Archive for December, 2009

Spread the Wealth, Spread the Debt

Wednesday, December 16th, 2009

“A people that values its privileges above its principles soon looses both.” – Dwight D. Eisenhower

Apparently our politicans’ behavior is rubbing off on us. Last week, The Wall Street Journal featured an article titled “American Dream 2: Default, Then Rent,” featuring Americans who had decided to stop paying on their mortgages and instead rent a house. This is a trend that is rapidly increasing in frequency across the nation as homeowners are realizing that their house wasn’t a particularly great investment. According to the article, analysts at Deutsche Bank Securities expect 21 million households in the U.S. to owe more than their mortgages are worth by the end of 2010.

With the collapse of American International Group last year, the government has worked feverishly to point their fingers at corporations and executives. Let’s clarify – AIG sold mortgage-backed securities, or investments which relied on the value of mortgages to stay afloat. As homeowners defaulting on their mortgages started to spike, the value of the securities plummeted. AIG suddenly owed far more than it could pay. Ultimately, foreclosed-upon homeowners lost. AIG and its employees and shareholders lost. Innocent American taxpayers lost.

Tragically, from taking out a loan to paying our taxes, we are all funding this behavior. Interest rates in part provide insurance for the lender. There will always be people defaulting on loans – the interest rate then builds in a little extra pad to compensate for those losses, and so we pay more to borrow. Additionally, many loans have been insured by the federal government, and that number is steeply increasing. The Federal Housing Administration now insures tens of millions of mortgages. If a homeowner defaults on an FHA loan, the American taxpayers foot the bill.

Here’s the kicker – AIG used part of its government bailout to award its executives multi-million-dollar bonuses, a luxury that, thanks to our representatives in Washington, was even specifically afforded to them in the bailout deal. We as a people are somehow furious with AIG but much less vocal about the politicians and other individuals who assisted in precipitating this disaster. Schoolteacher Shana Richey’s home in Palmdale, California, is now worth $200,000. Her monthly payment on her $430,000 mortgage was $3,700. Since deciding to default on her home and rent, Ms. Richey has used the extra money to buy season tickets for the family to Disneyland, plan a Carnival Cruise to Mexico, and purchase an $1,800 dining set [1].

Capitalism is a system built on risk-taking. Anyone who believes a commodity can inflate but not deflate is lying to himself. This has been noted by many other pundits, but privatizing reward while socializing risk only encourages more reckless behavior, leaving behind those of us forced to cover those losses. Our founders envisioned a nation based on personal responsibility.

1. “American Dream 2: Default, Then Rent,” The Wall Street Journal, December 10, 2009.

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Russian Roulette for Dummies

Tuesday, December 15th, 2009

“The essence of Government is power; and power, lodged as it must be in human hands, will ever be liable to abuse.” – James Madison

Our President can’t be serious. Really, this must be some sort of sick joke. On Monday, President Obama met with financial leaders from around the country in an effort to promote economic growth. The plan involved re-regulating banks and encouraging lenders to refinance mortgages and open credit to more businesses [1]. Certainly, the plan does have some advantages. However, there are still many concerns which still exist.

The mortgage bubble really began in 1977 with the Community Reinvestment Act which allowed the government to veto bank mergers and other major banking decisions. In the 1990s, Attorney General Janet Reno harassed banks into making more “community investments” through the use of studies aimed at proving racism in the lending market. However, the studies managed to only judge loans based on the borrower’s race, failing to factor credit scores as a part of the equation. Ultimately, banks were pressed to either make risky loans or be labeled as racists.

Then-President Clinton later began the bank-bail-out culture, from which Fannie Mae and Freddie Mac, formerly just housing assistance companies, were now free to make risky loans insured by you and me. As the government pushed creditors to lend through the 1990s and into the next millennium, more and more persons with poor credit were given high-value loans on low-value properties. Sadly, we all know what happened next – the market bubbled and collapsed and the taxpayers were left with the financial burden.

Yesterday, I talked about President Obama’s recent interview aired on CBS’s “60 Minutes” on Sunday night. The President aggressively blamed the banks for the financial mess, saying “[n]othing has been more frustrating to me this year than having to salvage a financial system at great expense to taxpayers that was precipitated, that was caused in part by completely irresponsible actions on Wall Street” [2]. While Wall Street did make some stupid moves, our government is the last institution which should be pointing fingers. It’s like Bernie Madoff calling someone unethical.

Unfortunately, beyond all comprehension, the President is – again – telling creditors to lend beyond their comfort level. Riddle me this: if the market bubbles – again – and we bail out creditors – again – will Obama – again – blame the lenders? Creditors don’t just sit on money if they could be lending it; lending is how they make their money. There’s a natural balance between risk and reward, and when that balance is disturbed, well, you know the rest of the story.

Moreover, no government has the right to force creditors to lend. President Obama certainly couldn’t walk up to your front door and say, “Hey there, Bob across the street needs help. He’s having financial problems, and I noticed you have $2,000 in your savings account. I know that amounts to your entire savings and that you have it set aside as a reserve in case you lose your job or have an accident, but you really need to think about Bob’s needs, too.” That would be silly, right? Banks are merely organized groups of people, and when they fail, real people (investors and employees) fail, and thanks to the government’s reckless actions, so do the taxpayers of the United States.

The writing is on the wall. When will we bother to read it?

1. “Obama to Banks: ‘Rebuild Our Economy’,” money.cnn.com, November 14, 2009.
2. “Transcript: President Barack Obama,” cbsnews.com, November 13, 2009.

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He Knows When You Are Sleeping…

Monday, December 14th, 2009

“Do you think when two representatives holding diametrically opposing views get together and shake hands, the contradictions between our systems will simply melt away? What kind of a daydream is that?” – Nikita Khrushchev

Our President reminds me of Santa Claus, who always knows when you’re sleeping or awake, or whether you’ve been bad or good. Apparently he’s keenly aware of our political opinions. Mr. Obama is constantly complaining about the American people’s frustrations with his policies, decrying all such complaints as a simple lack of knowledge about what his plan really is. In speech after speech, the President readdresses the need to correct people’s understanding.

In his September 9 speech to Congress, Mr. Obama claimed that “[i]nstead of honest debate, we have seen scare tactics… [a]nd out of this blizzard of charges and counter-charges, confusion has reigned” [1]. He tells us that the only reason we don’t like his programs is because we are uninformed. But wait – only 37.7 percent of Americans approve of his plan [2]. In our President’s eyes, the majority of Americans are thus clueless.

If, and only if, the majority of Americans are truly lacking understanding, it can only be because we are stupid or the President has not clearly communicated his plan. Considering that Mr. Obama has given more speeches during his presidency than days he has served, and because we do have access to the health care bill, we certainly aren’t missing his message. We aren’t stupid. We understand clearly.

In his interview with CBS’s Steve Kroft aired on “60 Minutes” last night, the President got very upset when Mr. Kroft suggested that Mr. Obama’s West Point speech “was greeted with a great deal of confusion.” The President immediately quipped that indeed Americans did understand and dismissed claims of contradiction, saying, “I don’t think [those claims are] a fair criticism” [3]. When he finished recapping his December 1 speech, he ended by saying that “[t]here shouldn’t be anything confusing about that” [3]. I was simply flabbergasted – and embarrassed – by the President’s rush to judge Americans as somehow maliciously incompetent.

Our President seems to have some wild and crazy belief that he knows exactly why each and every one of us is either for or against his plans. Unfortunately the only explanation I see is that either the President doesn’t care to listen or he has a team of pollsters about as capable at reading people’s reactions as Tom Green; I simply cannot fathom any other way he could misinterpret our message. Ask yourselves: what kind of person could only believe that any person with an oppositing opinion is uninformed?

1. “Transcript of Obama’s address to Congress,” msnbc.com, September 9, 2009.
2. Obama and Democrats’ Health Care Plan Polling Data, realclearpolitics.com, December 14, 2009.
3. “Transcript: President Barack Obama,” cbsnews.com, November 13, 2009.

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One Bad Stomach-Ache

Friday, December 4th, 2009

“Government’s view of the economy could be summed up in a few short phrases: If it moves, tax it; if it keeps moving, regulate it; and if it stops moving, subsidize it.” – Ronald Reagan

“Clear!” yells the President as he presses the defibrillator paddles to hundreds of thousands of bad loans. The button is pressed, the loans jump, but then slump back down. “Someone get me another $38 billion!” he yells in exasperation. The nurses – they know he needs to move on to the next patient, one who has a chance of being saved. But these bad loans got him elected, and he’s not about to give up. Unfortunately, we know how this story will end. The bad loans will never be revived and the opportunity to save the others will pass.

As the Chairman of the Federal Reserve, Ben Bernanke, proceeds through his reconfirmation hearings, one must wonder how people get into office with no real comprehension of how free markets work. There seems to be some great disconnect; few people seem to understand that a market that can go up, outpacing real output, can also go down. Even fewer understand that when a market sector does go down, it must be allowed to do so, lest it start dragging everything else down with it.

Refinancing overpriced mortgages isn’t a solution. Buying toxic assets at the cost of taxpayers isn’t a solution. There’s no point in shoring up a $440,000 mortgage on a 498 square foot house [1]. Economies are viewed the same way civilizations, ecosystems, and other systems are – cyclic environments through which there is always input and output. Waste must always exit or be broken down to provide for new growth. Forest fires are often seen as healthy, clearing the dead undergrowth which would normally choke out new trees, clearing the way for new life.

Strangely enough, though, our politicians and government officials have decided to detach the economy’s large intestine at the end and reconnect it at the esophagus. Such practices force these bad loans to be digested again as we wait for them to lose their toxicity. Recirculating all that waste, though, is sure to give anyone a terrible case of stomach rot. Let’s get real – who thinks that we’re going to start seeing 2-bedroom, 1-bathroom houses selling for $700,000 again any time soon?

We need to let go; we need to let the forest burn down to make way for new growth. We need to stop punishing the whole of America for the misguided actions of a few? Historically, recessions have been followed by dramatic recoveries. Do we really need any other explanation for why our recovery is ‘slow and fragile’ [2]? And maybe it’s just me, but I don’t believe that anyone who is either too corrupt or too incompetent to file his own taxes properly, even after being warned, should be governing our recovery tax policy, either [3].

1. “Real Homes of Genius: Today we Salute you Santa Ana. 498 Square Feet for $440,000, What a Deal!,” drhousingbubble.com, March 26, 2007.
2. “OECD: ‘Slow and Fragile’ Economic Recovery in Sight,” cnn.com, June 24, 2009.
3. “Geithner Tax Woes Examined,” npr.org, January 14, 2009.

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Simple Questions, Complex Answers

Thursday, December 3rd, 2009

“All Governments, including the worst on earth and the most tyrannical on earth, are free Governments to that portion of the people who voluntarily support them.” – Lysander Spooner

Common sense apparently isn’t all that common. It’s been a while since we’ve posted, but we’ve returned from our Thanksgivings and we’re back in action. It’s amazing how so much can change in a week and yet, strangely, things seem to remain the same. To keep things short and sweet today, I’d like to ask a couple quick questions.

Firstly, we are undoubtedly experiencing very tough economic times. The dollar’s value has plunged. Unemployment has skyrocketed. Little credit is available. Businesses and individuals are bracing for upcoming tax hikes. And somewhere in the middle of this mess, our government is trying to pass a health care bill that starts collecting money now but doesn’t start to take effect for another four years. What kind of malicious person siphons billions of dollars out of a struggling economy and then waits four years to use it?

Secondly, right now, 106,000 International Security Assistance Forces are stationed in Afghanistan [1]. In a speech in West Point, New York on Tuesday night, President Obama told the nation that he would be sending an additional 30,000 troops to fight the war. Additionally, NATO Secretary-General Anders Fogh Rasmussen said that the European nations would be adding at least 5,000 more soldiers to the conflict [2].

We applaud the President’s decision to strengthen our presence in Afghanistan. The troop surge in Iraq came late but ultimately paved the way for the transition of power to the Iraqi people. Undoubtedly, if we are to participate in any armed conflict, we must be prepared to throw everything we have into it. Fighting a war without full commitment is like trying to eat a steak without a knife; you’ll most likely get the job done, but it will take forever and you’ll end up with it all over your face.

What concerns us, as it does many congresspersons and other Americans, is the incredibly short timetable for withdrawal of the surge forces. President Obama, trying to rally support from his antiwar loyalists, declared that the United States would begin to draw down the surge forces beginning in July 2011 [1]. Believing you can get in and get out quickly, though, is a fallacy. We’re still in Germany and Japan after 64 years. If we’ve concluded that 106,000 troops are losing control of Afghanistan, how can we expect that 140,000 troops can take control of some 251,770 square miles of extremely rugged terrain in just 18 months?

I think we all know that these two questions are unanswerable. No person who honestly cares about the American people tries to bankrupt them at the bottom of an economic downturn. No person who honestly cares about the safety of our American troops and the Afghani people sets such a short timetable. The only explanation is political gain. Bankrupting the very people who provide jobs panders to the lower class who more often than not vote for progressives. Setting ridiculous withdrawal timetables panders to the antiwar populace who more often than not vote for progressives.

There’s an agenda here, and it’s not the satisfaction of the needs of the American people.

1. “Lawmakers Challenge Gates,” The Wall Street Journal, December 3, 2009.
2. “Time Limit on Surge Draws Fire,” The Wall Street Journal, December 3, 2009.

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