced the marked reluctance to treat aggressively lethal illnesses in the elderly can doubt that. However, what may be permissible for private actors -- including doctors and insurance companies -- is not necessarily lawful when done by the government....

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Andrew Cuomo and Fannie and Freddie
There are as many starting points for the mortgage meltdown as there are fears about how far it has yet to go, but one decisive point of departure is the final years of the Clinton administration, when a kid from Queens without any real banking or real-estate experience was the only man in Washington with the power to regulate the giants of home finance, the Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC), better known as Fannie Mae and Freddie Mac.

Andrew Cuomo, the youngest Housing and Urban Development secretary in history, made a series of decisions between 1997 and 2001 that gave birth to the country's current crisis. He took actions that—in combination with many other factors—helped plunge Fannie and Freddie into the subprime markets without putting in place the means to monitor their increasingly risky investments. He turned the Federal Housing Administration mortgage program into a sweetheart lender with sky-high loan ceilings and no money down, and he legalized what a federal judge has branded "kickbacks" to brokers that have fueled the sale of overpriced and unsupportable loans. Three to four million families are now facing foreclosure, and Cuomo is one of the reasons why.

What he did is important—not just because of what it tells us about how we got in this hole, but because of what it says about New York's attorney general, who has been trying for months to don a white hat in the subprime scandal, pursuing cases against banks, appraisers, brokers, rating agencies, and multitrillion-dollar, quasi-public Fannie and Freddie....

...And that's not an accident: Perhaps the only domestic issue George Bush and Bill Clinton were in complete agreement about was maximizing home ownership, each trying to lay claim to a record percentage of homeowners, and both describing their efforts as a boon to blacks and Hispanics. HUD, Fannie, and Freddie were their instruments, and, as is now apparent, the more unsavory the means, the greater the growth. But, as Paul Krugman noted in the Times recently, "homeownership isn't for everyone," adding that as many as 10 million of the new buyers are stuck now with negative home equity—meaning that with falling house prices, their mortgages exceed the value of their homes. So many others have gone through foreclosure that there's been a net loss in home ownership since 1998....

...In 2000, Cuomo required a quantum leap in the number of affordable, low-to-moderate-income loans that the two mortgage banks—known collectively as Government Sponsored Enterprises—would have to buy. The GSEs don't actually sell mortgages to borrowers. They buy them from banks and mortgage companies, allowing lenders to replenish their capital and make more loans. They also purchase mortgage-backed securities, which are pools of mortgages regularly acquired by the GSEs from investment firms. The government chartered these banks to pump money into the mortgage market and, while they did it, to make a strong enough profit to attract shareholders. That created a tug-of-war between their efforts to maximize shareholder value, which drove them toward high-end mortgages, and their congressionally mandated obligation to finance loans for those who needed help. The 1992 law required HUD's secretary to make sure housing goals were being met and, every four years, set new goals for Fannie and Freddie.

Cuomo's predecessor, Henry Cisneros, did that for the first time in December 1995, taking a cautious approach and moving the GSEs toward a requirement that 42 percent of their mortgages serve low- and moderate-income families. Cuomo raised that number to 50 percent and dramatically hiked GSE mandates to buy mortgages in underserved neighborhoods and for the "very-low-income." Part of the pitch was racial, with Cuomo contending that Fannie and Freddie weren't granting mortgages to minorities at the same rate as the private market. William Apgar, Cuomo's top aide, told The Washington Post: "We believe that there are a lot of loans to black Americans that could be safely purchased by Fannie Mae and Freddie Mac if these companies were more flexible."

While many saw this demand for increasingly "flexible" loan terms and standards as a positive step for low-income and minority families, others warned that they could have potentially dangerous consequences. Franklin Raines, the Fannie chairman and first black CEO of a Fortune 500 company, warned that Cuomo's rules were moving Fannie into risky territory: "We have not been a major presence in the subprime market," he said, "but you can bet that under these goals, we will be." Fannie's chief financial officer, Timothy Howard, said that "making loans to people with less-than-perfect credit" is "something we should do." Cuomo wasn't shy about embracing subprime mortgages as a possible consequence of his goals. "GSE presence in the subprime market could be of significant benefit to lower-income families, minorities, and families living in underserved areas," his report on the new goals noted....

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Hi-tech helps Iranian monitoring
Iran is well known for filtering the net, but the government has moved to do the same for mobile phones.

Nokia Siemens Network has confirmed it supplied Iran with the technology needed to monitor, control, and read local telephone calls. ...

...The product allows authorities to monitor any communications across a network, including voice calls, text messaging, instant messages, and web traffic.

But Nokia Siemens says the product is only being used, in Iran, for the monitoring of local telephone calls on fixed and mobile lines.

Rather than just block traffic, it is understood that the monitoring system can also interrogate data to see what information is being passed back and forth.

A spokesman described the system as "a standard architecture that the world's governments use for lawful intercept".

He added: "Western governments, including the UK, don't allow you to build networks without having this functionality." ...

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700 NYC teachers are paid to do nothing
NEW YORK – Hundreds of New York City public school teachers accused of offenses ranging from insubordination to sexual misconduct are being paid their full salaries to sit around all day playing Scrabble, surfing the Internet or just staring at the wall, if that's what they want to do.

Because their union contract makes it extremely difficult to fire them, the teachers have been banished by the school system to its "rubber rooms" — off-campus office space where they wait months, even years, for their disciplinary hearings.

The 700 or so teachers can practice yoga, work on their novels, paint portraits of their colleagues — pretty much anything but school work. They have summer vacation just like their classroom colleagues and enjoy weekends and holidays through the school year....

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Report Debunking UN's Global Warming Alarmism is Backed by 31,478 U.S. Scientists
The Nongovernmental International Panel on Climate Change (NIPCC) has issued a rebuttal to the United Nation's International Panel on Climate Change. The report challenges the theory that man somehow has played a major role in changing the global climate, and also challenges the need to adopt painful and costly measures to combat this perceived threat, such as giving up meat in our diets.

Where many in the AGW community would have you believe that there is a consensus over global warming theory, the reports showcases the ongoing debate on the topic and support for alternative theories. Over 31,478 American scientists signed a petition in the appendix citing “there is no convincing scientific evidence that human release of carbon dioxide, methane, or other greenhouse gases is causing or will, in the foreseeable future, cause catastrophic heating of the Earth’s atmosphere and disruption of the Earth’s climate."

Unlike the UN's IPCC, which is chaired by Rajendra Pachauri, an Indian economist with no formal climatology training, the NIPCC is headed by two esteemed climatologists, each with a large body of work in the field....

... * Climate models suffer from numerous deficiencies and shortcomings that could alter even the very sign (plus or minus, warming or cooling) of earth’s projected temperature response to rising atmospheric carbon dioxide (CO2) concentrations.
* The model-derived temperature sensitivity of the earth--especially for a doubling of the preindustrial CO2 level--is much too large, and feedbacks in the climate system reduce it to values that are an order of magnitude smaller than what the IPCC employs.
* Real-world observations do not support the IPCC’s claim that current trends in climate and weather are “unprecedented” and, therefore, the result of anthropogenic greenhouse gases.
* The IPCC overlooks or downplays the many benefits to agriculture and forestry that will be accrued from the ongoing rise in the air’s CO2 content.
* There is no evidence that CO2-induced increases in air temperature will cause unprecedented plant and animal extinctions, either on land or in the world’s oceans.
* There is no evidence that CO2-induced global warming is or will be responsible for increases in the incidence of human diseases or the number of lives lost to extreme thermal conditions.
...

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Housing Boom and Bust
...When the political crusade for affordable housing took off and built up steam during the 1990s, the share of their incomes that Americans were spending on housing in 1998 was 17 percent, compared to 30 percent in the early 1980s. Even during the housing boom of 2005, the median home took just 22 percent of the median American income.

What created the illusion of a nationwide problem was that, in particular localities around the country, housing prices had skyrocketed to the point where people had to pay half their income to buy a modest-sized home and often resorted to very risky ways of financing the purchase. In Tucson, for example, “roughly 60% of first-time home buyers make no down payment and instead now use 100% financing to get into the market,” according to the Wall Street Journal. Almost invariably, these locally extreme housing prices have been a result of local political crusades in the name of locally attractive slogans about the environment, open space, “smart growth,” or whatever other phrases had political resonance at the particular time and place.

Where housing markets have been more or less left alone — in places like Houston or Dallas, for example — housing did not take even half as big a share of family incomes as did comparable housing in places like the San Francisco Bay Area, where heavily hyped political crusades had led to severe restrictions on building. It was in precisely these extremely high housing-cost enclaves that the kind of people for whom the national housing crusade expressed much concern — minorities, low-income people and families with children — were forced out disproportionately....

...Lenders did not spontaneously begin to lend to people who would not have qualified for loans under the traditional criteria that had evolved out of years of experience in the market. Such risky loans were made under growing pressures from government regulatory agencies and politicians, and even threats of prosecution from the Justice Department if the statistical profiles of borrowers whose loan applications were approved did not match the government’s preconceptions.

The growth in subprime loans was one way of meeting arbitrary quotas for lending to people who did not meet the criteria for loan approval that had prevailed for years. Quota lending was one of many political patches put over problems caused by previous political “solutions.” Often these interventions have focussed on some limited goal, with no real concern about, or even awareness of, the wider ramifications of what they were doing. It is doubtful whether most of the state politicians of the past who enacted laws to prevent branch banking had anything in mind more far-reaching than enabling local banks to avoid having to compete with branches of much bigger and better-known banks. It seems even less likely that these local politicians felt any responsibility for the thousands of bank failures during the Great Depression of the 1930s....

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Stimulus = Welfare + Quotas + Corruption
Obama’s $787 billion stimulus package is now being used to force states to adopt racial quotas in government contracts, even if their state constitution or civil-rights laws forbid such quotas. Slate’s Mickey Kaus reports that “CalTrans, the huge state agency that spends billions in federal highway construction funds, ’sets a quota of having 6.75 percent of contracts go to women or members of a targeted group–African American, Asian-Pacific American, and Native American.’”

The stimulus package also repealed welfare reform, as Kaus and the Heritage Foundation have noted. Obama ran campaign ads claiming to support welfare reform, even though he had actually fought against welfare reform as an Illinois legislator.

Obama claimed the stimulus package was needed to prevent the economy from suffering from “irreversible decline,” but the Congressional Budget Office admitted that the stimulus package would shrink the economy “in the long run.” The stimulus package has since destroyed thousands of jobs in America’s export sector, and subsidized countless examples of government waste and corruption.

Recently, Obama fired an inspector general, Gerald Walpin, who uncovered millions of dollars of waste and fraud in the AmeriCorps program, including by a prominent Obama supporter, endangering the Obama supporter’s ability to administer federal stimulus spending in Sacramento....

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ABC Self-Nationalizes For Obama
But that's the story as ABC crosses the line from journalism to advocacy in turning its coverage of health care over to the White House.

This Wednesday, on every show from "Good Morning America" (kicking things off with an interview with the president) to "World News Tonight" (broadcast from the Blue Room) to a prime-time special called "Prescription for America" (and emanating from the East Room), the network will puff the Obama administration's trillion-dollar plan to nationalize U.S. health care.

The all-day, White House-based coverage itself amounts to a nationalization — this one of a major media outlet in support of an administration that will return the favor for access at the cost of objectivity and the public's right to know.

Don't think it isn't. This isn't your grandfather's propaganda. Forget public service announcements. Just as some newspaper ads trick themselves up to look like news stories to enhance their credibility, making a partisan program indistinguishable from the nightly "news" is a propaganda tool in the same vein.

Nobody has figured this out better than Barack Obama's political operation, which has manipulated almost all the mainstream media since he began running for the presidency.

Under the cover of news, ABC can present the president's side of the health reform issue as "factual" and leave out the real costs and concerns about government control and rationing of health care. Personal stories that tug at the heartstrings will be featured prominently, as will unchallenged canards about the wonders of socialized medicine....

...ABC insists it will present a balanced picture — as balanced, we suppose, as the political contributions of ABC News employees who gave 80 times more to Obama's campaign ($124,421 to $1,550) as they did to his opponent, John McCain....

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Volcker & Hedge Funds
...I’d also like to remind the eager-to-regulate crowd that when the market tanked, the highly regulated banks suffered most. When their market capitalization was down about 50%, I remember that the unregulated hedge funds were only down about 18%. So why is regulation always the “solution?”

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VA officials grilled over botched colonoscopies
Lawmakers sharply criticized the Veterans Affairs Department on Tuesday about why a national scare over botched colonoscopies earlier this year didn't prompt stronger safeguards at the agency's medical centers.

Agency officials apologized for the continued weaknesses and told a House subcommittee they would do better. VA Secretary Eric Shinseki said he would be disciplining staffers.

The strong reaction came as the agency's inspector general reported that fewer than half of VA facilities selected for surprise inspections last month had proper training and guidelines in place. That was months after the VA launched a nationwide safety campaign over the discovery of errors at facilities in Miami, Augusta, Ga., and Murfreesboro, Tenn., that could have exposed veterans to HIV and other infections....

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Cost Concerns as Obama Pushes Health Issue
...An analysis released Monday by the nonpartisan Congressional Budget Office raised the hurdles for draft legislation in the Senate just as its Health, Education, Labor and Pensions Committee planned to begin voting on Wednesday. The office concluded that a plan by the committee’s Democratic leaders, Senators Edward M. Kennedy of Massachusetts and Christopher J. Dodd of Connecticut, would reduce the number of uninsured only by a net 16 million people. Even if the bill became law, the budget office said, 36 million people would remain uninsured in 2017.

That finding came as a surprise. Robert D. Reischauer, an economist who headed the budget office when Congress tackled the health care issue in the Clinton administration, said that if so many people remained uninsured, it might not be feasible to cut special federal payments to hospitals that serve many low-income people.

Mr. Obama said Saturday that the government could save $106 billion over 10 years by cutting such hospital payments as more people gained coverage....

...The practical problem for Mr. Obama is that by all accounts, the savings and efficiencies he envisions will not occur quickly, certainly not in the 10-year time frame of budget scorekeeping for purposes of passing legislation.

The budget office estimated that 39 million people would get coverage through new “insurance exchanges.” But at the same time, it said, the number of people with employer-provided health insurance would decline by 15 million, or about 10 percent, and coverage from other sources would fall by 8 million.

In effect, the office said, millions of people would get a better deal if they bought insurance through an exchange because they could qualify for federal subsidies not available if they stayed in their employers’ health plans. Subsidies are expected to average $5,000 to $6,000 a person....

...But a VAT could violate Mr. Obama’s campaign pledge not to raise taxes on households with incomes under $250,000 a year.

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The Last Trillion-Dollar Commitment
...Managing their political risk required the GSEs to offer Congress a generous benefits package. Campaign contributions were certainly one element. Between the 2000 and 2008 election cycles, the GSEs and their employees contributed more than $14.6 million to the campaign funds of dozens of senators and representatives, most of them on committees that were important to preserving the GSEs' privileges.[2] And Fannie knew how to "leverage" its giving, not just its assets; often it enlisted other groups that profited from the GSEs' activities--the securities industry, homebuilders, and realtors--to sponsor their own fundraising events for the GSEs' key congressional friends. In addition to campaign funds, the GSEs--Fannie Mae in particular--enhanced their power in Congress by setting up "partnership offices" in the districts and states of important lawmakers, often hiring the relatives of these lawmakers to staff the local offices. Their lobbying activities were legendary. Between 1998 and 2008, Fannie spent $79.5 million and Freddie spent $94.9 million on lobbying Congress, making them the twentieth and thirteenth biggest spenders, respectively, on lobbying fees during that period.[3] Not all of these expenditures were necessary to contact members of Congress; the GSEs routinely hired lobbyists simply to deprive their opponents of lobbying help. Since lobbyists are frequently part of lawmakers' networks--and are often former staffers for the same lawmakers--these lobbying expenditures also encouraged members of Congress to support Fannie and Freddie as a means of supplementing the income of their friends.

n the same vein, Fannie and Freddie hired dozens of Washington's movers and shakers--at spectacular levels of compensation--to sit on their boards, lobby Congress, and in general help them to manage their political risk. (An early account of this effort was an article entitled "Crony Capitalism: American Style" that appeared in The International Economy in 1999.[4] A later version of the same point was made in Investor's Business Daily nine years later.[5]) The GSEs also paid for academic research to assure the public that the GSE mission was worthwhile and that the GSEs posed minimal risks to taxpayers. For example, Nobel laureate Joseph Stiglitz coauthored an article in 2002 purporting to show that the risk of GSE default producing taxpayer loss was "effectively zero."[6]

One of the most successful efforts to influence lawmakers came through community groups. Both Fannie and Freddie made "charitable" or other gifts to community groups, which could then be called upon to contact the GSEs' opponents in Congress and protest any proposed restrictions on the activities or privileges of the GSEs. GSE supporters in Congress could also count on these groups to back them in their reelection efforts....

...Even if the earlier affordable housing projects were not losers, however, they represented a new and extra-constitutional way for Congress to dispense funds that should otherwise have flowed through the appropriations process. In one sense, the expenditures were a new form of earmark, but this earmarking evaded the constitutional appropriations process entirely. An illustration is provided by a press release from the office of Senator Charles E. Schumer (D-N.Y.), one of the most ardent supporters of the GSEs in Congress. The headline on the release, dated November 20, 2006--right in the middle of the GSEs' affordable housing spending spree--was "Schumer Announces up to $100 Million Freddie Mac Commitment to Address Fort Drum and Watertown Housing Crunch." The subheading continued: "Schumer Unveils New Freddie Mac Plan with HSBC That Includes Low-Interest Low-Downpayment Loans. In June, Schumer Urged Freddie Mac and Fannie Mae Step Up to the Plate and Deliver Concrete Plans--Today Freddie Mac Is Following Through."[8] If this project had been economically profitable for Fannie or Freddie, Schumer would not have had to "urge" them to "step up." Instead, using his authority as a powerful member of the Senate Banking Committee--and a supporter of Fannie and Freddie--he appears to have induced Freddie Mac to make a financial commitment that was very much in his political interests but for which the taxpayers of the United States would ultimately be responsible.

Of course, Schumer was only one of many members of Congress who used his political leverage to further his own agenda at taxpayer expense and outside the appropriations process. The list of friends of Fannie and Freddie changed over time; while the GSEs enjoyed broad bipartisan support in the 1990s, over the past decade, they have become increasingly aligned with the Democrats. This shift in the political equilibrium was especially clear in the congressional reaction to the GSEs' accounting scandals of 2003 and 2004....

...Fannie and Freddie reaped significant benefits from the careful management of their political risk. In June 2003, in the wake of the failures of Enron and WorldCom, Freddie's board of directors suddenly dismissed its three top officers and announced that the company's accountants had found serious problems in Freddie's financial reports. In 2004, after a forensic audit by OFHEO, even more serious accounting manipulation was found at Fannie, and Raines, its chairman, and Timothy Howard, its chief financial officer, were compelled to resign.

It is eloquent testimony to the power of Fannie and Freddie in Congress that even after these extraordinary events there was no significant effort to improve or enhance the powers of their regulator. The House Financial Services Committee developed a bill that was so badly weakened by GSE lobbying that the Bush administration refused to support it. The Senate Banking Committee, then under Republican control, adopted much stronger legislation in 2005, but unanimous Democratic opposition to the bill in the committee doomed it when it reached the floor. ...

...The events in 2003 and 2004 had undermined the legitimacy of the GSEs. They could no longer claim to be competently--or even honestly--managed. An important and respected figure, Alan Greenspan, was raising questions about whether they might be creating excessive risk for taxpayers and systemic risk for the economy as a whole. Greenspan had suggested that their most profitable activity--holding portfolios of mortgages and MBS--was the activity that created the greatest risk, and three Federal Reserve economists had concluded that the GSEs' activities did not actually reduce mortgage interest rates. It was easy to see at this point that their political risk was rising quickly. The case for continuing their privileged status had been severely weakened. The only element of their activities that had not come under criticism was their affordable housing mission, and it appears that the GSEs determined at this point to play that card as a way of shoring up their political support in Congress....

...The GSEs' confidence in the affordable housing idea was bolstered by what appears to be a tacit understanding. Occasionally, this understanding found direct expression. For example, in his opening statement at a hearing in 2003, Representative Barney Frank (D-Mass.), now the chairman of the House Financial Services Committee, referred to an "arrangement" between Congress and the GSEs that tracks rather explicitly what actually happened: "Fannie and Freddie have played a very useful role in helping to make housing more affordable, both in general through leveraging the mortgage market, and in particular, they have a mission that this Congress has given them in return for some of the arrangements which are of some benefit to them to focus on affordable housing."[12] So here the arrangement is laid out: if the GSEs focus on affordable housing, their position is secure...

...In 1995, HUD, the cabinet-level agency responsible for issuing regulations on the GSEs' affordable housing obligations, had ruled that the GSEs could get affordable housing credit for purchasing subprime loans. Unfortunately, the agency failed to require that these loans conform to good lending practices, and OFHEO did not have the staff or the authority to monitor their purchases....

...One of the sources of Krugman's confusion may have been Fannie and Freddie's strange accounting conventions relating to subprime loans. There are many defi-nitions of a subprime loan, but the definition used by U.S. bank regulators is any loan to a borrower with damaged credit, including such objective criteria as a FICO credit score lower than 660.[15] In their public reports, the GSEs use their own definitions, which purposely and significantly understate their commitment to subprime loans--the mortgages with the most political freight. For example, they disclose the principal amount of loans with FICO scores of less than 620, leaving the reader to guess how many loans fall into the category of subprime because they have FICO scores of less than 660. In these reports, too, Alt-A loans--which include loans with little or no income or other documentation and other deficiencies--are differentiated from subprime loans, again reducing the size of the apparent GSE commitment to the subprime category. These distinctions, however, are not very important from the perspective of realized losses in the subprime and Alt-A categories; loss rates are quite similar for both, even though they are labeled differently. In its June 30, 2008, Investor Summary report, Fannie notes that credit losses on its Alt-A portfolio were 49.6 percent of all the credit losses on its $2.7 trillion single-family loan book of business.[16] Fannie's disclosures indicate that when all subprime loans (including Alt-A) are aggregated, at least 85 percent of its losses are related to its holdings of both subprime and Alt-A loans. They are all properly characterized as "junk loans."...

...Instead, it seems likely that the event responsible for the GSEs' change in direction and culture was the accounting scandal that each of them encountered in 2003 and 2004. In both cases, they lost their reputation as well-managed companies and began to encounter questions about their contribution to reducing mortgage rates and their safety and soundness. Serious observers questioned whether they should be allowed to continue to hold mortgages and MBS in their portfolios--by far their most profitable activity--and Senate Republicans moved a bill out of committee that would have prohibited this activity.

Under these circumstances, the need to manage their political risk became paramount, and this required them to prove to their supporters in Congress that they still served a useful purpose. In 2003, as noted above, Frank had cited an arrangement in which the GSEs' congressional benefits were linked to their investments in affordable housing. In this context, substantially increasing their support for affordable housing--through the purchase of the subprime loans permitted by HUD--seems a logical and even necessary tactic.

Unfortunately, the sad saga of Fannie and Freddie is not over. Some of their supporters in Congress prefer to blame the Fannie and Freddie mess on deregulation or private market failure, perhaps hoping to use such false diagnoses to lay the groundwork for reviving the GSEs for extra constitutional expenditure and political benefit in the future. As the future of the GSEs is debated over the coming months and years, it will be important to remember how and why Fannie and Freddie failed. The primary policy objective should be to prevent a repeat of this disaster by preventing the restoration of the GSE model.

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Dubya's Double Dip?
...The basic point is that the recession of 2001 wasn't a typical postwar slump, brought on when an inflation-fighting Fed raises interest rates and easily ended by a snapback in housing and consumer spending when the Fed brings rates back down again. This was a prewar-style recession, a morning after brought on by irrational exuberance. To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble....

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Credit Where Credit Is Due
...Neeraj Mehra, Amritsar, India: Mr. Greenspan has done a disservice to the nation by creating the housing boom. As a layman-observer, that’s the lingering thought I’ve had. Your article reaffirms it.

The question I have is this: Did he do the right thing — acting morally by engineering a housing boom, more as a bridge loan, until something else showed up at the horizon to shore up the economy — because he didn’t have a choice, or did he undertake a path of mere political expediency? And, that’s a question that’s nagging me for a while.

Would appreciate it if you could shed some light.

Paul Krugman: As Paul McCulley of PIMCO remarked when the tech boom crashed, Greenspan needed to create a housing bubble to replace the technology bubble. So within limits he may have done the right thing....

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Who Does Paul Krugman Think He’s Fooling?
...Where to begin? First let’s stipulate that Fannie and Freddie never did “any subprime lending” … but not for the reason Krugman states. Freddie and Fannie never do any lending: They buy mortgages from lenders only, so that those lenders have more cash to make other loans (like subprime ones). But Krugman is either lying or being intentionally obtuse when he says “Fannie and Freddie buy only mortgages issued to borrowers who made substantial down payments and carefully documented their income.”...

...Let’s review that last paragraph again. Krugman is trying to convince his readers that Freddie and Fannie are only innocent bystanders in the housing bubble. Fannie and Freddie purchased 44 percent of the subprime securities in 2004. Does that sound like the behavior of an innocent bystander to you?

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EX-NYERS RIPPING OFF MEDICAID MILLIONS
ALBANY - New York is wasting tens of millions of dollars annually by paying the medical expenses of thousands of former residents who have long since moved out of state, an explosive new audit has found.

The scathing - and still-secret - audit determined that nearly 30,000 people in New York City alone were improperly on the state's Medicaid rolls from November 2006 to November 2007, even while they were enrolled in the Medicaid programs of other states.

Auditors from state Comptroller Thomas DiNapoli's office, using federally developed computerized record checks in 44 states, determined that nearly 13,000 of the former city residents "should have been investigated" for violation of New York's Medicaid regulations, according to the audit, a copy of which was obtained by The Post.

It's not clear why the other 17,000 out-of-staters were not identified as targets for a probe. ...

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New York Medicaid Fraud May Reach Into Billions
...New York's Medicaid program is by far the most expensive and most generous in the nation. It spends far more - now $44.5 billion annually - than that of any other state, even California, whose Medicaid program covers about 55 percent more people. New York's Medicaid budget is larger than most states' entire budgets, and it spends nearly twice the national average - roughly $10,600, more than any other state - on each of its 4.2 million recipients, one in every five New Yorkers.

That generosity was born of good intentions when Gov. Nelson A. Rockefeller signed the program into law in 1966, following the state's tradition of creating big antipoverty programs. But Medicaid has become far more than the child of that altruism, having morphed into an economic engine that fuels one of the state's biggest industries, leaving fraud and unnecessary spending to grow in its wake.

There are no precise estimates for the cost to the state's program. Officials who have spent their careers chasing unscrupulous doctors and other providers in New York Medicaid say the losses to taxpayers here are probably higher than typical estimates of overall health care fraud. The Government Accountability Office in Washington and others have estimated that 10 percent of all health care spending nationally is lost to "fraud and abuse."

James Mehmet, who retired in 2001 as chief state investigator of Medicaid fraud and abuse in New York City, said he and his colleagues believed that at least 10 percent of state Medicaid dollars were spent on fraudulent claims, while 20 or 30 percent more were siphoned off by what they termed abuse, meaning unnecessary spending that might not be criminal. "So we're talking about 40 percent of all claims are questionable," Mr. Mehmet said - an amount that would approach $18 billion a year.

Despite the debate, and the enormous sums at stake, Albany has never formally studied how much of the huge government investment in Medicaid is lost to criminal activity and abuse. ...

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The Politics of Controlled Crisis
...For cryin' out loud, we have a single payer government health care system called Medicaid that has a 40% fraud and 'legal graft' rate from coast to coast! (Or at least on both of them.)

Not waste and inefficient procedures. Fraud and graft!

Why? Simple. No politician in New York or California ever gets a vote from denying medical benefits to anyone -- it only costs them votes. "Heartless politicians deny medical care to the poor..." The very same argument being used to beat up insurance companies in Congressional hearings today. Add to that all the money the politicians collect from the medical services providers -- hospitals, unions of health care workers, suppliers, etc.

That's an awful lot of political incentive against cost efficiency. Where is the incentive for it?...

...When Spitzer was AG of New York why did he totally ignore the notorious massive graft in NYS Medicaid, which he was explicitly charged under the law to police, to pursue Wall Street instead, which was the jurisdiction of the SEC and Feds? Because that's how political incentives apply to government medical care programs.

Reality is this: Politicians will hand out medical benefits with no more efficiency retraints than today until the day arrives when they feel the pain of having to raise taxes to pay for them. Then they will apply "cost saving measures" by hacking the govt's health care budget with a meat cleaver from the top down -- making the whole system even less efficient than ever.

Why? Because it follows from the only political incentives they feel: (1) Get votes by handing out more benefits; then (2) avoid losing votes by stopping tax increases with budget caps, enforced top-down.

Politicians have no incentive, zero, to deliver "cost efficiency" in medical care. That only cost them votes, so they effectively are against it. Look at Medicaid from New York to California. Orszag admitted it to Postrel!...

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Ruin Your Health With the Obama Stimulus Plan: Betsy McCaughey
...But the bill goes further. One new bureaucracy, the National Coordinator of Health Information Technology, will monitor treatments to make sure your doctor is doing what the federal government deems appropriate and cost effective. The goal is to reduce costs and “guide” your doctor’s decisions (442, 446). These provisions in the stimulus bill are virtually identical to what Daschle prescribed in his 2008 book, “Critical: What We Can Do About the Health-Care Crisis.” According to Daschle, doctors have to give up autonomy and “learn to operate less like solo practitioners.”

Keeping doctors informed of the newest medical findings is important, but enforcing uniformity goes too far.

New Penalties

Hospitals and doctors that are not “meaningful users” of the new system will face penalties. “Meaningful user” isn’t defined in the bill. That will be left to the HHS secretary, who will be empowered to impose “more stringent measures of meaningful use over time” (511, 518, 540-541)

What penalties will deter your doctor from going beyond the electronically delivered protocols when your condition is atypical or you need an experimental treatment? The vagueness is intentional. In his book, Daschle proposed an appointed body with vast powers to make the “tough” decisions elected politicians won’t make. ...

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Baroness Warnock: Dementia sufferers may have a 'duty to die'
The veteran Government adviser said pensioners in mental decline are "wasting people's lives" because of the care they require and should be allowed to opt for euthanasia even if they are not in pain.

She insisted there was "nothing wrong" with people being helped to die for the sake of their loved ones or society....

...But in her latest interview, given to the Church of Scotland's magazine Life and Work, Lady Warnock goes further by claiming that dementia sufferers should consider ending their lives through euthanasia because of the strain they put on their families and public services.

Recent figures show there are 700,000 people with degenerative diseases such as Alzheimer's in Britain. By 2026 experts predict there will be one million dementia sufferers in the country, costing the NHS an estimated £35billion a year.

Lady Warnock said: "If you're demented, you're wasting people's lives – your family's lives – and you're wasting the resources of the National Health Service....

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Divided We Stand
What would California look like broken in three? Or a Republic of New England? With the federal government reaching for ever more power, redrawing the map is enticing, says Paul Starobin

...There might be an austere Republic of New England, with a natural strength in higher education and technology; a Caribbean-flavored city-state Republic of Greater Miami, with an anchor in the Latin American economy; and maybe even a Republic of Las Vegas with unfettered license to pursue its ambitions as a global gambling, entertainment and conventioneer destination. California? America’s broke, ill-governed and way-too-big nation-like state might be saved, truly saved, not by an emergency federal bailout, but by a merciful carve-up into a trio of republics that would rely on their own ingenuity in making their connections to the wider world. And while we’re at it, let’s make this project bi-national—economic logic suggests a natural multilingual combination between Greater San Diego and Mexico’s Northern Baja, and, to the Pacific north, between Seattle and Vancouver in a megaregion already dubbed “Cascadia” by economic cartographers.

Devolved America is a vision faithful both to certain postindustrial realities as well as to the pluralistic heart of the American political tradition—a tradition that has been betrayed by the creeping centralization of power in Washington over the decades but may yet reassert itself as an animating spirit for the future. Consider this proposition: America of the 21st century, propelled by currents of modernity that tend to favor the little over the big, may trace a long circle back to the original small-government ideas of the American experiment. The present-day American Goliath may turn out to be a freak of a waning age of politics and economics as conducted on a super-sized scale—too large to make any rational sense in an emerging age of personal empowerment that harks back to the era of the yeoman farmer of America’s early days. The society may find blessed new life, as paradoxical as this may sound, in a return to a smaller form....

...All of this adds up to a federal power grab that might make even FDR’s New Dealers blush. But that’s just the point: Not surprisingly, a lot of folks in the land of Jefferson are taking a stand against an approach that stands to make an indebted citizenry yet more dependent on an already immense federal power. The backlash, already under way, is a prime stimulus for a neo-secessionist movement, the most extreme manifestation of a broader push for some form of devolution. In April, at an anti-tax “tea party” held in Austin, Governor Rick Perry of Texas had his speech interrupted by cries of “secede.” The Governor did not sound inclined to disagree. “Texas is a unique place,” he later told reporters attending the rally. “When we came into the Union in 1845, one of the issues was that we would be able to leave if we decided to do that.”...

...Today’s devolutionists, of all stripes, can trace their pedigree to the “anti-federalists” who opposed the compact that came out of Philadelphia as a bad bargain that gave too much power to the center at the expense of the limbs. Some of America’s most vigorous and learned minds were in the anti-federalist camp; their ranks included Virginia’s Patrick Henry, of “give me liberty or give me death” renown. The sainted Jefferson, who was serving as a diplomat in Paris during the convention, is these days claimed by secessionists as a kindred anti-federal spirit, even if he did go on to serve two terms as president.

The anti-federalists lost their battle, but history, in certain respects, has redeemed their vision, for they anticipated how many Americans have come to feel about their nation’s seat of federal power. “This city, and the government of it, must indubitably take their tone from the character of the men, who from the nature of its situation and institution, must collect there,” the anti-federalist pamphleteer known only as the Federal Farmer wrote. “If we expect it will have any sincere attachments to simple and frugal republicanism, to that liberty and mild government, which is dear to the laborious part of a free people, we most assuredly deceive ourselves.”...

...Not quite. In a globalized economy transformed by technological innovations hatched by happily-unguided entrepreneurs, history seems to be driving one nail after another into the coffin of the big, which is why the Obama planners and their ilk, even if they now ride high, may be doomed to fail. No one anymore expects the best ideas to come from the biggest actors in the economy, so should anyone expect the best thinking to be done by the whales of the political world?

A notable prophet for a coming age of smallness was the diplomat and historian George Kennan, a steward of the American Century with an uncanny ability to see past the seemingly-frozen geopolitical arrangements of the day. Kennan always believed that Soviet power would “run its course,” as he predicted back in 1951, just as the Cold War was getting under way, and again shortly after the Soviet Union collapsed, he suggested that a similar fate might await the United States. America has become a “monster country,” afflicted by a swollen bureaucracy and “the hubris of inordinate size,” he wrote in his 1993 book, “Around the Cragged Hill: A Personal and Political Philosophy.” Things might work better, he suggested, if the nation was “decentralized into something like a dozen constituent republics, absorbing not only the powers of the existing states but a considerable part of those of the present federal establishment.”...

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The Long Road to Slack Lending Standards
...Eventually, the political climate changed, and Washington became a believer in the story. Crucial to this change was a Federal Reserve Bank of Boston study which concluded that although lender discrimination was not as severe as suggested by the newspapers, it nevertheless existed. This, then, became the dominant government position, even though subsequent efforts by other researchers to verify the Fed’s conclusions showed serious deficiencies in the original work. One economist for the Federal Deposit Insurance Corp. who looked more deeply into the data, for instance, found that the difference in denial rates on loans for whites and minorities could be accounted for by such factors as higher rates of delinquencies on prior loans for minorities, or the inability of lenders to verify information provided to them by some minority applicants.

Ignoring the import of such data, federal officials went on a campaign to encourage banks to lower their lending standards in order to make more minority loans. One result of this campaign is a remarkable document produced by the Federal Reserve Bank of Boston in 1998 titled “Closing the Gap: A Guide to Equal Opportunity Lending”.

Quoting from a study which declared that “underwriting guidelines…may be unintentionally racially biased,” the Boston Fed then called for what amounted to undermining many of the lending criteria that banks had used for decades. It told banks they should consider junking the industry’s traditional debt-to-income ratio, which lenders used to determine whether an applicant’s income was sufficient to cover housing costs plus loan payments. It instructed banks that an applicant’s “lack of credit history should not be seen as a negative factor” in obtaining a mortgage, even though a mortgage is the biggest financial obligation most individuals will undertake in life. In cases where applicants had bad credit (as opposed to no credit), the Boston Fed told banks to “consider extenuating circumstances” that might still make the borrower creditworthy. When applicants didn’t have enough savings to make a down payment, the Boston Fed urged banks to allow loans from nonprofits or government assistance agencies to count toward a down payment, even though banks had traditionally disallowed such sources because applicants who have little of their own savings invested in a home are more likely to walk away from a loan when they have trouble paying.

Of course, the new federal standards couldn’t just apply to minorities. If they could pay back loans under these terms, then so could the majority of loan applicants. Quickly, in other words, these became the new standards in the industry. In 1999, the New York Times reported that Fannie Mae and Freddie Mac were easing credit requirements for mortgages it purchased from lenders, and as the housing market boomed, banks embraced these new standards with a vengeance. Between 2004 and 2007, Fannie Mae and Freddie Mac became the biggest purchasers of subprime mortgages from all kinds of applicants, white and minority, and most of these loans were based on the lending standards promoted by the government. ...

...But this defense misses the point. In order to push banks to lend more to minority borrowers, advocates like the Boston Fed put forward an entire new set of lending standards and explained to the industry just why loans based on these slacker standards were somehow safer than the industry previously thought. These justifications became the basis for a whole new set of values (or lack of values), as no-down payment loans and loans to people with poor credit history or to those who were already loaded up with debt became more common throughout the entire industry....

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Obama Seeks to Mandate More Risky, Low-Income Loans by Banks, in New Financial Rules
The President has just announced proposals for a major overhaul of the financial system. The proposals would force banks to make even MORE risky loans to low-income people. Even liberal newspapers like the Village Voice have admitted that “affordable housing” mandates are a key reason for the housing crisis and the massive number of defaulting borrowers. But Obama will not accept this reality. Instead, he wants to create a new “Consumer Financial Protection Agency” to rigorously enforce regulations pressuring banks to make loans to low-income borrowers, such as the Community Reinvestment Act. (Obama once represented ACORN, which pressures banks to make risky loans).

In explaining why there is supposedly a need for this new agency, when other agencies already enforce the Community Reinvestment Act and fair-lending laws, his regulatory blueprint complains that “State and federal bank supervisory agencies’ primary mission is to ensure that financial institutions act prudently, a mission that, in appearance if not always in practice, often conflicts with their consumer protection responsibilities.” (Pg. 54).

In other words, the power to force banks to make low-income loans should be given to an agency that has no duty to ensure prudent lending or to take into account the effects of such requirements on banks’ stability or viability....

...Obama’s regulatory blueprint disingenuously claims that the Community Reinvestment Act, which pressures banks to make low-income loans, can’t have contributed to the mortgage crisis, because it existed for years before the crisis began. But it is not the Act’s passage, alone, that economists credit with causing the mortgage crisis, but rather the unrealistic regulations adopted to implement the Act many years after the Act’s passage. Those regulations went into effect not that long before the mortgage bubble began, as historian Clayton Cramer notes. Economists, investment bankers, and historians have long noted the role of the Community Reinvestment Act and its regulations in promoting the risky lending that spawned the financial crisis. Investors Business Daily has chronicled how “the Community Reinvestment Act” pressured lenders to make the risky loans that led to the mortgage meltdown.

The current mortgage crisis came about in large part because of Clinton-era government pressure on lenders to make risky loans in order to “make homeownership more affordable for lower-income Americans and those with a poor credit history,” the DC Examiner notes. “Those steps encouraged riskier mortgage lending by minimizing the role of credit histories in lending decisions, loosening required debt-to-equity ratios to allow borrowers to make small or even no down payments at all, and encouraging lenders the use of floating or adjustable interest-rate mortgages, including those with low ‘teasers.’”

The liberal Village Voice previously chronicled how Clinton Administration housing secretary Andrew Cuomo helped spawn the mortgage crisis through his pressure on lenders to promote affordable housing and diversity. “Andrew Cuomo, the youngest Housing and Urban Development secretary in history, made a series of decisions between 1997 and 2001 that gave birth to the country’s current crisis. He took actions that—in combination with many other factors—helped plunge Fannie and Freddie into the subprime markets without putting in place the means to monitor their increasingly risky investments. He turned the Federal Housing Administration mortgage program into a sweetheart lender with sky-high loan ceilings and no money down . . . Three to four million families are now facing foreclosure, and Cuomo is one of the reasons why.” (See Wayne Barrett, “Andrew Cuomo and Fannie and Freddie: How the Youngest Housing and Urban Development Secretary in History Gave Birth to the Mortgage Crisis,” Village Voice, August 5, 2008).

In drafting his financial regulation proposals, Obama has turned to Barney Frank and Chris Dodd, lawmakers who are among those most culpable in spawning the financial crisis. ...

...For example, “a high-ranking Democrat telephoned executives and screamed at them to purchase more loans from low-income borrowers, according to a Congressional source.” The executives of government-backed mortgage giants Fannie Mae and Freddie Mac “eventually yielded to those pressures, effectively wagering that if things got too bad, the government would bail them out.” But they realized the risk: “In 2004, Freddie Mac warned regulators that affordable housing goals could force the company to buy riskier loans.” Ultimately, though, Freddie Mac’s CEO, Richard F. Syron, told colleagues that “we couldn’t afford to say no to anyone.”

As a Washington Post story shows, the high-risk loans that led to the mortgage crisis were the product of regulatory pressure, not a lack of regulation. In 2004, even after banking officials “warned that subprime lenders were saddling borrowers with mortgages they could not afford, the U.S. Department of Housing and Urban Development helped fuel more of that risky lending. Eager to put more low-income and minority families into their own homes, the agency required that two government-chartered mortgage finance firms purchase far more ‘affordable’ loans made to these borrowers. HUD stuck with an outdated policy that allowed Freddie Mac and Fannie Mae to count billions of dollars they invested in subprime loans as a public good that would foster affordable housing.”

Lenders also face the risk of being sued for discrimination if they fail to make loans to people with bad credit, which often has a racially-disparate impact (proving that such impact is unintentional is costly and difficult, and not always sufficient to avoid liability under antidiscrimination laws). They also risk possible sanctions under the Community Reinvestment Act.

Banks get sued for discrimination no matter what they do. If they don’t make enough loans in low-income, predominantly minority neighborhoods, they get accused of “redlining,” and are subject to sanctions under politically-correct laws like the Community Reinvestment Act, which contributed to the financial crisis by pressuring lenders to make risky mortgage loans.

But if they do make such loans, they get accused of “reverse redlining,” and get sued by the liberal special-interest groups and municipalities that encouraged them to make such loans during the mortgage bubble. Baltimore and various borrowers have also brought “reverse redlining” lawsuits against banks.

The Washington Post reported that bond-rating agencies like Moody’s and Fitch are now getting sued, too, for “reverse redlining,” under the theory that they encouraged risky loans to low-income minorities (who subsequently regretted taking out those loans) by giving respectable ratings to the mortgage-backed securities produced by packaging those mortgage loans. The plaintiffs include the National Community Reinvestment Coalition, which has been pressuring lenders to make risky loans to low-income minorities for years. They blame the ratings-agencies for allowing lenders to make loans to minorities with “insufficient borrower income levels.”

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Washington Post Blames Private Sector for Government Failures
...You don’t have to be a right-winger to see that government regulation caused, rather than mitigated, the mortgage crisis. An August 5 article in the liberal Village Voice explains how Clinton’s Secretary for Housing and Urban Development, Andrew Cuomo helped pave the way for the mortgage meltdown by ratcheting up federal affordable-housing mandates. Cuomo and HUD forced Fannie and Freddie to buy more sub-prime morgages, as part of Cuomo’s crusade to increase the number of minority homeowners. Now, of course, the crusade has backfired. Many minority homeowners have suffered financially as a result of recent falls in home value that wiped out their homeowners’ equity — a fall that resulted from buying homes during a mortgage bubble fueled by HUD’s pressure on lenders to make risky, high-interest loans to people with little savings (many of whom have defaulted, helping to drive lenders into bankruptcy). And they’ve ended up with costly high-interest mortgages in the process. (Ironically, Cuomo, now New York’s attorney general, blames lenders for causing the mortgage crisis through “predatory lending” — lending he helped promote as HUD secretary)....

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Planting Seeds of Disaster
‘You’ve got only a couple thousand bucks in the bank. Your job pays you dog-food wages. Your credit history has been bent, stapled, and mutilated. You declared bankruptcy in 1989. Don’t despair: You can still buy a house.” So began an April 1995 article in the Chicago Sun-Times that went on to direct prospective home-buyers fitting this profile to a group of far-left “community organizers” called ACORN, for assistance. In retrospect, of course, encouraging customers like this to buy homes seems little short of madness....

...I’ve already told the story of Obama’s close ties to ACORN leader Madeline Talbott, who personally led Chicago ACORN’s campaign to intimidate banks into making high-risk loans to low-credit customers. Using provisions of a 1977 law called the Community Reinvestment Act (CRA), Chicago ACORN was able to delay and halt the efforts of banks to merge or expand until they had agreed to lower their credit standards — and to fill ACORN’s coffers to finance “counseling” operations like the one touted in that Sun-Times article. This much we’ve known. Yet these local, CRA-based pressure-campaigns fit into a broader, more disturbing, and still under-appreciated national picture. Far more than we’ve recognized, ACORN’s local, CRA-enabled pressure tactics served to entangle the financial system as a whole in the subprime mess. ACORN was no side-show. On the contrary, using CRA and ties to sympathetic congressional Democrats, ACORN succeeded in drawing Fannie Mae and Freddie Mac into the very policies that led to the current disaster....

...Critics of the notion that CRA had a major impact on the subprime crisis ask how a law passed in 1977 could have caused a crisis in 2008? The answer has a lot to do with ACORN — and the critical years of 1990-1995. While the 1977 Community Reinvestment Act did call on banks to increase lending in poor and minority neighborhoods, its exact requirements were vague, and therefore open to a good deal of regulatory interpretation. Banks merger or expansion plans were rarely held up under CRA until the late 1980s, when ACORN perfected its technique of filing CRA complaints in tandem with the sort of intimidation tactics perfected by that original “community organizer” (and Obama idol), Saul Alinsky.

At first, ACORN’s anti-bank actions were relatively few in number. However, under a provision of the 1989 savings and loan bailout pushed by liberal Democratic legislators, like Massachusetts Congressman Joseph P. Kennedy, lenders were required to compile public records of mortgage applicants by race, gender, and income. Although the statistics produced by these studies were presented in highly misleading ways, groups like ACORN were able to use them to embarrass banks into lowering credit standards. At the same time, a wave of banking mergers in the early 1990's provided an opening for ACORN to use CRA to force lending changes. Any merger could be blocked under CRA, and once ACORN began systematically filing protests over minority lending, a formerly toothless set of regulations began to bite....

...Another factor working in ACORN’s favor was that its increasing success with local banks turned those banks into allies in the battle with Fannie and Freddie. Precisely because ACORN’s local pressure tactics were working, banks themselves now wanted Fannie and Freddie to loosen their standards still further, so as to buy up still more of the high-risk loans they’d made at ACORN’s insistence. So by the 1993, a grand alliance of ACORN, national Democrats, and local bankers looking for someone to lessen the risks imposed on them by CRA and ACORN were uniting to pressure Fannie and Freddie to loosen credit standards still further.

At this point, both ACORN and the Clinton administration were working together to impose large numerical targets or “set asides” (really a sort of poor and minority loan quota system) on Fannie and Freddie. ACORN called for at least half of Fannie and Freddie loans to go to low-income customers. At first the Clinton administration offered a set-aside of 30 percent. But eventually ACORN got what it wanted. In early 1994, the Clinton administration floated plans for committing $1 trillion in loans to low- and moderate-income home-buyers, which would amount to about half of Fannie Mae’s business by the end of the decade. Wall Street Analysts attributed Fannie Mae’s willingness to go along with the change to the need to protect itself against still more severe “congressional attack.” News reports also highlighted praise for the change from ACORN’s head lobbyist, Deepak Bhargava.

This sweeping debasement of credit standards was touted by Fannie Mae’s chairman, chief executive officer, and now prominent Obama adviser James A. Johnson. This is also the period when Fannie Mae ramped up its pilot programs and local partnerships with ACORN, all of which became precedents and models for the pattern of risky subprime mortgages at the root of today’s crisis. During these years, Obama’s Chicago ACORN ally, Madeline Talbott, was at the forefront of participation in those pilot programs, and her activities were consistently supported by Obama through both foundation funding and personal leadership training for her top organizers....

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What Went Wrong
...What caused the economic disaster that we are now facing? While there are a number of factors, the core of the disaster was the expansion of the subprime mortgage market. Lenders, left to their own devices, tend not to make highly risky loans. These highly risky loans are called subprime mortgages (because the borrowers are below what the lender considers optimum credit rating). These loans are to people with poor or no credit history, or who cannot document their earnings (you know, like with paycheck stubs or statements from their business's accountant).

In 1977, something called the Community Reinvestment Act was passed by Congress to deal with the claim of "redlining"--that lenders were reluctant to lend money in minority neighborhoods. It wasn't that the lenders were racists; they looked at the value of homes in the poorest neighborhoods and were reluctant to take risks. The CRA, however, had little in the way of teeth.

In 1992, the Federal Reserve Bank of Boston released a study that claimed that there was lending discrimination against blacks going on, because they compared lending rates for whites and blacks with equivalent incomes, and found that blacks were less likely to get loans. But other economists have since pointed out that whites and blacks with equivalent incomes have very different net worths. Whites with the same income tend to have much higher net worth than blacks at that level.

Throughout the 1990s, ACORN pressured banks throughout the Chicago area to get more lending to subprime borrowers....

...The Clinton Administration's efforts to expand lending to blacks and Hispanics, while well intentioned, required more subprime mortgage lending. The most effective way to do this was to change Fannie Mae and Freddie Mac's underwriting rules...

...These two GSEs (government sponsored enterprises), because they buy a big chunk of privately originated mortgages, are in a position to substantially change the risk equation. If Bank of America knows that a $720,000 mortgage to a guy making $14,000 a year is so risky that Fannie Mae isn't going to buy this mortgage, then they have to carry the risk on this paper--and they won't do very many such mortgages. If they know that Fannie Mae likely will buy it, why not? They make some money on the loan origination, they earn interest as long as they carry the paper--and then they can sell it to Fannie Mae. And the change in underwriting rules did change the equation--dramatically....

...What happens when you dramatically expand the number of people buying homes? It drives up prices. What happens prices of houses start rising? Why, people start speculating--and not millionaires who can afford to make six mortgages while a house sits vacant, but people who were told that they could buy a house, wait three months, and resell it for $40,000 more. Some did, at the start of this tulip bulb mania. And those at the end discovered what happens when the boom slows even a little--you end up a with a house you paid too much for, and that you can't sell for what you paid, and you can't rent it for enough to cover the mortgage.

The separation of loan origination from long-term loan servicing created an incentive to make a lot of loans--then sell them to someone else while the potato was still hot. Golden West S&L, for example, was sold by Herbert and Marion Sandler to Wachovia for $24.2 billion just as the bubble was hitting its peak. (The details are in this May 9, 2006 San Francisco Chronicle article.) They then took their $2.4 billion that they personal received, and used it to fund Democratic activities....

...Third warning: a November 11, 2003 Wall Street Journal editorial about the housing finance market. White House chief economist N. Gregory Mankiw argued for stronger regulation of Fannie Mae, because of the risks to taxpayers. And who argued against? “Congressman Barney Frank criticized Mr. Mankiw because he is worried about the tiny little matter of safety and soundness rather than ‘concern about housing.’ But as Mr. Mankiw pointed out, most of the federal subsidy for the companies goes to enrich private investors and executives, not poor home-owners.”

The following sentence from that 2003 editorial is especially prescient: “One weakness of democracy is that it tends to ignore problems before they erupt into crises. The risk portfolios of Fannie Mae and Freddie Mac are a classic example.”...

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The Myth of Financial Deregulation
...Had mark-to-market regulations been more flexible banks would have had more time to raise capital and sell assets. Had Wall Street firms not seen Washington as a lender of last resort that would bail out investments gone awry, they would have managed their risk better. Had capital reserve ratios been higher banks and investment institutions would have had more liquidity when prices dropped (though some firms, like AIG, simply became insolvent and wouldn't have been saved by higher reserves). Or, if qualified special purpose entities—an off-balance sheet accounting method—had required more transparency, banks would have had to keep more risky mortgages on their books, subject to reserve requirements.

Indeed, even if these three deregulations had no caveats explaining away their supposed link to the current financial crisis, they would still hardly constitute a historical trend. In contrast, historical periods of high regulation have proven decidedly unfavorable. Financial sector regulation during the 1970s was much heavier than today, and that did not prevent stagflation, with unemployment reaching nine percent in May 1975 and inflation nearly topping 14 percent.

Similarly, Europe currently boasts some of the world's tightest financial sector regulations, and its banks have suffered just as much, if not more than American banks in this recession. European banks made the same bad bets, the same poor investments, and the same over-leveraged mistakes—despite more regulation and government oversight....

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ObamaCare is a Trojan Horse for Socialized Medicine
...That Medicare is in serious, serious trouble no one can dispute. Its projected unfunded liabilities over 75 years, from 2007 to 2082, are about $36 trillion, according to the latest Medicare Trustees report. If current trends persist, by the end of that time Medicare will be devouring 19% of gross domestic product—or $3 trillion, an amount equal to the entire U.S. budget right now. It will take a heartburn-inducing 135% increase in payroll taxes to bring it into actuarial balance.

Despite Medicare's dismal record, Obama and his comrades hold Medicare up as an example for the private sector. Why? Because between 1997 and 2006, Medicare's health spending per enrollee grew 4.6% annually while that of private plans grew 7.3%. By tapping this 2.7% difference, they argue that they can perform the triple miracle of reining in escalating health care costs, and at the same time extending health insurance to the 46 million uninsured without imposing any extra cost on the economy.

But this is 21st century snake oil.

Medicare hasn't controlled costs by discovering some wonder drug to deliver new efficiencies that the private sector doesn't have. In fact, the Government Accountability Office lists Medicare as a "high-risk" program, thanks to its long-term financial problems and its vulnerability to fraud. Rather, Medicare has cut costs by deploying the economic equivalent of leech-therapy: slashing payments to providers. The only reason providers haven't been bled out of existence is because they have offset these cuts by raising prices charged to private insurance plans. In effect, then, the good performance of Medicare that Obama and Co. tout has been purchased by beggaring the private plans that they deride.

There is a rich literature testifying to this phenomenon. A study last December by Milliman Inc., an independent consulting firm, commissioned by America's Health Insurance Plans, found that underpayment by Medicare and Medicaid accounted for nearly an 11% increase in the health care costs of private plans. This means that on average a privately insured family is forced to pick up about $1,800 extra every year of the government's slack. Private plans, all in all, are subsidizing government programs to the tune of $90 billion annually.

Milliman's findings are far from ground-breaking. They merely confirm previous research, including a 2006 study by Jack Zwanziger and Anil Bamezai in Health Affairs, which found a clear correlation over the years between decreasing government payments and rising insurance premiums in California. They calculated that a 1% relative decrease in the average Medicare price is associated with a 0.17% increase in the corresponding price paid by privately insured patients. ..

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The Medicare Monster
...The two primary lessons of Medicare are the chronic problem of woefully underestimating program costs and the impossibility of genuine cost control. A closer look at Medicare shows why these two problems are certain to plague a government-administered universal health-care plan.

The cost of Medicare is a good place to begin. At its start, in 1966, Medicare cost $3 billion. The House Ways and Means Committee estimated that Medicare would cost only about $ 12 billion by 1990 (a figure that included an allowance for inflation). This was a supposedly "conservative" estimate. But in 1990 Medicare actually cost $107 billion.

This is a mere bagatelle compared with "conservative" projections for the next generation. The Congressional Budget Office estimates that Medicare will cost $223 billion by 1997. Constance Homer, deputy secretary of Health and Human Services, warns that "by the year 2003, at the current rates, we will be spending more on Medicare than we do on Social Security."

The news gets even worse for the "out years" after that. The Health Care Finance Administration has given up making long-range projections of budget outlays of Medicare. Instead, HCFA makes calculations about the "actuarial balance" of the program–how much of the nation’s payroll will be required to pay for the program.

The 1992 annual report of the Federal Hospital Insurance Trust Fund, which pays for the hospital-insurance portion of Medicare, warns that the Medicare program "is severely out of financial balance" and could go bust as soon as the year 2000. The report says expenditures from the hospital fund represented 1.3 percent of the nation’s gross domestic product in 1991 and will grow to 4.7 percent by 2065. To cover the cost, the Medicare payroll-tax rate will have to more than quadruple, from the current rate of 2.9 percent to 13.79 percent....

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Why the state cannot save the economy
One of the arguments that goes almost unquestioned, certainly in Europe, is that what is required is re-regulation, a systematic form of state intervention both in the financial markets and in other sectors. I find this outlook puzzling, since it is based on the assumption that the recent past has been an era of neo-liberalism where the state had a small and undistinguished role in social and economic life. In reality, the state already has a formidable presence in the economy, and has had for a very long time.

For example, in every major economy, we have seen very large government budget deficits in recent decades. In the UK and elsewhere, the public sector has played a crucial role in the creation of new jobs. Many of the financial policies now linked to the global recession are part-and-parcel of this state involvement in the economy, from low interest rates to encouraging consumer spending to the housing boom. The state has not been a neutral observer but an active promoter of these things.

Contrary to popular prejudice, the state is not a stranger to regulation. Listening to contemporary debates, you could be forgiven for thinking that the European Union (EU) is the most unregulated place in the world. Yet if you look more closely, you will find that while there has been some deregulation in some sectors, in the financial and banking markets for example, there has also been an expansion of state regulation in a whole number of areas in various different ways – including in finance and banking. Anyone who has had to put up with the rise of corporate governance and its many petty rules will know what I am talking about. The world of business is far more regulated than ever before....

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Too Big to Fail, or Succeed
...Designating particular financial firms for this kind of special regulatory treatment clearly signals to the markets that these institutions are too big to fail. It will reduce the perceived risk of lending to them, enabling them to raise funds at lower cost than their smaller competitors.

In other words, the administration's plan would create what are essentially government-sponsored enterprises like Fannie Mae and Freddie Mac in every sector of the financial economy -- insurers, securities firms, finance companies, bank holding companies, and hedge funds -- where these specially regulated firms are to be designated. The result will be devastating for competition. Larger firms will squeeze out smaller ones and aggressive small companies will have less opportunity to overcome the government-backed winners.

Moreover, the administration's proposal to provide a special bailout mechanism for large firms confirms the likelihood that these firms will never be closed down or liquidated. Citing the market turmoil that followed Lehman's collapse, the administration will argue that failures like this are "disorderly." But failure comes from risk-taking -- the very source of our economy's strength -- and it is ultimately risk-taking and its consequences that the administration's plan is intended to prevent....

...The president has said on several occasions, including in yesterday's speech, that "I've always been a strong believer in the power of the free market." But his administration's prescriptions tell a different story. In AIG, GM, Chrysler, Fannie Mae and Freddie Mac we can see the future that the administration envisions for our economy -- a sclerotic and unchanging structure of big companies working with, protected by, and relying on big government.

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Christian Soldiers
The growing controversy over military chaplains using the armed forces to spread the Word.

Ever since former president George W. Bushreferred to the war on terror as a “crusade” in the days after the September 11 attacks, many have charged that the United States was conducting a holy war, pitting a Christian America against the Muslim world. That perception grew as prominent military leaders such as Lt. Gen. William Boykin described the wars in evangelical terms, casting the U.S. military as the "army of God." Although President Obama addressed the Muslim world this month in an attempt to undo the Bush administration's legacy of militant Christian rhetoric that often antagonized Muslim countries, several recent stories have framed the issue as a wider problem of an evangelical military culture that sees spreading Christianity as part of its mission.

A May article in Harper’s by Jeff Sharlet illustrated a military engaged in an internal battle over religious practice. Then came news about former Defense secretary Donald Rumsfeld’s Scripture-themed briefings to President Bush that paired war scenes with Bible verses. (In an e-mail published on Politico, Rumsfeld aide Keith Urbahn denied that the former Defense secretary had created or even seen many of the briefings.) Later in May, Al-Jazeera broadcast clips filmed in 2008 showing stacks of Bibles translated into Pashto and Dari at the U.S. air base in Bagram and featuring the chief of U.S. military chaplains in Afghanistan, Lt. Col. Gary Hensley, telling soldiers to “hunt people for Jesus.”...

...The effort is an example of what critics call a growing culture of militarized Christianity in the armed forces. It is influenced in part by changes in outlook among the various branches' 2,900 chaplains, who are sworn to serve all soldiers, regardless of religion, with a respectful, religiously pluralistic approach. However, with an estimated two thirds of all current chaplains affiliated with evangelical and Pentecostal denominations, which often prioritize conversion and evangelizing, and a marked decline in chaplains from Catholic and mainstream Protestant churches, this ideal is suffering. Historian Anne C. Loveland attributes the shift to the Vietnam War, when many liberal churches opposed to the war supplied fewer chaplains, creating a vacuum filled by conservative churches. This imbalance was exacerbated by regulation revisions in the 1980s that helped create hundreds of new "endorsing agencies" that brought a flood of evangelical chaplains into the military and by the simple fact that evangelical and Pentecostal churches are the fastest-growing in the U.S....

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Jesus killed Mohammed:
The crusade for a Christian military
....Humphrey had been in Samarra for a month, and until that day his stay had been a quiet respite in one of the world’s oldest cities. Not long before, though, there had been a hint of trouble: a briefing in which his squad was warned that any soldier caught desecrating Islamic sites—Samarra is considered a holy city—would fall under “extreme penalty,” a category that can include a general court-martial and prison time. “I heard some guys were vandalizing mosques,” Humphrey says. “Spray-painting ’em with crosses.”

The rest of that Easter was spent under siege. Insurgents held off Bravo Company, which was called in to rescue the men in the compound. Ammunition ran low. A helicopter tried to drop more but missed. As dusk fell, the men prepared four Bradley Fighting Vehicles for a “run and gun” to draw fire away from the compound. Humphrey headed down from the roof to get a briefing. He found his lieutenant, John D. DeGiulio, with a couple of sergeants. They were snickering like schoolboys. They had commissioned the Special Forces interpreter, an Iraqi from Texas, to paint a legend across their Bradley’s armor, in giant red Arabic script.

“What’s it mean?” asked Humphrey.

“Jesus killed Mohammed,” one of the men told him. The soldiers guffawed. JESUS KILLED MOHAMMED was about to cruise into the Iraqi night....

...Christian fundamentalism, like all fundamentalisms, is a narcissistic faith, concerned most of all with the wrongs suffered by the righteous and the purification of their ranks. “Under the rubric of free speech and the twisted idea of separation of church and state,” reads a promotion for a book called Under Orders: A Spiritual Handbook for Military Personnel, by Air Force Lieutenant Colonel William McCoy, “there has evolved more and more an anti-Christian bias in this country.” In Under Orders, McCoy seeks to counter that alleged bias by making the case for the necessity of religion—preferably Christian—for a properly functioning military unit. Lack of belief or the wrong beliefs, he writes, will “bring havoc to what needs cohesion and team confidence.”

McCoy’s manifesto comes with an impressive endorsement: “_Under Orders _should be in every rucksack for those moments when Soldiers need spiritual energy,” reads a blurb from General David Petraeus, the senior U.S. commander in Iraq until last September, after which he moved to the top spot at U.S. Central Command, in which position he now runs U.S. operations from Egypt to Pakistan. When the Military Religious Freedom Foundation (MRFF) demanded an investigation of Petraeus’s endorsement—an apparent violation of the Uniform Code of Military Justice, not to mention the Bill of Rights— Petraeus claimed that his recommendation was supposed to be private, a communication from one Christian officer to another.

“He doesn’t deny that he wrote it,” says Michael “Mikey” Weinstein, president of MRFF. “It’s just, ‘Oops, I didn’t mean for the public to find out.’ And what about our enemies? He’s promoting this unconstitutional Christian exceptionalism at precisely the same time we’re fighting Islamic fundamentalists who are telling their soldiers that America is waging a modern-day crusade. That _is _a crusade.”

Petraeus’s most vigorous defense came last August from the recently retired three-star general William “Jerry” Boykin—a founding member of the Army’s Delta Force and an ordained minister—during an event held at Fort Bragg to promote his own book, Never Surrender: A Soldier’s Journey to the Crossroads of Faith and Freedom. “Here comes a guy named Mikey Weinstein trashing Petraeus,” he told a crowd of 150 at the base’s Airborne and Special Forces Museum, “because he endorsed a book that’s just trying to help soldiers. And this makes clear what [Weinstein’s] real agenda is, which is not to help this country win a war on terror.”

“It’s satanic,” called out a member of the audience.

“Yes,” agreed Boykin. “It’s demonic.”...

...But as Mikey’s client base grows, so too do the ranks of his enemies. The picture window in his living room has been shot out twice, and last summer he woke to find a swastika and a cross scrawled on his door. Since he launched MRFF four years ago, he has accumulated an impressive collection of hate mail. Some of it is earnest: “You are costing lives by dividing military personnel and undermining troops,” reads one missive. “Their blood is on your hands.” Much of it is juvenile: “you little bald-headed fag,” reads an email Mikey received after an appearance on CNN, “what the fuck are you doing with an organization of this title when the purpose of your group is not to encourage religious freedom, but to DENY religious freedom?” Quite a bit of it is anti-Semitic: “Once again, the Oy Vey! crowd whines. This jew used to be an Air Force lawyer and got the email”—a solicitation by Air Force General Jack Catton for campaign donations to put “more Christian men” in Congress, which Mikey made public—“just one more example of why filthy, hook-nosed jews should be purged from our society.”...

...Mikey Weinstein did not get his Pentagon job. In fact, the generals whom Mikey thought would face a reckoning under a Democratic administration remain in place or in line for promotion. Not only did Obama keep on Robert Gates as defense secretary; he retained the secretary of the Army, Pete Geren—another star of the Christian Embassy video, who also, in commencement remarks at West Point last year, characterized America’s wars in Iraq and Afghanistan as struggles for religious freedom against the “darkness and oppression” of radical Islam—and also appointed as his national security adviser the retired Marine general James Jones, a regular on the prayer breakfast circuit. Nobody believes the new president shares Bush’s religious sentiments, but clearly he is willing to shave constitutional protections in exchange for evangelical peace. The new president appears to have adopted a hands-off approach not just to religion in the military but to the very relationship between church and state....

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Lawsuit Paints Loan Crisis In Black, White and Brown
In what appears to be the first legal action of its kind, an association of community-based organizations has filed a federal civil rights complaint against two of the three largest Wall Street ratings agencies, charging that their inflated ratings on subprime mortgage bonds disproportionately caused financial harm to African American and Latino home buyers.

The complaint, filed by the National Community Reinvestment Coalition, alleges that Moody's Investors Service and Fitch Ratings enriched themselves by assigning high ratings to bonds backed by mortgages "that were designed to fail" because of "unfair payment terms and insufficient borrower income levels."

The agencies "knew or should have known" that subprime loans disproportionately were marketed to minority consumers -- a process known as "reverse redlining" -- and that those borrowers would ultimately default and go into foreclosure at high rates, according to the complaint.

Fitch Managing Director David Weinfurter said the NCRC's filing "is fully without merit, and Fitch intends to defend itself vigorously." Moody's had no immediate comment.

The filing cites multiple studies that found that African Americans and Latinos received a disproportionate share of subprime loans during the housing boom years. A Federal Reserve study in 2006 estimated that 45 percent of mortgages extended to Latinos and 55 percent of loans to African Americans were subprime -- a rate "three to four times that of non-Hispanic whites."

Because the loans often came with terms that increased borrowers' probability of default -- upfront teaser rates followed by unaffordable payment adjustments, no required documentation of applicants' incomes or assets, hefty prepayment penalties -- African Americans with subprime mortgages are projected to lose $71 billion to $92 billion through foreclosures while Latinos are projected to lose $75 billion to $98 billion, according to one study cited in the complaint.

"Had subprime loans been distributed equitably," the complaint says, "losses for whites would be 44.5 percent higher and losses for people of color would be about 24 percent lower." ...

...Critics such as Berenbaum argue that without Wall Street's mass securitizations of high-risk mortgages -- with stamps of approval from the ratings agencies -- far fewer subprime loans would have been made and far fewer minority homebuyers would have ended up in foreclosure.

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Banks Sued No Matter What They Do
Banks get sued for discrimination no matter what they do. If they don’t make enough loans in low-income, predominantly minority neighborhoods, they get accused of “redlining,” and are subject to sanctions under politically-correct laws like the Community Reinvestment Act, which contributed to the financial crisis by pressuring lenders to make risky mortgage loans.

But if they do make such loans, they get accused of “reverse redlining,” and get sued by the liberal special-interest groups and municipalities that encouraged them to make such loans during the mortgage bubble. Baltimore and various borrowers have also brought “reverse redlining” lawsuits against banks.

The Washington Post reported yesterday that bond-rating agencies like Moody’s and Fitch are now getting sued, too, for “reverse redlining,” under the theory that they encouraged risky loans to low-income minorities (who subsequently regretted taking out those loans) by giving respectable ratings to the mortgage-backed securities produced by packaging those mortgage loans. The plaintiffs include the National Community Reinvestment Coalition, which has been pressuring lenders to make risky loans to low-income minorities for years. They blame the ratings-agencies for allowing lenders to make loans to minorities with “insufficient borrower income levels.”...

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More Government Waste, Corruption, and Corporate Welfare, Thanks to the Obama Administration
...Billions of tax dollars are being spent on bailing out carmakers, but the primary beneficiaries of this corporate welfare are not the car companies themselves, which could have survived without federal bailouts by simply abrogating their collective bargaining agreements and dealer-contracts in a standard bankruptcy-court reorganization, but the United Auto Workers Union, which spent millions electing Obama and is now calling the shots. Taxpayers and pension funds are being ripped off to enrich the UAW, which enjoys wages much higher than the average American.

A similar government bailout of the auto industry actually backfired in England in the 1970s, destroying its carmakers by leaving them with excessive wages, inefficiency, and political meddling in car design.

Now, even liberal commentators are questioning whether the mushrooming auto bailouts pass constitutional muster, such as Charles Lane in today’s Washington Post. (Lane is so liberal and pro-government that in a front page article in 2003, he characterized the Supreme Court’s 2003 decisions as collectively being great for “civil liberties,” even though he admitted that the Supreme Court had rejected free speech claims in 7 out of its 8 First Amendment cases that term, largely because Lane approved of its decision upholding the University of Michigan Law School’s race-based affirmative action plan — even though legally permissible affirmative-action plans are a discretionary government function, not an individual right or civil-liberty).

Conservative columnist George Will also has a column today criticizing the auto bailouts. He points out that the Administration’s current claim that it can use TARP bank-bailout money for an auto bailout is at odds with the Treasury Department’s past admissions to the contrary: “Last September, Treasury Secretary Henry Paulson testified to the Senate that TARP money was necessary for ailing ‘financial institutions.’ Nowhere in the bill’s 169 pages was there any reference to government funding of ‘automobile’ or ‘manufacturing’ companies. In November, Paulson told a House committee: ‘I’ve said to you very clearly that I believe that the auto companies fall outside of [TARP's] purpose.’” ...

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Activist Financier 'Terrorizes' Bankers in Foreclosure Fight
Bruce Marks doesn't bother being diplomatic. A campaigner on behalf of homeowners facing foreclosure, he was on the phone one day in March to a loan executive at Bank of America Corp.

"I'm tired of borrowers being screwed!" Mr. Marks yelled into the phone. "You're incompetent!" Before hanging up, he threatened to call bank CEO Kenneth Lewis at home to complain about the loan executive.

Mr. Marks's nonprofit organization, Neighborhood Assistance Corp. of America, has emerged as one of the loudest scourges of the banking industry in the post-bubble economy. It salts its Web site with photos of executives it accuses of standing in the way of helping homeowners -- emblazoning "Predator" across their photos, picturing their homes and sometimes including home phone numbers. In February, NACA, as it's called, protested at the home of a mortgage investor by scattering furniture on his lawn, to give him a taste of what it feels like to be evicted.

Housing Advocate Bruce Marks of the Neighborhood Assistance Corp. of America at a 'Save the Dream' event he organized in Columbia, S.C., in March to help troubled homeowners get their mortgage payments reduced.
Andy McMillan for The Wall Street Journal

In the 1990s, Mr. Marks leaked details of a banker's divorce to the press and organized a protest at the school of another banker's child. He says he would use such tactics again. "We have to terrorize these bankers," Mr. Marks says.

Though some bankers privately deplore his tactics, Mr. Marks is a growing influence in the lending industry and the effort to curb foreclosures. NACA has signed agreements with the four largest U.S. mortgage lenders -- Bank of America, Wells Fargo & Co., J.P. Morgan Chase & Co. and Citigroup Inc. -- in which they agree to work with his counselors on a regular basis to try to arrange lower payments for struggling borrowers. NACA has made powerful political friends, such as House majority whip James Clyburn of South Carolina, and it receives federal money to counsel homeowners....

...Mr. Marks grew up in affluent Scarsdale, N.Y., and Greenwich, Conn. He says a childhood stuttering problem gave him sympathy for underdogs, which evolved into a career as an activist. He studied business to "know the enemy," earning an M.B.A. and working briefly for the Federal Reserve Bank of New York. A later job for a labor union stirred his interest in reviving poor neighborhoods and helping people afford homes.

In 1988 he launched NACA. It soon began arranging loans for Boston-area banks that were eager to show they were serving poor neighborhoods, in compliance with the 1977 Community Reinvestment Act.

The organization has been allocated $34.5 million from a new federal program to counsel distressed mortgage borrowers, to be paid to groups such as NACA little by little as they provide counseling. NACA's slice is nearly 10% of the program's funds; the rest goes to more than 100 other nonprofits and state agencies. Besides these grants, most income to cover NACA's roughly $40 million annual budget comes from the fees lenders pay it for arranging new mortgages, typically $2,500 per loan.

Another NACA event is the "predator's tour." In February, it sent hundreds of protesters to the homes of bankers and investors in posh New York suburbs such as Rye, N.Y., and Greenwich. One stop was the home of William Frey of Greenwich Financial Services, a broker-dealer specializing in mortgage-backed securities. He was a target because he resisted some aspects of a settlement that called for modifying loans.

State attorneys general had accused Countrywide Financial Corp. of predatory lending, and Countrywide's new owner, Bank of America, settled the suit last year by agreeing to modify many mortgages. A fund Mr. Frey controls then sued the bank. The suit didn't take issue with the settlement but complained that the bank had passed on most of the cost of it to buyers of securities backed by Countrywide's loans.

Mr. Frey was the target of the protest in which NACA dumped furniture on the lawn. "They had hundreds of people trespassing on my property," he says.

"I have a difference with Bank of America. I have a substantial amount of assets with them," Mr. Frey says. "We take them to court. This is how we do it in this country....It's a civilized society." The response from NACA, he adds, "is a mob showing up at someone's house to intimidate them to drop this suit. At what point do people say, 'This is starting to be uncomfortable'?"

"It should be uncomfortable," says Mr. Marks. "You win a campaign by being relentless. Everybody has a breaking point....At some point they say, 'How do I get these crazies off my back?' "

Some lenders have refused to sign contracts to work with NACA, among them HSBC Holdings, Barclays and Credit Suisse Group. All declined to comment. Mr. Marks says some banks that won't sign agreements do negotiate individual cases with NACA. Even so, NACA sometimes pictures their executives and the executives' homes on its Web site.

It recently added a photo of William Gross of Pacific Investment Management Co., the big bond house known as Pimco, along with pictures of his home and other information. Mr. Marks says his contacts in banking and government tell him Pimco doesn't support the administration's push to modify mortgages. "We're exposing them," Mr. Marks says. A spokesman for Pimco said neither it nor Mr. Gross would comment.

Mr. Marks says financial executives should be held personally responsible for actions that affect people's lives, and "if they interpret that as intimidation, so be it."...

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Durbin cashed out during big stock collapse
As U.S. stock markets plummeted last September, the Senate's No. 2 Democrat, Dick Durbin, sold more than $115,000 worth of stocks and mutual-fund shares and used much of the money to invest in Warren Buffett's Berkshire Hathaway Inc.

The Illinois senator's 2008 financial disclosure statement shows he sold mutual-fund shares worth $42,696 on Sept. 19, the day after then-Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke urged congressional leaders in a closed meeting to craft legislation to help financially troubled banks. The same day, he bought $43,562 worth of Berkshire Hathaway's Class B stock, the disclosure shows....

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Analysis: Reckless Mortgages Brought Financial Market to Its Knees
...Defaults have been at historically high rates despite reasonable economic growth and a relatively low unemployment rate of 6.1 percent.

Some, such as James H. Carr, the CEO of the National Community Reinvestment Coalition, argue that the high default rates are a result of "unfair and deceptive practices, steering customers to high price loans . . . High upfront payments made it so that they couldn't later pay their mortgages."

Surprisingly, research done by economists a decade ago in 1998, particularly by Professors Ted Day and Stan Liebowitz at the University of Texas at Dallas, predicted the current problems and tried to warn people of a different cause. Starting during the early 1990s, mortgage-underwriting standards have been consistently weakened. Many of the names involved in the forefront of those changes, Freddie Mac and Fannie Mae as well as Countrywide and Bear Stearns, have been the most prominent financial entities to become insolvent....

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The NHS is bleeding to death, and the time to operate is now
Many people would have been rather confused yesterday when they switched on the Today programme and heard that the health service is basically bankrupt. Apparently, the NHS needs another £10 billion from the taxpayer to survive in three years' time (put another way, just less than the cost of paying for the entire police service).

Listeners would have been forgiven for thinking: hang on, hasn't the NHS had a lot of extra money already? And they would be right. After a decade of historic spending increases, the NHS budget has more than doubled, from around £45 billion to £105 billion. The service has 41,800 more doctors and 84,700 more nurses. To say the NHS has never had more resources is an understatement: it is in a wonderland of extra money, on a scale that its leaders never expected. Quite amazing, then, that it is coming back to the taxpayer cap in hand....

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The New Wage Controls
The U.S. "market" economy took another hard-to-believe turn this week with the Obama Treasury appointing a "compensation czar" to dictate wage controls on private companies that take taxpayer money and offer guidelines for every other U.S. publicly traded company. Can wage and price controls for everyone be far behind?

The Treasury says that's not what it has in mind, but then much of what government has done in the past eight months would have been scoffed at even a year ago. Richard Nixon disavowed wage and price controls right up until the time he imposed them in 1971. The Obama Administration is hardly restrained as a matter of principle against such brute government force, and if prices start rising after our current Great Reflation, well, you read the warning here first....

...Mr. Geithner has a point, but his analysis also neatly avoids Washington's own role in encouraging "the risk of excessive leverage." Wall Street's compensation model of big bonuses for big risks has been in place for decades. How do you think Robert Rubin and Jon Corzine made fortunes at Goldman Sachs in the 1980s and 1990s?

What changed this decade is that Washington's housing policies and flood of easy money created a subsidy for credit, and especially for mortgage products, that encouraged bankers to take on even more debt and greater risks. The bankers were doing, in short, what Alan Greenspan and Barney Frank subsidized them to do. Blaming the bankers for making bigger money in the bargain is a political diversion....

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Canada's ObamaCare Precedent
...Born and raised in Canada, I once believed that government health care is compassionate and equitable. It is neither.

My views changed in medical school. Yes, everyone in Canada is covered by a "single payer" -- the government. But Canadians wait for practically any procedure or diagnostic test or specialist consultation in the public system.

The problems were brought home when a relative had difficulty walking. He was in chronic pain. His doctor suggested a referral to a neurologist; an MRI would need to be done, then possibly a referral to another specialist. The wait would have stretched to roughly a year. If surgery was needed, the wait would be months more. Not wanting to stay confined to his house, he had the surgery done in the U.S., at the Mayo Clinic, and paid for it himself.

Such stories are common. For example, Sylvia de Vries, an Ontario woman, had a 40-pound fluid-filled tumor removed from her abdomen by an American surgeon in 2006. Her Michigan doctor estimated that she was within weeks of dying, but she was still on a wait list for a Canadian specialist....

...Overall, according to a study published in Lancet Oncology last year, five-year cancer survival rates are higher in the U.S. than those in Canada. Based on data from the Joint Canada/U.S. Survey of Health (done by Statistics Canada and the U.S. National Center for Health Statistics), Americans have greater access to preventive screening tests and have higher treatment rates for chronic illnesses. No wonder: To limit the growth in health spending, governments restrict the supply of health care by rationing it through waiting. The same survey data show, as June and Paul O'Neill note in a paper published in 2007 in the Forum for Health Economics & Policy, that the poor under socialized medicine seem to be less healthy relative to the nonpoor than their American counterparts....

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The Media Fall for Phony 'Jobs' Claims
..."Saved or created" has become the signature phrase for Barack Obama as he describes what his stimulus is doing for American jobs. His latest invocation came yesterday, when the president declared that the stimulus had already saved or created at least 150,000 American jobs -- and announced he was ramping up some of the stimulus spending so he could "save or create" an additional 600,000 jobs this summer. These numbers come in the context of an earlier Obama promise that his recovery plan will "save or create three to four million jobs over the next two years."

Mr. Fratto sees a double standard at play. "We would never have used a formula like 'save or create,'" he tells me. "To begin with, the number is pure fiction -- the administration has no way to measure how many jobs are actually being 'saved.' And if we had tried to use something this flimsy, the press would never have let us get away with it."

Of course, the inability to measure Mr. Obama's jobs formula is part of its attraction. Never mind that no one -- not the Labor Department, not the Treasury, not the Bureau of Labor Statistics -- actually measures "jobs saved." As the New York Times delicately reports, Mr. Obama's jobs claims are "based on macroeconomic estimates, not an actual counting of jobs." Nice work if you can get away with it.

And get away with it he has. However dubious it may be as an economic measure, as a political formula "save or create" allows the president to invoke numbers that convey an illusion of precision....

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Obama's Health Cost Illusion
The main White House argument for health-care reform goes something like this: If we spend now on a hugely expensive new insurance program for the middle class, we can save later by reducing overall U.S. health spending. This "tastes great, less filling" theory could stand some scrutiny, not least because it is being used to rush through the greatest social spending program in American history.

What if this particular theory turns out to be a political illusion? What if the speculative cost savings never report for duty, while the federal balance sheet is still swamped with new social obligations that will be impossible to repeal? The only possible outcome will be the nationalization of U.S. health markets, which will mean that almost all care will be rationed by politics.

Since Medicare was created in 1965, U.S. health spending has risen about 2.7% faster than the economy and on current trend would hit 20% of GDP within a decade. Every public or private attempt to arrest this climb has failed: wage and price controls in the 1970s, the insurance industry's "voluntary effort" in the '80s, managed care in the '90s....

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Global Temperature Trend Update
Every month University of Alabama at Huntsville climatologists John Christy and Roy Spencer report the latest global temperature trends from the satellite data. Below are the newest data updated through May 2009. Interestingly, there has been essentially no warming trend for nearly a decade now....

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THE OBAMA ECONOMY

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Think twice about 'green' transport, say scientists
You worry a lot about the environment and do everything you can to reduce your carbon footprint -- the emissions of greenhouse gases that drive dangerous climate change.

So you always prefer to take the train or the bus rather than a plane, and avoid using a car whenever you can, faithful to the belief that this inflicts less harm to the planet.

Well, there could be a nasty surprise in store for you, for taking public transport may not be as green as you automatically think, says a new US study....

...In some circumstances, for instance, it could be more eco-friendly to drive into a city -- even in an SUV, the bete noire of green groups -- rather than take a suburban train. It depends on seat occupancy and the underlying carbon cost of the mode of transport....

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ALL BUSINESS: Bond-market rout lifts mortgage cost
NEW YORK (AP) - The Federal Reserve announced a $1.2 trillion plan three months ago designed to push down mortgage rates and breathe life into the housing market.

But this and other big government spending programs are turning out to have the opposite effect. Rates for mortgages and U.S. Treasury debt are now marching higher as nervous bond investors fret about a resurgence of inflation....

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Fraudsters eye huge stimulus pie, consultant says
NEW YORK (MarketWatch) -- Swindlers, con men, and thieves could siphon off as much as $50 billion of the government's planned stimulus package as the money begins flooding the economy in coming months, according to David Williams, who runs Deloitte Financial Services Advisory and counsels clients on fraud prevention....

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NASA Study Acknowledges Solar Cycle, Not Man, Responsible for Past Warming
Some researchers believe that the solar cycle influences global climate changes. They attribute recent warming trends to cyclic variation. Skeptics, though, argue that there's little hard evidence of a solar hand in recent climate changes.

Now, a new research report from a surprising source may help to lay this skepticism to rest. A study from NASA’s Goddard Space Flight Center in Greenbelt, Maryland looking at climate data over the past century has concluded that solar variation has made a significant impact on the Earth's climate. The report concludes that evidence for climate changes based on solar radiation can be traced back as far as the Industrial Revolution.

Past research has shown that the sun goes through eleven year cycles. At the cycle's peak, solar activity occurring near sunspots is particularly intense, basking the Earth in solar heat. According to Robert Cahalan, a climatologist at the Goddard Space Flight Center, "Right now, we are in between major ice ages, in a period that has been called the Holocene."

Thomas Woods, solar scientist at the University of Colorado in Boulder concludes, "The fluctuations in the solar cycle impacts Earth's global temperature by about 0.1 degree Celsius, slightly hotter during solar maximum and cooler during solar minimum. The sun is currently at its minimum, and the next solar maximum is expected in 2012."...

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Rand’s Atlas Is Shrugging With a Growing Load: Amity Shlaes
...Rand knew that government tends to drive the most- productive economic figures away even as it pretends to utilize them. Today’s shortage of primary care doctors serves as an example. Various administrations, Democratic and Republican, have tried to nudge more medical students into primary care. Young doctors simply haven’t complied. That is in part because of the higher compensation of specialties. But it is also because the great charm of being a primary care doctor -- autonomy to work in a range of areas -- has been removed.

Rand foresaw this: “Let them discover the kind of doctors that their system will now produce,” says one of her characters. “It is not safe to place their lives in the hands of a man whose life they have throttled.”

Long before managed-care existed, Rand was describing doctors’ frustration with it. ...

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Obama Justice Department Protects Racist, Anti-Semitic Hate Group and Anti-White Voting Rights Violators
Members of the New Black Panther Party, one of whom was an Obama campaign poll watcher and local democratic official, used nightsticks and racial epithets captured on videotape to drive voters away from the polls in a Philadelphia precinct. But the Obama Administration killed a successful lawsuit against these criminals, dismissing it after career Justice Department lawyers had already obtained victory in the case, as a former Justice Department lawyer, the Philadelphia Bulletin, and a newspaper editorial note. (The New Black Panther Party, which attacks what it refers to as “bloodsucking Jews,” is recognized as a racist, antisemitic hate group even by liberal civil-rights groups like the Southern Poverty Law Center).

“Career lawyers pursued the case for months, including obtaining an affidavit from a prominent 1960s civil rights activist who witnessed the confrontation and described it as ‘the most blatant form of voter intimidation’ that he had seen, even during the voting rights crisis in Mississippi a half-century ago.” But Obama’s political appointees at the Justice Department overruled them, dropping the case after victory was already assured because “the court had already entered a default judgment against the” Black Panthers. Thanks to that outrageous decision, the only result of the case was a meaningless injunction telling one of the three defendants not to commit such crimes again (and telling him not to commit such crimes only until 2012, and not barring him from committing such crimes in his home city, but rather barring such crimes only in Philadelphia)....

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Why the Health Care Rush?
If sharks stop swimming, they sink and drown. President Obama seems to view his health-care program the same way. "If we don't get it done this year," he said in a recent pep talk to supporters, "we're not going to get it done." Well, why? If laying "a new foundation" for 18% of the economy really is as important as the President claims it is, then surely it could withstand more than fleeting inspection.

Instead, Democrats are trying to rush the largest entitlement expansion since LBJ into law with a truncated debate and as little public scrutiny as possible. At this point all they've released are the vaguest "policy options," not concrete specifics. Yet the Senate plans to begin marking up legislation next week, maybe hold a hearing or two, then have something to the floor by the end of the month, votes by the August recess and a bill to the Oval Office by Thanksgiving. On the seventh day, they will rest. Mr. Obama had 24 Senate Democrats over for a White House chat yesterday to drive the calendar ahead.

It's not hard to see why Democrats are trying to hew to this full-speed-ahead timetable. Their health overhaul will run up a 13-figure price tag at a time when spending and deficits are already at epic levels and hook up the middle class to an intravenous drip of government health subsidies for generations to come. These are not realities that Democrats want the American people to mull over for very long....

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The 'Unseen' Deserve Empathy, Too
...But what about compassion and empathy? Compassion is defined as a feeling of deep sympathy for those stricken by misfortune, accompanied by a strong desire to alleviate the suffering; empathy is the ability to share in another's emotions, thoughts and feelings. Hence, a compassionate judge would tend to base his or her decisions on sympathy for the unfortunate; an empathetic judge on how the people directly affected by the decision would think and feel. What could be wrong with that?

Frederic Bastiat answered that question in his famous 1850 essay, "What is Seen and What is Not Seen." There the economist and member of the French parliament pointed out that law "produces not only one effect, but a series of effects. Of these effects, the first alone is immediate; it appears simultaneously with its cause; it is seen. The other effects emerge only subsequently; they are not seen; we are fortunate if we foresee them." Bastiat further noted that "[t]here is only one difference between a bad economist and a good one: The bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen."...

...One can have compassion for workers who lose their jobs when a plant closes. They can be seen. One cannot have compassion for unknown persons in other industries who do not receive job offers when a compassionate government subsidizes an unprofitable plant. The potential employees not hired are unseen.

One can empathize with innocent children born with birth defects. Such children and the adversity they face can be seen. One cannot empathize with as-yet-unborn children in rural communities who may not have access to pediatricians if a judicial decision based on compassion raises the cost of medical malpractice insurance. These children are unseen.

One can feel for unfortunate homeowners about to lose their homes through foreclosure. One cannot feel for unknown individuals who may not be able to afford a home in the future if the compassionate and empathetic protection of current homeowners increases the cost of a mortgage....

...The law consists of abstract rules because we know that, as human beings, judges are unable to foresee all of the long-term consequences of their decisions and may be unduly influenced by the immediate, visible effects of these decisions....

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Missing Milton: Who Will Speak For Free Markets?
...I've been thinking a lot lately of one of my last conversations with Milton, who warned that "even though socialism is a discredited economic model and capitalism is raising living standards to new heights, the left intellectuals continue to push for bigger government everywhere I look." He predicted that people would be seduced by collectivist ideas again.

He was right. In the midst of this global depression, rotten ideas like trillion-dollar stimulus plans, nationalization of banks and confiscatory taxes on America's wealth producers are all the rage. Meanwhile, it is Milton Friedman and his principles of free trade, low tax rates and deregulation that are standing trial as the murderers of global prosperity...

...The myth that the stock-market collapse was due to a failure of Friedman's principles could hardly be more easily refuted. No one was more critical of the Bush spending and debt binge than Friedman. The massive run up in money and easy credit that facilitated the housing and credit bubbles was precisely the foolishness that Friedman spent a lifetime warning against....

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The 31-Year-Old in Charge of Dismantling G.M.
It is not every 31-year-old who, in a first government job, finds himself dismantling General Motors and rewriting the rules of American capitalism.

But that, in short, is the job description for Brian Deese, a not-quite graduate of Yale Law School who had never set foot in an automotive assembly plant until he took on his nearly unseen role in remaking the American automotive industry....

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The Obama Infatuation
...Obama has inspired a collective fawning. What started in the campaign (the chief victim was Hillary Clinton, not John McCain) has continued, as a study by the Pew Research Center's Project for Excellence in Journalism shows. It concludes: "President Barack Obama has enjoyed substantially more positive media coverage than either Bill Clinton or George W. Bush during their first months in the White House."

The study examined 1,261 stories by The Post, the New York Times, ABC, CBS and NBC, Newsweek magazine and the "NewsHour" on PBS. Favorable articles (42 percent) were double the unfavorable (20 percent), while the rest were "neutral" or "mixed." Obama's treatment contrasts sharply with coverage in the first two months of the Bush (22 percent of stories favorable) and Clinton (27 percent) presidencies.

Unlike George Bush and Bill Clinton, Obama received favorable coverage in both news columns and opinion pages. The nature of stories also changed. "Roughly twice as much of the coverage of Obama (44 percent) has concerned his personal and leadership qualities than was the case for Bush (22 percent) or Clinton (26 percent)," the report said. "Less of the coverage, meanwhile, has focused on his policy agenda." ...

...The infatuation matters because Obama's ambitions are so grand. He wants to expand health-care subsidies, tightly control energy use and overhaul immigration. He envisions the greatest growth of government since Lyndon Johnson. The Congressional Budget Office estimates federal spending in 2019 at nearly 25 percent of the economy (gross domestic product). That's well up from the 21 percent in 2008, and far above the post-World War II average; it would also occur before many baby boomers retire.

Are his proposals practical, even if desirable? Maybe they're neither? What might be the unintended consequences? All "reforms" do not succeed; some cause more problems than they solve. Johnson's economic policies, inherited from Kennedy, proved disastrous; they led to the 1970s' "stagflation." The "war on poverty" failed. The press should not be hostile, but it ought to be skeptical.

Mostly, it isn't. The idea of a "critical" Obama story is one about a tactical conflict with congressional Democrats or criticism from an important constituency. Larger issues are minimized, despite ample grounds for skepticism. ..

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Obama's support for the new Graham-Lieberman secrecy law
It was one thing when President Obama reversed himself last month by announcing that he would appeal the Second Circuit's ruling that the Freedom of Information Act (FOIA) compelled disclosure of various photographs of detainee abuse sought by the ACLU. Agree or disagree with Obama's decision, at least the basic legal framework of transparency was being respected, since Obama's actions amounted to nothing more than a request that the Supreme Court review whether the mandates of FOIA actually required disclosure in this case. But now -- obviously anticipating that the Government is likely to lose in court again (.pdf) -- Obama wants Congress to change FOIA by retroactively narrowing its disclosure requirements, prevent a legal ruling by the courts, and vest himself with brand new secrecy powers under the law which, just as a factual matter, not even George Bush sought for himself. ...

...Just imagine if any other country did this. Imagine if a foreign government were accused of systematically torturing and otherwise brutally abusing detainees in its custody for years, and there was ample photographic evidence proving the extent and brutality of the abuse. Further imagine that the country's judiciary -- applying decades-old transparency laws -- ruled that the government was legally required to make that evidence public. But in response, that country's President demanded that those transparency laws be retroactively changed for no reason other than to explicitly empower him to keep the photographic evidence suppressed, and a compliant Congress then immediately passed a new law empowering the President to suppress that evidence. What kind of a country passes a law that has no purpose other than to empower its leader to suppress evidence of the torture it inflicted on people? Read the language of the bill; it doesn't even hide the fact that its only objective is to empower the President to conceal evidence of war crimes.

That this exact scenario is now happening in the U.S. is all the more remarkable given that the President who is demanding these new suppression powers is the same one who repeatedly vowed "to make his administration the most open and transparent in history." After noting the tentative steps Obama has taken to increase transparency, the generally pro-Obama Washington Post Editorial Page today observed: "what makes the administration's support for the photographic records act so regrettable" is that "Mr. Obama runs the risk of taking two steps back in his quest for more open government."

What makes all of this even worse is that it is part of a broader trend whereby the Government simply retroactively changes the law whenever it decides it does not want to abide by it. For decades, we had laws in place authorizing citizens to sue their telecommunication carriers if the telecoms allowed government spying on their communications in violation of the law, but when it was revealed that the telecoms did exactly this, the Congress simply changed the law retroactively so that it no longer applied. For decades, we had laws imposing civil and criminal liability on government officials who engaged in or authorized torture, but when it was revealed that our government did that, the Congress just retroactively changed the law to protect the torturers. And now that courts have ruled that our decades-old transparency law compels disclosure of this torture evidence, the Congress is just going to retroactively change the law -- again -- this time to empower the President to suppress that evidence anyway....

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Driving the Bond Markets to Ruin
...The G.M. debacle is déjà vu all over again. In the Chrysler bankruptcy arranged by the government in April, bondholders also got short shrift, while the union, which might have received little or nothing in a normal bankruptcy, was awarded 55 percent of the company.

What’s my interest in this? I head a nonprofit group that encourages developing nations to adopt policies that will lead to prosperity — starting with transparency and the rule of law — and hold up America as a model. Yet in its high-handed dealings with Chrysler and G.M., the Obama administration reminds me of an irresponsible third-world regime, skirting the law and handing economic prizes to political cronies.

Under the complicated G.M. plan, bondholders — ranging from large institutions to low-income retirees — would receive just 10 percent of the reorganized company, plus warrants that would enable them to get 15 percent more should the company’s value reach certain levels, in return for their $27 billion in loans. The government, which could end up putting $70 billion into G.M., would initially get 72.5 percent of the company.

In return for money G.M. owes its health trust, the auto workers’ union would get 17.5 percent of its stock, warrants to raise that share to 20 percent, along with a $2.5 billion cash payout over eight years and $6.5 billion in preferred stock paying a 9 percent dividend. I agree with bondholders who feel the union is getting at least four times as much of G.M. in return for claims that are, at best, equal to those of the creditors.

Even if the courts were to reject the plans for G.M. and Chrysler, the administration’s actions in trying to force the deals may damage the credit markets for years to come. The treatment of the bondholders is a warning to investors that the federal government won’t hesitate to push them aside in a crisis.

Perhaps it’s no coincidence that in the wake of the Chrysler deal we have seen a decline in prices for long-term Treasury bonds and a sinking dollar. The Chinese, for example, could view things this way: If the United States is willing to skirt the law to help some of the president’s closest political supporters gain large pieces of two of the world’s biggest companies, will Washington necessarily stand behind any Treasury securities we own when it becomes politically inexpedient?...