The White House just reassured the nation that while they would not be sending more troops as the general has requested, they have no intention of ever pulling out of Afghanistan. ..... A Democrat president fighting a war in south-east Asia with no clear objective and with as few men as possible. What could go wrong?
I used to think that Obama was Carter redux, but I was wrong. While Carter was also a milquetoast little weasel, Obama is more like LBJ: Fighting the left wing of his party, making military decisions based on political expediency, congress scared to death of crossing him.... The only difference between LBJ and Obama is that Obama has cute kids. But then again, no one ever got called a racist for claiming LBJ was a weenie.....
Monday, October 5, 2009
Saturday, June 6, 2009
A sabbatical? No. Just really busy.
I have never been so overworked and stressed. . . . And I once served in a war zone! Anyway, pretty soon I should have time to write again.
Friday, May 1, 2009
labels and third parties
I have a friend who chastens me whenever I use a label like socialist, conservative, righty, lefty, progressive, fascist, communist, Democrat or Republican. He finds such labels constricting.
My friend is a label-hater.
Me, I'm a label-lover. Why? Mostly because it means less typing. I mean, I can't very well say socialist, class-warrior, psuedo-intellectual, gun-grabbing, self-loathing, elitist hypocrite every time I want to bash a socialist, class-warrior, gun-grabbing, self-loathing, elitist hypocrite, can I? It's not like I'm trying to make a word-count here, and if I need to fill space I'll just pick a bigger font. Maybe Helvetica. Not only that, if I attempt to type out each agglutinative term every time I need the particular referent, I might leave something out--like pseudo-intellectual or race-baiter--and in doing so fail to convey the full meaning of my rant. On the other hand, a simple label can say it all. I mean, everyone knows that, right?
And yet, my friend protests. Why put everyone into these little boxes? How can millions of people be defined in a one-word sobriquet--or maybe epithet--as though a certain set of people all think one particular way? The answer is, of course, that the boxes seem to work. In the end, whether we like it or not, we can all be pigeon-holed one way or another. In fact, for most of us it's one way or the other. Left or right. Liberal or conservative. Democrat or Republican. I guess that's why the two party system developed, and why all the libertarian mixers I organize are so sparsely attended. A better question might be, what is it about Democrats and Republicans that makes it sort of fall out that way, so that either Sean Hannity or Alan Colmes speak for us all?
The first thing to realize is that it's always been like that. During the renaissance, when dead-white-guys first became all the rage, the educated class was shocked to discover that every thinking person on earth could be labeled as the intellectual descendant of either one of exactly two Greek philosophers. And that still holds true today. Now I'm not suggesting that Plato was the first chairman of the Democrat party (though if you read The Republic, you might wonder...), or that Aristotle's Peripatetics were the first Ditto heads. (I'm doing my very best Dennis Miller here. Just nod your head and smile.) I'm just saying that there seems to be something fundamental that makes people pick sides. And by sides I mean one label or the other.
But there aren't two sides, are there? There are several different ways to handle every political issue, and hundreds of discrete issues. And yet in the U.S., we all must accept inclusion in the Democrat box or the Republican box, or else be relegated to political irrelevancy in a third party. So if I think taxes are too high, I must also believe that government should throw marijuana smokers into jail. And if I think that gays should be allowed to marry each other and enlist in the military, I must also accept that your SUV is destroying the planet.
If you are looking for an explanation, you are on the wrong blog. Just because I recognize the dynamic at work doesn't mean that I understand it. Are we simply round and triangular pegs pounding ourselves into square holes? Or maybe political polarization is simply a product of the enemy-of-my-enemy-is-my-friend mechanism. I don't know why Democrats and Republicans became the only game in town. What I do know is that, however loathsome or stupid (respectively) the viable political parties have become, they are the only two there are.
Now please understand: I'm not saying it has to be that way. If someone asks me the best way to protect our trick-or-treaters on Halloween, I won't accept that the answer must be to give them either guns or condoms. I will admit that if I am forced to choose, I lean toward guns; but that's only because I can't guarantee that a random pedophile will pause long enough to put on the condom, no matter how nice we are to him. But neither is a good choice; so I choose a third.
Why, then, should I vote McCain simply because I'm so much more afraid of the damage that Obama might do?
I know, I know. The third choice is not really a choice. I don't have the option of supervising my children as they shuffle from door to door on their candy quest, and no third party candidate will be president in my lifetime. But it is only the fact that everyone knows that a third party has no chance to win that makes it so. In order for there someday to be a viable third party candidate, there will have to be a critical mass of voters who accept the possibility before it happens. When I am feeling optimistic--which is most of the time--I think of myself as the vanguard of freedom, the cutting edge of a political revolution. When I am feeling pessimistic--like on election day-- I trudge into the voting booth muttering to myself about how I am throwing my vote away. But I know that it must be done. If I don't, who will? Voting with my brethren in the libertarian two-percent is the only way that it might someday become ten-percent, twenty-percent, or more. Consequently, it's the only way I can legitimately hope for real change. No, the other kind.
So I choose to think outside the box. Or rather, outside the boxes.
***Note***
Nothing in this blog post should mislead anyone into thinking that if Ronald Reagan or Barry Goldwater, or a close approximation thereof, were to grace the Republican ticket in the near future, that I wouldn't break my finger in my ardor to press a button for him..... or her (you know who I mean). And I fully support some great main-party legislative candidates--almost always Republicans--who don't happen to agree with me on every issue. But John McCain, George Bush, and anyone else who doesn't understand the proper Constitutional role of government will never get my vote for the Presidency.
My friend is a label-hater.
Me, I'm a label-lover. Why? Mostly because it means less typing. I mean, I can't very well say socialist, class-warrior, psuedo-intellectual, gun-grabbing, self-loathing, elitist hypocrite every time I want to bash a socialist, class-warrior, gun-grabbing, self-loathing, elitist hypocrite, can I? It's not like I'm trying to make a word-count here, and if I need to fill space I'll just pick a bigger font. Maybe Helvetica. Not only that, if I attempt to type out each agglutinative term every time I need the particular referent, I might leave something out--like pseudo-intellectual or race-baiter--and in doing so fail to convey the full meaning of my rant. On the other hand, a simple label can say it all. I mean, everyone knows that, right?
And yet, my friend protests. Why put everyone into these little boxes? How can millions of people be defined in a one-word sobriquet--or maybe epithet--as though a certain set of people all think one particular way? The answer is, of course, that the boxes seem to work. In the end, whether we like it or not, we can all be pigeon-holed one way or another. In fact, for most of us it's one way or the other. Left or right. Liberal or conservative. Democrat or Republican. I guess that's why the two party system developed, and why all the libertarian mixers I organize are so sparsely attended. A better question might be, what is it about Democrats and Republicans that makes it sort of fall out that way, so that either Sean Hannity or Alan Colmes speak for us all?
The first thing to realize is that it's always been like that. During the renaissance, when dead-white-guys first became all the rage, the educated class was shocked to discover that every thinking person on earth could be labeled as the intellectual descendant of either one of exactly two Greek philosophers. And that still holds true today. Now I'm not suggesting that Plato was the first chairman of the Democrat party (though if you read The Republic, you might wonder...), or that Aristotle's Peripatetics were the first Ditto heads. (I'm doing my very best Dennis Miller here. Just nod your head and smile.) I'm just saying that there seems to be something fundamental that makes people pick sides. And by sides I mean one label or the other.
But there aren't two sides, are there? There are several different ways to handle every political issue, and hundreds of discrete issues. And yet in the U.S., we all must accept inclusion in the Democrat box or the Republican box, or else be relegated to political irrelevancy in a third party. So if I think taxes are too high, I must also believe that government should throw marijuana smokers into jail. And if I think that gays should be allowed to marry each other and enlist in the military, I must also accept that your SUV is destroying the planet.
If you are looking for an explanation, you are on the wrong blog. Just because I recognize the dynamic at work doesn't mean that I understand it. Are we simply round and triangular pegs pounding ourselves into square holes? Or maybe political polarization is simply a product of the enemy-of-my-enemy-is-my-friend mechanism. I don't know why Democrats and Republicans became the only game in town. What I do know is that, however loathsome or stupid (respectively) the viable political parties have become, they are the only two there are.
Now please understand: I'm not saying it has to be that way. If someone asks me the best way to protect our trick-or-treaters on Halloween, I won't accept that the answer must be to give them either guns or condoms. I will admit that if I am forced to choose, I lean toward guns; but that's only because I can't guarantee that a random pedophile will pause long enough to put on the condom, no matter how nice we are to him. But neither is a good choice; so I choose a third.
Why, then, should I vote McCain simply because I'm so much more afraid of the damage that Obama might do?
I know, I know. The third choice is not really a choice. I don't have the option of supervising my children as they shuffle from door to door on their candy quest, and no third party candidate will be president in my lifetime. But it is only the fact that everyone knows that a third party has no chance to win that makes it so. In order for there someday to be a viable third party candidate, there will have to be a critical mass of voters who accept the possibility before it happens. When I am feeling optimistic--which is most of the time--I think of myself as the vanguard of freedom, the cutting edge of a political revolution. When I am feeling pessimistic--like on election day-- I trudge into the voting booth muttering to myself about how I am throwing my vote away. But I know that it must be done. If I don't, who will? Voting with my brethren in the libertarian two-percent is the only way that it might someday become ten-percent, twenty-percent, or more. Consequently, it's the only way I can legitimately hope for real change. No, the other kind.
So I choose to think outside the box. Or rather, outside the boxes.
***Note***
Nothing in this blog post should mislead anyone into thinking that if Ronald Reagan or Barry Goldwater, or a close approximation thereof, were to grace the Republican ticket in the near future, that I wouldn't break my finger in my ardor to press a button for him..... or her (you know who I mean). And I fully support some great main-party legislative candidates--almost always Republicans--who don't happen to agree with me on every issue. But John McCain, George Bush, and anyone else who doesn't understand the proper Constitutional role of government will never get my vote for the Presidency.
Sunday, April 5, 2009
my favorite irrelevancy
I was in the process of crafting a post about the Obama spending bills and the jerks in Congress who are going to pass them. But then I just got mad, and the whole thing degenerated into a nasty bit of name calling and acrimony. I don't mind that so much; for me and my lawyer-wife that's a Friday night. But since there's no possibility I'll get lucky at the end of a nasty blog (no matter what the emails in my junkmail folder say), I decided to change the subject and start over. Before I do that, let me just summarize the points I was making before I thought better of it: Senate Majority Leader Harry Reid is an androgynous weasel, and Nancy Pelosi is the product of his having impregnated Tammy Faye Bakker by accidental cross-pollination or some other means of asexual reproduction. Unlikely, you say? Maybe. But not as unlikely as Harry Reid reproducing sexually.
Now let's move on to something else you've never heard of. Archaeologists call it the Tenth Amendment to the Constitution of the United States.
During my third year of law school, I took a class in contemporary Constitutional Law, taught by a famous scholar on the First Amendment. (Famous is a relative term, of course. He didn't defend O.J. or get custody of Britney's kids for K-Fed. But Timothy Hutton did play him in the movie he wrote about his biggest case. And he gave me an A in his class.) (Before you ask, I did nothing for that A that I should be ashamed of. Every professor needs his erasers banged, and I am not going to apologize for a few back rubs. And his marriage was in trouble long before I came along.) Unfortunately, while he may have known all about the First Amendment, he was far less versed on some other provisions of the Bill of Rights.
I found this out the day he led our class in a discussion of the tension between the First Amendment's separation of church and state (which, by the way, isn't really there. Seriously. You can look it up.) and the "freedom of speech" clause (that one's totally there). The question of the day was essentially this: does the Constitution permit the teaching of creationism in public schools? The discussion went back and forth, the lefties versus the (two lonely) social conservatives. Usually, I love a good debate, but this one proceeded without me; the question presents a false dichotomy, and relies on an underlying Constitutional error that I refuse to give implicit acceptance. And my professor would not have recognized it even if I had pointed it out.
Their error? A failure to recognize that the United States government has no role whatsoever in education. None. Or, rather, that government is not supposed to have a role, because the Constitution gave the federal government no power to act with regard to education.
That's important, since the Constitution is a document that sets forth explicitly and exclusively ALL the powers permitted to the Federal Government of the United States of America. Line by line, clause by clause, the Founding Fathers put it all on paper; each and every power that the national government was permitted to exercise. How do I know? Because they said so, right there in black and yellow.
Amendment 10 - Powers of the States and People
The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.
Maybe you never read that one before. Sure, you knew there were ten of 'em, but you probably thought the other six Bill of Rights amendments--the ones you never heard of--preserved the right to health care, housing, and heterosexual marriage. Legend says that the Bill of Rights is only in the Constitution because a bunch of paranoid schizophrenics calling themselves Anti-Federalists got the crazy notion that the Federal Government might someday do things that weren't in the Constitution.(!) To prevent that from happening, Anti-Federalists demanded that the rights of the people and states be explicitly (and redundantly) carved out of the federal government's exclusive Constitutional powers by the first eight amendments to the constitution. They also inserted two catch-all provisions just to make sure the intentions of the framers weren't misunderstood.
Those last two amendments were never heard from again.
I'm serious. It's like the Tenth Amendment never existed. But just as an historical exercise, what did the Tenth Amendment to the Constitution of the United States of America actually mean? Well, I'm not a famous Constitutional scholar, I'm just a guy who knows how to read. And it's pretty clear to me that the Tenth Amendment says that if it ain't in the Constitution, the Federal Government isn't supposed to do it. Period. And if the Federal government does do something it was not empowered to do by the Constitution, that action would be what smart Constitutional scholars like to call unconstitutional.
And no, the Tenth Amendment has never been repealed. Only ignored.
Some say that's a good thing. How can a few smart guys from the 18th century know what kinds of stuff we'll want government to do in the 21st century? It's not a bad question. Inarguably, the Founding Fathers never envisioned a federal government as big and officious as ours is today. (I'm pretty sure that on quiet nights up here in Virginia you can hear a few of them spinning in their graves.) But the founders knew very well they could not think of everything, and left us two clear ways to get around the imperfections of a Constitution made up of explicit and exclusive reservations of government powers.
First, they intended that most necessary government functions could and should be performed by the states' governments. And where those state powers were insufficient, inappropriate or impractical, the Founding Fathers provided several ways to amend the Constitutional. Yeah, every method by which the Constitution can be amended is slow, ponderous, and a pain in the butt. But I guess that's the way the Founding Fathers wanted it.
Ok, so where was I? Oh yeah, in a class of thirty law students and one handsome First Amendment scholar, considering the question of the day: whether the Constitution requires that public school teachers teach that random mutation and natural selection will cause evolutionary leaps sufficient to explain multi-cellular life and diversity of species. But the question of the day should have been this: where in the hell does the federal government get the power to mandate, fund and oversee public education? The answer is, of course, nowhere. There is no public education clause in the Federal Constitution. But there is a provision that says that public education is therefore not a proper purview of federal governance. They just chose to ignore it.
So, which is it, class? Do we teach the children we force into classrooms that God made everything in a single work-week and a little overtime, or do we give them Darwin's tautology as the sole explanation for the existence of multi-celled intelligent life on earth? I, for one--maybe the only one--refuse to be goaded into picking sides. It's my opinion that neither "survival of the fittest" nor "let there be light" should be taught to students in a federally funded classroom, because the Tenth Amendment forbids the establishment of a federally funded classroom. If we are going to be governed by the Constitution, the people must either educate their kids in the schools of their choice on their own dime--or maybe on the dime taken from them by the state in which they live--or else they must amend the constitution so that the federal government can do it for them. If not, then our courts will continue to address the same scientific and philosophical issues that the greatest minds of three millennia have been unable to resolve, and force whatever answer they come up with down our children's collective throat.
I am well aware that despite the spectacular and expensive failure of the public education system, some of you recoil in shock from the idea of a separation of education and state--even if the Tenth Amendment requires it. You like the freedom of speech, religion, and even the press, but are dubious about the prospect of getting government out of the educational system. We can't have it both ways, however. Either we are governed by the Constitution, or we are not. Isn't it intellectually dishonest to sit in a classroom, or in a court house, or in a legislative body, bleating about one inviolable Constitutional right or another, while at the same time ignoring the parts that are inconvenient?
I realize this might be a tough sell. But if I am all alone here, could you at least be consistent? If you demand that the Federal Government teach your kids that God created man in His own image, or else that man was a fortuitous happenstance, don't be so hypocritical as to make your demand on Constitutional grounds. Don't say that your child has a Constitutional right to be free from unreasonable search of his public school locker if you aren't going to object to the fact that the Federal Government bought the locker for him in the first place. And don't assert a Constitutional right to free speech or religious practice as a justification for having your Bible study group or your gay alliance meeting in the public school library, if you also support the construction of that library in clear contravention of the Constitution's less-popular provisions.
And, please, when you advocate that the federal government run education, argue that it's more practical than complying with the Constitution. Point out that it's easier for parents not to have to worry about finding cheap education in a free market. Whine about the children. Put your fingers in your ears and recite over and over that it has always been done that way, and you simply can't imagine it being done any other. Just ignore the Constitution; I promise you aren't the first one to do so.
And the next time you complain about the sorry state of public education, try to remember whom you put in charge of it.
Now let's move on to something else you've never heard of. Archaeologists call it the Tenth Amendment to the Constitution of the United States.
During my third year of law school, I took a class in contemporary Constitutional Law, taught by a famous scholar on the First Amendment. (Famous is a relative term, of course. He didn't defend O.J. or get custody of Britney's kids for K-Fed. But Timothy Hutton did play him in the movie he wrote about his biggest case. And he gave me an A in his class.) (Before you ask, I did nothing for that A that I should be ashamed of. Every professor needs his erasers banged, and I am not going to apologize for a few back rubs. And his marriage was in trouble long before I came along.) Unfortunately, while he may have known all about the First Amendment, he was far less versed on some other provisions of the Bill of Rights.
I found this out the day he led our class in a discussion of the tension between the First Amendment's separation of church and state (which, by the way, isn't really there. Seriously. You can look it up.) and the "freedom of speech" clause (that one's totally there). The question of the day was essentially this: does the Constitution permit the teaching of creationism in public schools? The discussion went back and forth, the lefties versus the (two lonely) social conservatives. Usually, I love a good debate, but this one proceeded without me; the question presents a false dichotomy, and relies on an underlying Constitutional error that I refuse to give implicit acceptance. And my professor would not have recognized it even if I had pointed it out.
Their error? A failure to recognize that the United States government has no role whatsoever in education. None. Or, rather, that government is not supposed to have a role, because the Constitution gave the federal government no power to act with regard to education.
That's important, since the Constitution is a document that sets forth explicitly and exclusively ALL the powers permitted to the Federal Government of the United States of America. Line by line, clause by clause, the Founding Fathers put it all on paper; each and every power that the national government was permitted to exercise. How do I know? Because they said so, right there in black and yellow.
Amendment 10 - Powers of the States and People
The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.
Maybe you never read that one before. Sure, you knew there were ten of 'em, but you probably thought the other six Bill of Rights amendments--the ones you never heard of--preserved the right to health care, housing, and heterosexual marriage. Legend says that the Bill of Rights is only in the Constitution because a bunch of paranoid schizophrenics calling themselves Anti-Federalists got the crazy notion that the Federal Government might someday do things that weren't in the Constitution.(!) To prevent that from happening, Anti-Federalists demanded that the rights of the people and states be explicitly (and redundantly) carved out of the federal government's exclusive Constitutional powers by the first eight amendments to the constitution. They also inserted two catch-all provisions just to make sure the intentions of the framers weren't misunderstood.
Those last two amendments were never heard from again.
I'm serious. It's like the Tenth Amendment never existed. But just as an historical exercise, what did the Tenth Amendment to the Constitution of the United States of America actually mean? Well, I'm not a famous Constitutional scholar, I'm just a guy who knows how to read. And it's pretty clear to me that the Tenth Amendment says that if it ain't in the Constitution, the Federal Government isn't supposed to do it. Period. And if the Federal government does do something it was not empowered to do by the Constitution, that action would be what smart Constitutional scholars like to call unconstitutional.
And no, the Tenth Amendment has never been repealed. Only ignored.
Some say that's a good thing. How can a few smart guys from the 18th century know what kinds of stuff we'll want government to do in the 21st century? It's not a bad question. Inarguably, the Founding Fathers never envisioned a federal government as big and officious as ours is today. (I'm pretty sure that on quiet nights up here in Virginia you can hear a few of them spinning in their graves.) But the founders knew very well they could not think of everything, and left us two clear ways to get around the imperfections of a Constitution made up of explicit and exclusive reservations of government powers.
First, they intended that most necessary government functions could and should be performed by the states' governments. And where those state powers were insufficient, inappropriate or impractical, the Founding Fathers provided several ways to amend the Constitutional. Yeah, every method by which the Constitution can be amended is slow, ponderous, and a pain in the butt. But I guess that's the way the Founding Fathers wanted it.
Ok, so where was I? Oh yeah, in a class of thirty law students and one handsome First Amendment scholar, considering the question of the day: whether the Constitution requires that public school teachers teach that random mutation and natural selection will cause evolutionary leaps sufficient to explain multi-cellular life and diversity of species. But the question of the day should have been this: where in the hell does the federal government get the power to mandate, fund and oversee public education? The answer is, of course, nowhere. There is no public education clause in the Federal Constitution. But there is a provision that says that public education is therefore not a proper purview of federal governance. They just chose to ignore it.
So, which is it, class? Do we teach the children we force into classrooms that God made everything in a single work-week and a little overtime, or do we give them Darwin's tautology as the sole explanation for the existence of multi-celled intelligent life on earth? I, for one--maybe the only one--refuse to be goaded into picking sides. It's my opinion that neither "survival of the fittest" nor "let there be light" should be taught to students in a federally funded classroom, because the Tenth Amendment forbids the establishment of a federally funded classroom. If we are going to be governed by the Constitution, the people must either educate their kids in the schools of their choice on their own dime--or maybe on the dime taken from them by the state in which they live--or else they must amend the constitution so that the federal government can do it for them. If not, then our courts will continue to address the same scientific and philosophical issues that the greatest minds of three millennia have been unable to resolve, and force whatever answer they come up with down our children's collective throat.
I am well aware that despite the spectacular and expensive failure of the public education system, some of you recoil in shock from the idea of a separation of education and state--even if the Tenth Amendment requires it. You like the freedom of speech, religion, and even the press, but are dubious about the prospect of getting government out of the educational system. We can't have it both ways, however. Either we are governed by the Constitution, or we are not. Isn't it intellectually dishonest to sit in a classroom, or in a court house, or in a legislative body, bleating about one inviolable Constitutional right or another, while at the same time ignoring the parts that are inconvenient?
I realize this might be a tough sell. But if I am all alone here, could you at least be consistent? If you demand that the Federal Government teach your kids that God created man in His own image, or else that man was a fortuitous happenstance, don't be so hypocritical as to make your demand on Constitutional grounds. Don't say that your child has a Constitutional right to be free from unreasonable search of his public school locker if you aren't going to object to the fact that the Federal Government bought the locker for him in the first place. And don't assert a Constitutional right to free speech or religious practice as a justification for having your Bible study group or your gay alliance meeting in the public school library, if you also support the construction of that library in clear contravention of the Constitution's less-popular provisions.
And, please, when you advocate that the federal government run education, argue that it's more practical than complying with the Constitution. Point out that it's easier for parents not to have to worry about finding cheap education in a free market. Whine about the children. Put your fingers in your ears and recite over and over that it has always been done that way, and you simply can't imagine it being done any other. Just ignore the Constitution; I promise you aren't the first one to do so.
And the next time you complain about the sorry state of public education, try to remember whom you put in charge of it.
Saturday, April 4, 2009
Who's at fault in the global economic death spiral? Opinion and commentary by special guest blogger President Barack Hussein Obama.
This is an actual transcript of BHO's answer to the following two-part question asked by a member of the European press (apparently the prompter was off): did the U.S. and Britain cause the present economic crisis, and does the answer to that question inform our choices as to what should be done to fix it?
"I, I, would say that, er ... [pause] ... if you look at ... [pause] ... the, the sources of this crisis ... [pause] ... the United States certainly has some accounting to do with respect to . . . [pause] ... a regulatory system that was inadequate to the massive changes that have taken place in the global financial system ... [clintonian pause with closed eyes]... I think what is also true is that ... [pause] ... here in Great Britain ... [pause] ... here in continental Europe ... [pause] ... around the world. We were seeing the same mismatch between the regulatory regimes that were in place and er ... [pause] ... the highly integrated, er, global capital markets that have emerged ... [pause]. So at this point, I'm less interested in ... [pause] ... identifying blame than fixing the problem. I think we've taken some very aggressive steps in the United States to do so, not just responding to the immediate crisis, ensuring banks are adequately capitalised, er, dealing with the enormous, er ... [pause] ... drop-off in demand and contraction that has taken place. More importantly, for the long term, making sure that we've got a set of, er, er, regulations that are up to the task, er, and that includes, er, a number that will be discussed at this summit. I think there's a lot of convergence between all the parties involved about the need, for example, to focus not on the legal form that a particular financial product takes or the institution it emerges from, but rather what's the risk involved, what's the function of this product and how do we regulate that adequately, much more effective coordination, er, between countries so we can, er, anticipate the risks that are involved there. Dealing with the, er, problem of derivatives markets, making sure we have set up systems, er, that can reduce some of the risks there. So, I actually think ... [pause] ... there's enormous consensus that has emerged in terms of what we need to do now and, er ... [pause] ... I'm a great believer in looking forwards than looking backwards."
10 minutes for a single paragraph answer. Ladies and gentleman, the world's smartest man and its the greatest orator.
I was going to let the President speak for himself, but maybe I'm not being fair. Let's do a transcript without the elipses and pauses.
"I would say that if you look at the sources of this crisis the United States certainly has some accounting to do with respect to a regulatory system that was inadequate to the massive changes that have taken place in the global financial system. I think what is also true is that here in Great Britain, here in continental Europe, [and] around the world, we were seeing the same mismatch between the regulatory regimes that were in place and the highly integrated, global capital markets that have emerged. So at this point, I'm less interested in identifying blame than fixing the problem. I think we've taken some very aggressive steps in the United States to do so, not just responding to the immediate crisis, ensuring banks are adequately capitalised, dealing with the enormous, drop-off in demand and contraction that has taken place. More importantly, for the long term, making sure that we've got a set of regulations that are up to the task, and that includes a number that will be discussed at this summit. I think there's a lot of convergence between all the parties involved about the need, for example, to focus not on the legal form that a particular financial product takes or the institution it emerges from, but rather what's the risk involved, what's the function of this product and how do we regulate that adequately, much more effective coordination, between countries so we can, anticipate the risks that are involved there. Dealing with the, problem of derivatives markets, making sure we have set up systems, that can reduce some of the risks there. So, I actually think there's enormous consensus that has emerged in terms of what we need to do now, and I'm a great believer in looking forwards than looking backwards."
That's better, but still pretty opaque. Let's break it down:
"I would say that if you look at the sources of this crisis the United States certainly has some accounting to do with respect to a regulatory system that was inadequate to the massive changes that have taken place in the global financial system. I think what is also true is that here in Great Britain, here in continental Europe, [and] around the world, we were seeing the same mismatch between the regulatory regimes that were in place and the highly integrated, global capital markets that have emerged."
Say what? Simply that government oversight of financial systems has been an abysmal failure in the United States and elsewhere. So far so good, and I agree with him entirely. Next:
"So at this point, I'm less interested in identifying blame than fixing the problem. I think we've taken some very aggressive steps in the United States to do so, not just responding to the immediate crisis, ensuring banks are adequately capitalised, dealing with the enormous, drop-off in demand and contraction that has taken place. More importantly, for the long term, making sure that we've got a set of regulations that are up to the task, and that includes a number that will be discussed at this summit."
I'll translate. "My government will instead exercise plenary control over the mechanisms that they failed so thoroughly to manage by mere oversight." That's certainly accurate, too. Although I'm not sure why he believes complete control will be easier than mere oversight.
Let's continue:
"I think there's a lot of convergence between all the parties involved about the need, for example, to focus not on the legal form that a particular financial product takes or the institution it emerges from, but rather what's the risk involved, what's the function of this product and how do we regulate that adequately, much more effective coordination, between countries so we can, anticipate the risks that are involved there. Dealing with the, problem of derivatives markets, making sure we have set up systems, that can reduce some of the risks there."
This part's easy. "I don't understand what the hell it is we're taking control of, I'm more a 'big picture' kind of guy." Again, I agree (I can even empathise a bit). His lack of familiarity with--or perhaps his refusal to explicate--the policies he would implement has never mattered, whether as a candidate or as a president. His policies are to be implemented by sheer force of oratorical style and racial novelty, so all that really matters is that he say pretty words well. He'll let his minions implement the policies he either doesn't understand or else dares not explain. Off-prompter, however, it's clear that he can only fail his end of that bargain. (Though, after eight years of Bush the Younger, I was impressed that he spit out the word 'derivatives' on his first try.)
The President of the United States of America gives us a big finish:
"So, I actually think there's enormous consensus that has emerged in terms of what we need to do now, and I'm a great believer in looking forwards than looking backwards."
Another easy translation: "So as long as a majority here and back home likes me, my actual policies are irrelevant to this discussion. It doesn't matter what I do, only that I do it. And don't go pressing me for details, just watch what happens."
Thank you, Mr. President. You're actually not as dumb as you sound.
"I, I, would say that, er ... [pause] ... if you look at ... [pause] ... the, the sources of this crisis ... [pause] ... the United States certainly has some accounting to do with respect to . . . [pause] ... a regulatory system that was inadequate to the massive changes that have taken place in the global financial system ... [clintonian pause with closed eyes]... I think what is also true is that ... [pause] ... here in Great Britain ... [pause] ... here in continental Europe ... [pause] ... around the world. We were seeing the same mismatch between the regulatory regimes that were in place and er ... [pause] ... the highly integrated, er, global capital markets that have emerged ... [pause]. So at this point, I'm less interested in ... [pause] ... identifying blame than fixing the problem. I think we've taken some very aggressive steps in the United States to do so, not just responding to the immediate crisis, ensuring banks are adequately capitalised, er, dealing with the enormous, er ... [pause] ... drop-off in demand and contraction that has taken place. More importantly, for the long term, making sure that we've got a set of, er, er, regulations that are up to the task, er, and that includes, er, a number that will be discussed at this summit. I think there's a lot of convergence between all the parties involved about the need, for example, to focus not on the legal form that a particular financial product takes or the institution it emerges from, but rather what's the risk involved, what's the function of this product and how do we regulate that adequately, much more effective coordination, er, between countries so we can, er, anticipate the risks that are involved there. Dealing with the, er, problem of derivatives markets, making sure we have set up systems, er, that can reduce some of the risks there. So, I actually think ... [pause] ... there's enormous consensus that has emerged in terms of what we need to do now and, er ... [pause] ... I'm a great believer in looking forwards than looking backwards."
10 minutes for a single paragraph answer. Ladies and gentleman, the world's smartest man and its the greatest orator.
I was going to let the President speak for himself, but maybe I'm not being fair. Let's do a transcript without the elipses and pauses.
"I would say that if you look at the sources of this crisis the United States certainly has some accounting to do with respect to a regulatory system that was inadequate to the massive changes that have taken place in the global financial system. I think what is also true is that here in Great Britain, here in continental Europe, [and] around the world, we were seeing the same mismatch between the regulatory regimes that were in place and the highly integrated, global capital markets that have emerged. So at this point, I'm less interested in identifying blame than fixing the problem. I think we've taken some very aggressive steps in the United States to do so, not just responding to the immediate crisis, ensuring banks are adequately capitalised, dealing with the enormous, drop-off in demand and contraction that has taken place. More importantly, for the long term, making sure that we've got a set of regulations that are up to the task, and that includes a number that will be discussed at this summit. I think there's a lot of convergence between all the parties involved about the need, for example, to focus not on the legal form that a particular financial product takes or the institution it emerges from, but rather what's the risk involved, what's the function of this product and how do we regulate that adequately, much more effective coordination, between countries so we can, anticipate the risks that are involved there. Dealing with the, problem of derivatives markets, making sure we have set up systems, that can reduce some of the risks there. So, I actually think there's enormous consensus that has emerged in terms of what we need to do now, and I'm a great believer in looking forwards than looking backwards."
That's better, but still pretty opaque. Let's break it down:
"I would say that if you look at the sources of this crisis the United States certainly has some accounting to do with respect to a regulatory system that was inadequate to the massive changes that have taken place in the global financial system. I think what is also true is that here in Great Britain, here in continental Europe, [and] around the world, we were seeing the same mismatch between the regulatory regimes that were in place and the highly integrated, global capital markets that have emerged."
Say what? Simply that government oversight of financial systems has been an abysmal failure in the United States and elsewhere. So far so good, and I agree with him entirely. Next:
"So at this point, I'm less interested in identifying blame than fixing the problem. I think we've taken some very aggressive steps in the United States to do so, not just responding to the immediate crisis, ensuring banks are adequately capitalised, dealing with the enormous, drop-off in demand and contraction that has taken place. More importantly, for the long term, making sure that we've got a set of regulations that are up to the task, and that includes a number that will be discussed at this summit."
I'll translate. "My government will instead exercise plenary control over the mechanisms that they failed so thoroughly to manage by mere oversight." That's certainly accurate, too. Although I'm not sure why he believes complete control will be easier than mere oversight.
Let's continue:
"I think there's a lot of convergence between all the parties involved about the need, for example, to focus not on the legal form that a particular financial product takes or the institution it emerges from, but rather what's the risk involved, what's the function of this product and how do we regulate that adequately, much more effective coordination, between countries so we can, anticipate the risks that are involved there. Dealing with the, problem of derivatives markets, making sure we have set up systems, that can reduce some of the risks there."
This part's easy. "I don't understand what the hell it is we're taking control of, I'm more a 'big picture' kind of guy." Again, I agree (I can even empathise a bit). His lack of familiarity with--or perhaps his refusal to explicate--the policies he would implement has never mattered, whether as a candidate or as a president. His policies are to be implemented by sheer force of oratorical style and racial novelty, so all that really matters is that he say pretty words well. He'll let his minions implement the policies he either doesn't understand or else dares not explain. Off-prompter, however, it's clear that he can only fail his end of that bargain. (Though, after eight years of Bush the Younger, I was impressed that he spit out the word 'derivatives' on his first try.)
The President of the United States of America gives us a big finish:
"So, I actually think there's enormous consensus that has emerged in terms of what we need to do now, and I'm a great believer in looking forwards than looking backwards."
Another easy translation: "So as long as a majority here and back home likes me, my actual policies are irrelevant to this discussion. It doesn't matter what I do, only that I do it. And don't go pressing me for details, just watch what happens."
Thank you, Mr. President. You're actually not as dumb as you sound.
Saturday, March 28, 2009
getting my groove back: my next post
Whew! That last post took a lot out of me. What was I thinking biting off the housing crisis? 70 years of government malfeasance there, and somehow I thought I'd knock it out in a single little essay. Not only did my "road to hell" post grow so long that I had to break it up into two parts (for my readers of small attention spans, you know who you are), it also involved some actual research, the gathering of information, fact checking, not to mention the construction of some fairly compelling imagery. (Loyal readers will be happy to learn that I haven't heard anything from McDonalds' lawyers. Yet.) So I approach my next post somewhat enervated, perhaps in need of topic less fact-intensive, more opinion related. (I never feel compelled to check my opinions for accuracy.) Or maybe what I need is an easy target....
I suppose I could address the Democrats and their plan to nationalize the economy. But while making fun of leftist principles is easy, it's too much like criticizing an obnoxious 6-year-old’s coloring. Even when the kid stomps his feet and threatens to hold his breath if we do not immediately hang his latest masterpiece on the refrigerator, it's just no fun to tell him he didn't stay inside the lines, or to point out that grass is not orange. Admittedly, ridicule is easier when there are college professors praising the artistry and genius of the latest page ripped from his coloring book, especially when the kid's pictures cover every wall, are clogging the plumbing, and create a fire hazard. All the while, the little brat is calling you a racist, or a sexist, or big dumb poopyhead because you can't tell whether the picture you're looking at is a stunted yellow flower or the sun wearing green pants.... I digress.
My point is this: when I hear an idea like Cap 'n' Trade, I feel like the joke has already been set-up and the punch line delivered. Emissions Trading enforced by a global, quasi-governmental, tax-imposing carbon-hunting bureaucracy that will ensure you put a cork in it until you pay someone else to license you to be his emitter-by-proxy. What can I add to that, other than LOL and an eyeroll smiley? (you probably didn't see it, but An Inconvenient Truth was actually narrated by a fat, flatulent, effeminate clown running in circles tooting a horn. Amusing, but I really don't recommend it.) In any event, to ridicule Cap 'n' Trade just seems too easy. And it's been done to death--brilliantly, I might add. (see my previous post, "Kyoto is cool.")
I must give the matter some thought.....
I suppose I could address the Democrats and their plan to nationalize the economy. But while making fun of leftist principles is easy, it's too much like criticizing an obnoxious 6-year-old’s coloring. Even when the kid stomps his feet and threatens to hold his breath if we do not immediately hang his latest masterpiece on the refrigerator, it's just no fun to tell him he didn't stay inside the lines, or to point out that grass is not orange. Admittedly, ridicule is easier when there are college professors praising the artistry and genius of the latest page ripped from his coloring book, especially when the kid's pictures cover every wall, are clogging the plumbing, and create a fire hazard. All the while, the little brat is calling you a racist, or a sexist, or big dumb poopyhead because you can't tell whether the picture you're looking at is a stunted yellow flower or the sun wearing green pants.... I digress.
My point is this: when I hear an idea like Cap 'n' Trade, I feel like the joke has already been set-up and the punch line delivered. Emissions Trading enforced by a global, quasi-governmental, tax-imposing carbon-hunting bureaucracy that will ensure you put a cork in it until you pay someone else to license you to be his emitter-by-proxy. What can I add to that, other than LOL and an eyeroll smiley? (you probably didn't see it, but An Inconvenient Truth was actually narrated by a fat, flatulent, effeminate clown running in circles tooting a horn. Amusing, but I really don't recommend it.) In any event, to ridicule Cap 'n' Trade just seems too easy. And it's been done to death--brilliantly, I might add. (see my previous post, "Kyoto is cool.")
I must give the matter some thought.....
Monday, March 23, 2009
The road to hell is paved with good intentions . . . if by hell you mean total economic meltdown. Parts I & II.
Part I
I've had a lot of fun ridiculing social conservatives and leftists in my previous posts. In the spirit of fairness, I'd like to take a moment to tell a joke at the expense of all those hopeless political vagabonds who think like I do.
How many Libertarians does it take to screw in a light bulb? None. The market will take care of it.
Yeah, guys like me are always railing against the government. The government taxes me too much. The government destroyed health care. The government ruined education. The government spent too much money freeing a country that didn't really deserve it. I apologize to all my friends and acquaintances who have had to sit through one of my libertarian rants. I just can't help it. It’s like a super power: the uncanny ability to trace any societal malady back to some action of government. (I also have the power to extract sexual innuendo from any sentence containing a direct object, and it's by far the more useful of the two.) But sometimes they screw something up so thoroughly and so obviously (that's what she said), you don't need tights and a cape to see it. And, invariably, it begins with the best of intentions.
Take housing for instance. All government wanted was to allow more people to buy a home. (As you can see, I like to anthropomorphize government.) To that end, Fannie Mae was created as a part of the New Deal, and Freddie came along 1970. These untaxed “government sponsored entities” (GSE) paid their politically selected officers millions of dollars and made exorbitant political donations to the--mostly democrat--members of congress who were responsible for their continued funding and existence. Few cared that the reflexive quid pro quo created from this relationship encouraged rampant corruption (more on this later). What mattered to everyone is that government’s intentions were good: if a home buyer could show that he was able to afford a reasonable mortgage and could drop a 20% down payment, the government would ensure that his mortgage would be funded, using money government had taken from everyone else. (For purposes of this post only, when you mentally picture my anthropomorphized government, it should look like Grimace, the large purple mutant shake fiend from McDonald’s commercials; skipping through an idyllic McDonaldland, obliviously crushing the other denizens beneath his huge feet. Hereafter, you can go back to picturing government as a larger, more bloated version of Rosie O’Donnell.).
But what if you can’t convince your bank that you can afford to repay a home loan?
The Community Reinvestment Act (CRA) signed by President Jimmy Carter in 1977 forced banks to lend to borrowers who were not good credit risks. The CRA was a law perfectly crafted to advance the government's benevolent desire to make it easier to buy a home. Yet for almost 20 years the act wasn't really enforced. Why? It has been posited that executive-branch grunts tasked with CRA’s implementation simply chose not to do so, perhaps realizing how ill-advised it is to force banks to lend money to people who can’t pay the money back. But I think the reason is more likely that making loans to people who can’t repay them hadn’t been properly incentivized yet. In other words, there was no way to make a bad loan profitable, so lenders avoided doing so.
Hello President Clinton.
In an approach to loans described by then HUD Secretary Andrew Cuomo as race motivated “affirmative action,” the Clinton administration in the mid-nineties imposed high-risk minority loan quotas upon lending institutions. The Clinton administration then led the 800 pound GSE gorillas into the subprime mortgage market to “benefit lower income families” who otherwise could not obtain loans. Of course, the reason low-income folks used to have trouble getting a home loan was because there was a higher-than-acceptable probability that they could not pay it back. But now such loans had the imprimatur of the government treasury, and their value was therefore so far beyond question that they could be bundled--often with less-risky loans--to back securities traded on Wall Street. And the more such loans that could be handed out, the more of the mortgage backed securities could be produced. And all of a sudden there was money to be made on risky loans.
Around this time, the Clinton administration began to support lawsuits brought against lending institutions under the CRA. These lawsuits were settled for billions of dollars. But more importantly, lenders were terrorized by extortionist tactics of groups—like the infamous ACORN—seeking to prove that lenders were not complying with the CRA. And compliance with the CRA could be accomplished only one way: more risky loans.
Every externality was now driving lenders to make as many loans to as many poor credit risks as possible. But lenders weren’t feeling the deleterious effects of the bad loans. Why? Because everyone and anyone could get a home loan, causing demand for homes to shoot through the roof. Don’t believe me? Click below.
Look at the right side of the chart. From 1997 to 2007, there was such a steep increase in home values, it didn’t matter that one guy might default on his loan. Sure, the lender might be stuck foreclosing on a house, but he knows that someone else will buy the house tomorrow, when the damn thing will be worth thousands more. Besides, why would a mortgagee let his house get foreclosed when he can sell it himself for twice what he paid; or, rather, twice what the bank loaned him to pay for it?
This is when things really went crazy. When banks rely on housing prices in an eternal upswing, they can offer ridiculous things like no-down-payment loans, interest-only loans, adjustable rates, and loans to people with no income. Banks around this time would sooner have refused your kid a lollipop than turn down your loan application. And why would they? Let’s say I ask for a loan of 100,000 dollars to buy a 100,000 dollar house on whatever terms they were advertising that day. There is no need to check my income or credit history; if I default, the bank is left with a 100,000 dollar asset that will simply accrue value at an astronomical rate until they sell it again. And as long as every lender in town is looking to finance the next buyer, it can go on like that indefinitely. The lender can also rely on my built-in incentives not to default that arise out of the fact that my home will be worth more and more money as the years progress. And they get to count my subprime loan on their CRA compliance stat sheets.
This is approximately where we were when George W. Bush took his place on his father’s throne.
Part II
George W. Bush called his brand of governance “compassionate conservatism,” and, like the name implies, he had the best of intentions. That doesn’t make his administration an aberration, since most presidents take office with good intentions. LBJ intended to end poverty in America. Nixon wanted to keep the world safe for America. Carter wanted to keep the world safe from America. And even though Bill Clinton probably regarded the presidency as no more than a vehicle to having semi-consensual, quasi-sexual relations with some rather plain women, feminists are certain that his intentions were good. But Bush the Younger’s policy of using government resources to increase home ownership in poor and minority areas might seem peculiar because it seemed to stand in contrast to the principles of conservatism he championed. It was not.
If you have perused the rest of my blog you might remember that I once complained (well, more than once. if you read my blog, you know that I complain about something or other in every post. It’s sort of a theme.) that conservative principles only seem to remove government from your life if you work hard and raise a decent family. The Bush policy on low-income home loans was probably an extension of that principle, in that he believed owning a home ought to make poor folks settle down and work hard to stay out of foreclosure. Home ownership might even—-as the New York Times posited on December 20, 2008, without hint of sarcasm—-turn low income minorities into Republicans . . . . apparently because gaining a sense of responsibility and a willingness to work hard will make even the poor unfit for the Democrat party. (Don’t blame me for trafficking in these lurid stereotypes, blame those right-wingers at the New York Times.)
Whatever the reason, Bush wanted low income folks buying homes whether or not they could afford them. New housing developments rose with much fanfare--even personal visits from the president--in “blighted” areas, where home buyers of every income and race were eligible for taxpayer funded down-payments with adjustable rate mortgages. Unfortunately, incomes could not keep up with the astronomical rate at which housing prices were climbing. This--coupled with all the stupid policies preceding Bush that were still in place--led to more risky lending behavior in order to drive more sales, which pushed housing prices even higher, meaning even fewer people could afford new mortgages, causing more risky lending behavior, leading to higher housing prices, then fewer qualified buyers, followed by more risky loans, ad infinitum. Actually, not infinitum. More like about 11 years.
That's about when the adjustable rates went up, and some interest-only payments became bloated-interest-plus-principle payments. And then houses began to go into foreclosure. These were mostly the houses bought by people who couldn't afford them to begin with. If your income is high enough to take a real mortgage, why would you accept and ARM or an interest only mortgage? You might as well take a rent-to-own, or a payday-loan, or pawn something.
All of a sudden, there was an excess of homes on the market, and housing prices dropped. Without a large down payment, there was no stake to keep the more-recent buyers in their homes, especially the flippers and speculators. Many simply accepted foreclosure over making payments on a depreciated asset. Excess became glut, and the bottom fell out of the market. All those mortgage backed securities lost their value, Fannie and Freddie fell apart, and it's brother-can-you-spare-a-dime all over the place.
Bush apologists are quick to point out that he saw that Fannie and Freddie were ripe for disaster in 2002. They say he tried to do something about it several times, only to be rebuffed by the Democrats in the House of Representatives. And it's true that Barney Frank and the rest of the pimps on the House Financial Services Committee bear the blame for the collapse of the GSE's. Even the New York Times recognized Bush's prescience and lack of culpability in the hit piece it put together to blame everything else on him. But if Bush saw the underlying problem, why did his administration continue to push home ownership on anyone who could grip a pen?
"We absolutely wanted to increase homeownership,” Bush says. “But we never wanted lenders to make bad decisions.” Well if Fannie and Freddie were in the kind of shape his administration warned, then what other kind of decisions are there? None. Bush, like Clinton, pushed lenders over the edge. He can't say now that he didnt think they'd fall.
But I guess we shouldn't blame him. I mean, his intentions were good.
I've had a lot of fun ridiculing social conservatives and leftists in my previous posts. In the spirit of fairness, I'd like to take a moment to tell a joke at the expense of all those hopeless political vagabonds who think like I do.
How many Libertarians does it take to screw in a light bulb? None. The market will take care of it.
Yeah, guys like me are always railing against the government. The government taxes me too much. The government destroyed health care. The government ruined education. The government spent too much money freeing a country that didn't really deserve it. I apologize to all my friends and acquaintances who have had to sit through one of my libertarian rants. I just can't help it. It’s like a super power: the uncanny ability to trace any societal malady back to some action of government. (I also have the power to extract sexual innuendo from any sentence containing a direct object, and it's by far the more useful of the two.) But sometimes they screw something up so thoroughly and so obviously (that's what she said), you don't need tights and a cape to see it. And, invariably, it begins with the best of intentions.
Take housing for instance. All government wanted was to allow more people to buy a home. (As you can see, I like to anthropomorphize government.) To that end, Fannie Mae was created as a part of the New Deal, and Freddie came along 1970. These untaxed “government sponsored entities” (GSE) paid their politically selected officers millions of dollars and made exorbitant political donations to the--mostly democrat--members of congress who were responsible for their continued funding and existence. Few cared that the reflexive quid pro quo created from this relationship encouraged rampant corruption (more on this later). What mattered to everyone is that government’s intentions were good: if a home buyer could show that he was able to afford a reasonable mortgage and could drop a 20% down payment, the government would ensure that his mortgage would be funded, using money government had taken from everyone else. (For purposes of this post only, when you mentally picture my anthropomorphized government, it should look like Grimace, the large purple mutant shake fiend from McDonald’s commercials; skipping through an idyllic McDonaldland, obliviously crushing the other denizens beneath his huge feet. Hereafter, you can go back to picturing government as a larger, more bloated version of Rosie O’Donnell.).
But what if you can’t convince your bank that you can afford to repay a home loan?
The Community Reinvestment Act (CRA) signed by President Jimmy Carter in 1977 forced banks to lend to borrowers who were not good credit risks. The CRA was a law perfectly crafted to advance the government's benevolent desire to make it easier to buy a home. Yet for almost 20 years the act wasn't really enforced. Why? It has been posited that executive-branch grunts tasked with CRA’s implementation simply chose not to do so, perhaps realizing how ill-advised it is to force banks to lend money to people who can’t pay the money back. But I think the reason is more likely that making loans to people who can’t repay them hadn’t been properly incentivized yet. In other words, there was no way to make a bad loan profitable, so lenders avoided doing so.
Hello President Clinton.
In an approach to loans described by then HUD Secretary Andrew Cuomo as race motivated “affirmative action,” the Clinton administration in the mid-nineties imposed high-risk minority loan quotas upon lending institutions. The Clinton administration then led the 800 pound GSE gorillas into the subprime mortgage market to “benefit lower income families” who otherwise could not obtain loans. Of course, the reason low-income folks used to have trouble getting a home loan was because there was a higher-than-acceptable probability that they could not pay it back. But now such loans had the imprimatur of the government treasury, and their value was therefore so far beyond question that they could be bundled--often with less-risky loans--to back securities traded on Wall Street. And the more such loans that could be handed out, the more of the mortgage backed securities could be produced. And all of a sudden there was money to be made on risky loans.
Around this time, the Clinton administration began to support lawsuits brought against lending institutions under the CRA. These lawsuits were settled for billions of dollars. But more importantly, lenders were terrorized by extortionist tactics of groups—like the infamous ACORN—seeking to prove that lenders were not complying with the CRA. And compliance with the CRA could be accomplished only one way: more risky loans.
Every externality was now driving lenders to make as many loans to as many poor credit risks as possible. But lenders weren’t feeling the deleterious effects of the bad loans. Why? Because everyone and anyone could get a home loan, causing demand for homes to shoot through the roof. Don’t believe me? Click below.
Look at the right side of the chart. From 1997 to 2007, there was such a steep increase in home values, it didn’t matter that one guy might default on his loan. Sure, the lender might be stuck foreclosing on a house, but he knows that someone else will buy the house tomorrow, when the damn thing will be worth thousands more. Besides, why would a mortgagee let his house get foreclosed when he can sell it himself for twice what he paid; or, rather, twice what the bank loaned him to pay for it?
This is when things really went crazy. When banks rely on housing prices in an eternal upswing, they can offer ridiculous things like no-down-payment loans, interest-only loans, adjustable rates, and loans to people with no income. Banks around this time would sooner have refused your kid a lollipop than turn down your loan application. And why would they? Let’s say I ask for a loan of 100,000 dollars to buy a 100,000 dollar house on whatever terms they were advertising that day. There is no need to check my income or credit history; if I default, the bank is left with a 100,000 dollar asset that will simply accrue value at an astronomical rate until they sell it again. And as long as every lender in town is looking to finance the next buyer, it can go on like that indefinitely. The lender can also rely on my built-in incentives not to default that arise out of the fact that my home will be worth more and more money as the years progress. And they get to count my subprime loan on their CRA compliance stat sheets.
This is approximately where we were when George W. Bush took his place on his father’s throne.
Part II
George W. Bush called his brand of governance “compassionate conservatism,” and, like the name implies, he had the best of intentions. That doesn’t make his administration an aberration, since most presidents take office with good intentions. LBJ intended to end poverty in America. Nixon wanted to keep the world safe for America. Carter wanted to keep the world safe from America. And even though Bill Clinton probably regarded the presidency as no more than a vehicle to having semi-consensual, quasi-sexual relations with some rather plain women, feminists are certain that his intentions were good. But Bush the Younger’s policy of using government resources to increase home ownership in poor and minority areas might seem peculiar because it seemed to stand in contrast to the principles of conservatism he championed. It was not.
If you have perused the rest of my blog you might remember that I once complained (well, more than once. if you read my blog, you know that I complain about something or other in every post. It’s sort of a theme.) that conservative principles only seem to remove government from your life if you work hard and raise a decent family. The Bush policy on low-income home loans was probably an extension of that principle, in that he believed owning a home ought to make poor folks settle down and work hard to stay out of foreclosure. Home ownership might even—-as the New York Times posited on December 20, 2008, without hint of sarcasm—-turn low income minorities into Republicans . . . . apparently because gaining a sense of responsibility and a willingness to work hard will make even the poor unfit for the Democrat party. (Don’t blame me for trafficking in these lurid stereotypes, blame those right-wingers at the New York Times.)
Whatever the reason, Bush wanted low income folks buying homes whether or not they could afford them. New housing developments rose with much fanfare--even personal visits from the president--in “blighted” areas, where home buyers of every income and race were eligible for taxpayer funded down-payments with adjustable rate mortgages. Unfortunately, incomes could not keep up with the astronomical rate at which housing prices were climbing. This--coupled with all the stupid policies preceding Bush that were still in place--led to more risky lending behavior in order to drive more sales, which pushed housing prices even higher, meaning even fewer people could afford new mortgages, causing more risky lending behavior, leading to higher housing prices, then fewer qualified buyers, followed by more risky loans, ad infinitum. Actually, not infinitum. More like about 11 years.
That's about when the adjustable rates went up, and some interest-only payments became bloated-interest-plus-principle payments. And then houses began to go into foreclosure. These were mostly the houses bought by people who couldn't afford them to begin with. If your income is high enough to take a real mortgage, why would you accept and ARM or an interest only mortgage? You might as well take a rent-to-own, or a payday-loan, or pawn something.
All of a sudden, there was an excess of homes on the market, and housing prices dropped. Without a large down payment, there was no stake to keep the more-recent buyers in their homes, especially the flippers and speculators. Many simply accepted foreclosure over making payments on a depreciated asset. Excess became glut, and the bottom fell out of the market. All those mortgage backed securities lost their value, Fannie and Freddie fell apart, and it's brother-can-you-spare-a-dime all over the place.
Bush apologists are quick to point out that he saw that Fannie and Freddie were ripe for disaster in 2002. They say he tried to do something about it several times, only to be rebuffed by the Democrats in the House of Representatives. And it's true that Barney Frank and the rest of the pimps on the House Financial Services Committee bear the blame for the collapse of the GSE's. Even the New York Times recognized Bush's prescience and lack of culpability in the hit piece it put together to blame everything else on him. But if Bush saw the underlying problem, why did his administration continue to push home ownership on anyone who could grip a pen?
"We absolutely wanted to increase homeownership,” Bush says. “But we never wanted lenders to make bad decisions.” Well if Fannie and Freddie were in the kind of shape his administration warned, then what other kind of decisions are there? None. Bush, like Clinton, pushed lenders over the edge. He can't say now that he didnt think they'd fall.
But I guess we shouldn't blame him. I mean, his intentions were good.
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