The Issues: Economic Crisis

Over the past few months I've participated in extensive debate with many people about this upcoming election. Since my home in Chicago is overwhelmingly liberal, there is no shortage of opponents. I respect and have taken the time to research and carefully consider the opposing viewpoint.

The Economy and current crisis

One of the Media / Democrat's greatest accomplishments this election cycle has been to convince much of the American population that the current economic crisis is the Republicans / Bush's fault. While there are many parties at fault, most Americans have the blame squarely misplaced. We know that GSE's (Freddie and Fannie) have been around since the 60's. However, in 1999 the Clinton administration challenged the GSE's with the social mission of expanding home ownership to minorities and low-income borrowers. At the time the administration believed home ownership should be available to all, regardless of their financial situation. Consider this article, written in 1999. Some key statements:

''Fannie Mae has expanded home ownership for millions of families in the 1990's by reducing down payment requirements,'' said Franklin D. Raines, Fannie Mae's chairman and chief executive officer.

In July, the Department of Housing and Urban Development proposed that by the year 2001, 50 percent of Fannie Mae's and Freddie Mac's portfolio be made up of loans to low and moderate-income borrowers. Last year, 44 percent of the loans Fannie Mae purchased were from these groups.

Said Peter Wallison a resident fellow at the American Enterprise Institute. ''If [Freddie and Fannie] fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.''

Wow..... amazing prognosis from ten years ago.

The plain English explanation is as follows: Ten years ago, there were requirements to obtaining a mortgage, such as having a job, needing to demonstrate income, having a good credit score and putting 20% down. These requirements excluded many low-income people, and a disproportionate percentage of minorities. Instead of thinking about how these groups could starting meeting the requirements, Frannie and Freddie decided to simply lower the requirements.

As you can see from the article above, the level of low-income (aka sub prime) borrowers rose to over 50 percent. However, as recently as last year, the COO of Fannie Mae was saying sub prime mortgages accounted for less than two percent of book value, and that the company was not in any danger!!!

These companies (which as we found out are backed by the credit of the U.S. government) were directed by the government to guarantee mortgages of previously uncreditworthy people. Now, we are finding out that uncreditworthy people can't pay their bills. Surprise!

Mortgage lenders didn't care who they were issuing to, because they could turn around and sell the loan to Fannie/Freddie and transfer the risk completely. Freddie and Fannie were asked by former President Bill Clinton to create standards that low-income people could qualify for - they had no choice. F&F packaged these loans by the thousands, sliced them up and and served them to investors. Many of these mortgage pools were rated as high as AAA by the credit rating agencies - theoretically as safe as a U.S. Treasury bond.

Since more people could buy qualify for mortgages than previously, more people could buy homes. This caused an unnaturally high rise in home values. Check out this chart.

As home values rose, people realized they could take a loan on the supposed equity in their house (not available during previous housing booms). They spent this money instead of saving it. Interest rates rose, ARM's reset, suddenly these sub prime borrowers couldn't make payments. Housing values started to decline, and borrowers couldn't refinance. Foreclosures skyrocketed. The banks and investment firms that held these mortgage pools are now blowing up.

Why do I tell you all this? Because this current crisis can all be traced back to Fannie Mae, Freddie Mac, and the mission instilled in them by former president Clinton to expand home ownership. Those were the operators of this house of cards. In fact John McCain said so in 2006, when he pushed for greater regulation of Freddie/Fannie and warned of the great risk these institutions posed to the taxpayer. Unfortunately, this bill was squashed by the Democrats, who declared at the time "there is no reason to suggest these companies are at any risk".

Contrary to what you hear on TV, I don't believe that the current situation is as a result of de-regulation. Private companies analyze risk and adjust behavior accordingly. Instead, I believe we are in this situation because of regulation. It was regulation that lowered lending standards to the point that we encountered this chain reaction and downward spiral. It was regulation that allowed loan originators to completely transfer risk. And it is regulation that created a private loan corporation that was backed by the funds of the U.S. Treasury!

Check your facts! The Democrats ought to have to own up to this - but nobody is making them...






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Are liberals open-minded?

It's fine to discuss your opinions, even get heated at times. I've been known to speak passionately about my beliefs, and I appreciate the same in others. However, part of being an educated adult is being open to other points of view. In recent years, there's been a growing sentiment among many liberals that anyone who disagrees with them is automatically an asshole, supposedly because [those who disagree] do not support "the common good" (meaning social assistance, taxing the wealthy at a higher rate, and "spreading the wealth").

Consider these examples and ask yourself, "have liberals gone too far"? The elimination of dissent is just a step away from dictatorship.

Conservatives are less welcome in Manhattan than terrorists! Watch what happened when a group of McCain supporters "dared" to march in the upper west side.

Also, apparently if you are 12 years old and support McCain/Palin, you are a racist! What are liberal parents saying to their 12 year old children to create this situation???

You should know, there is only one correct point of view in Hollywood, the liberal political view! If you disagree you are risking your career!

Liberals say that they are welcoming and inclusive - I think what they mean is that they are welcoming and inclusive as long as you agree with them!





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Truely free-market health care would be much better than universal health care

Health insurers are required to cover many specific conditions by the states they operate in. It's private companies operating in a socialized context - its not a free market system.

You should be able to self-insure yourself, and have it come out to be less expensive over your lifetime. However, that is not possible because people with health insurance pay a different pre-coverage rate than those who are non(self)-insured. That doesn't make sense.

Why should people pay the same rates regardless of their health condition? A free-market system will allow for different levels of coverage and medical care to satisfy people at all levels of the income scale. Sorry, but I don't believe that the country owes all citizens the highest possible level of care regardless of income, as the current system pretends and Obama's plan will attempt to enforce. Additionally, there are basic personal care steps that anyone can take to drastically reduce health care costs over a lifetime - however many people elect not to follow them. That may be their choice, but I don't agree with paying for it as I currently do.

Can you point out an example where socialized medicine has worked and been cost effective on a scale even close to the U.S.?



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The subprime situation & why McCain is better prepared to handle it

I'd like to point out that the current sub-prime/credit situation is not a result of deregulation as many media outlets suggest. The situation is a direct result of policy and regulation designed to increase home ownership for minorities and moderate/low income families. This shift in lending policy was advocated by the Clinton administration and supported heavily by the left.

Here is an article from 1999 that describes the changes:
NYT Article

I will agree that the Bush administration advocated home ownership for all and he used this policy as part of his 2004 re-election campaign. However, the attempts by Nancy Pelosi, Obama and others to pin blame on Bush and the R party are sorely misplaced. John McCain was warning Congress of the dangers of F&F in 2005 and sponsored legislation to provide more oversight into their accounting policies. Unfortunately it did not pass. See for yourself, complete sentences included.

Dems say "everything is ok with Fannie/Freddie" in 2004

Also, both sides should feel embarrassed by the rescue package that was passed last week. A sickening amount of additional spending was included to satisfy both sides, including additional earmarks for:

- Film and Television Productions (Sec. 502)
- Wooden Arrows designed for use by children (Sec. 503)
- 6 page package of earmarks for litigants in the 1989 Exxon Valdez incident, Alaska (Sec. 504)
Tax earmark "extenders" in the bailout bill.
- Virgin Island and Puerto Rican Rum (Section 308)
- American Samoa (Sec. 309)
- Mine Rescue Teams (Sec. 310)
- Mine Safety Equipment (Sec. 311)
- Domestic Production Activities in Puerto Rico (Sec. 312)
- Indian Tribes (Sec. 314, 315)
- Railroads (Sec. 316)
- Auto Racing Tracks (317)
- District of Columbia (Sec. 322)
- Wool Research (Sec. 325)




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Thoughts on Iranian President Mahmoud Ahmadinejad and Obama's idea of talking with him

You can't negotiate with a person who does not accept fact as reality. Decide for yourself whether Mahmoud Ahmadinejad is a reasonable man:
Interview pt 3
Interview pt 4

Some quotes I like are [that he wants to] "wipe Israel off the map", and the reason that current peace offerings have failed is because they include Israel still being a state. Oh and he also believes the Holocaust did not happen and he hopes the US experiences a significant downfall.

Nevertheless, Obama believes he can sit down and negotiate with this man. The fallacy in this logic is that he assumes Ahmadinejad and Iran have similar motivations as the Western world and are knowledgeable and interested in democracy.



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Obama's proposal to raise minimum wage won't work - the focus should be on education instead

"Human psychology contains many dualities, one of them being that even while people understand the need for change, knowing how important it is for institutions and individuals to be occasionally renewed, they are also irritated and upset by changes that affect them personally." - from the book 'The 48 Laws of Power' by Robert Greene.

I agree that change is very difficult. Change creates a vacuum that people perceive as chaos - I have experienced this recently at my job...

The problem I have with government providing social welfare is that it doesn't know where to stop. What is a 'minimum level of care'? Opinions vary significantly on this. Obama proposes raising the minimum wage to $9.50 / hr (by the way this is more money than I made during the summers while going to college). Surely if everyone in the country makes at least $9.50/hr they will have an improved standard of living. But why not take it a step farther? Why not raise the minimum wage to $100/hr? Wouldn't that make standards of living even better? Think through the effects of such a policy and you can see the danger in the government trying to create standard of living for people.

I have read several sociology books recently, including "The Working Poor" (which I thought was good). The author did a good job convincing me that many poor people may lack the foundation to understand that their situation could be different. Their reality is so strong and they lack role models to help them understand how to improve their lives. By and large, the education system is not working for a large percentage of people. Many people have suggested that funding is still not sufficient, but I disagree. The US currently spends more money per student on education than any other nation, yet ranks near the bottom in all testing categories.

The best idea I have seen on the table is to completely dismantle the federal educational program. Currently, public schools receive funding with a variety of strings attached - most notably in the content they are required to teach. Instead, I would like to allow for a completely private school system, but provide a $3000-$4000 education voucher. Allow parents to send their children to any school of their choosing. The whole debate over whether certain topics are appropriate for public schools is nonsense - let local communities decide which topics should be included and which should be withheld. We need to create an environment where teachers and institutions have incentive and are rewarded for the performance of their students. Only then do I believe we would see improvement in education quality.





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Assistance programs make people weak

The current situation feels a lot like the novel Atlas Shrugged in that the pursuit of opportunity for all ignores the basic fact that not all people are responsible. Policies were put into place to try to make home ownership available to all. It sounds nice, but its not realistic. When you start looking at something as a social good instead of a business transaction, sound judgment goes out the window.

John McCain wants to reduce taxes and trade barriers to create a more competitive environment. His energy policy will encourage our nation to pursue a variety of energy sources and let the market decide which are most viable. Competition in any free market system has led to greater variety of services offered and better value (lower price) to the consumer.

Some of Obama's energy policy ideas are just illogical. For example, he wants to tax oil companies and then hand out rebates to the American public? Doesn't he realize that nothing is created by doing this? It's simply a transfer of wealth. We'd all like to believe that the poor will take this $1,000 rebate and spend it on education for their children. The reality is that the poor will continue to spend it on televisions, McDonalds, and whatever else they currently buy. Does anyone believe that giving people more money will change their behavior?

Most people do not appreciate things they are given for free - marketers and retailers understand this concept well. A better idea is to make it easier for people to create their own wealth and then set them free. The government has never been successful at addressing social issues, and I don't believe it ever will be. The people who think up social programs make the false assumption that the recipients would use the opportunity/benefit to improve their situation. The reasons for their current situation are typically a lot more complicated than simply a lack of opportunity.




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Obama's ideas for our environment sound nice, but his implementation plan is flawed

I believe the environment is important. Where I differ from many people is that I believe the government's role is simply to place caps on harmful outputs, and then let private industry figure out how to meet that cap (allowing a trading system). You don't have to look any farther than Obama's web page to see some of his misguided implementation plans for solving our energy needs and protecting the environment. He proposes a lot of big ideas, but very little information as to how these ideas would be implemented, other than the first step of collecting more taxes.

- "Obama will enact a windfall profits tax on excessive oil company profits" [and give the money to citizens].

Huh? Oil companies aren't making any more money than any other type of business (they do more volume). Oil companies do not directly set the price of oil. They are already not investing money to explore and drill for more oil because it does not make financial sense to do so. Obama wants to tax them more? That will just make them invest even less in exploration and drilling. They'll simply deplete their reserves and then turn themselves into a trust.

- Crack down on oil speculation? Swap oil from the strategic petroleum reserve?

Its not clear what Obama plans to do but if you try to obstruct free market trading of something, then there is no real price - similarly to how the govt. is taking over Freddie/Fannie and has restricted short selling on many securities. This practice can obstruct the true value (could be $0).

- Weatherize 1 million low-income homes annually

Why would the government take on a project like this? This is supposed to reduce our dependence on foreign oil? I don't get it. Who is supposed to pay for this, I suppose individuals and businesses making over $250,000?

- Develop & deply clean coal technology

Sounds nice and I think we should pursue it but this technology is a long way from being available.

The reason I like McCain's plan better is that he doesn't promote a specific technology or have any crazy plan to insulate poor people's homes with taxpayer money. His plan is simply to enforce emissions ceilings and setup a carbon trading program. Along with that he wants to reduce the regulatory burden associated with developing new technologies.

As soon as there is a viable system in place for people to make money by reducing carbon emissions, they will do so. This is already starting to happen but a commitment to this system would catalyze developments in "green" technologies much faster than anything the government could do with any amount of money.

The government has no experience in creating things that are commercially viable. It's only goal should be to provide an environment where there is a financial reason for green technology to be developed.




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Insurance Companies Should not Provide Coverage for Anorexia

Or they should... either way, it should be up to them.

I recently read an article in Newsweek suggesting that states require insurance companies to cover treatment for Anorexia and other eating disorders. While I agree that Anorexia is a serious disorder, I wholeheartedly disagree with the thinking that laws should require insurers to cover specific illnesses.

Marisa Meiskin had been battling anorexia for some time when her parents decided to take drastic action. They selected a private treatment facility with an intense five-step program "against a backdrop of picturesque rolling hills and complete with an equestrian program, yoga and music therapy." Marisa spent four months recovering there, and now has regained a normal life as a healthy teenager. The only problem? The program cost $30,000 a month, of which approximately 1/4 was covered by Aetna. This left Marisa's parents with about $90,000 of debt.

According to Newsweek, the solution is to simply have states require insurers to provide coverage for Anorexia and other similar illnesses. That way, families will not be taxed with the financial burden that comes as a result of having children with an eating disorder. This is an extremely oversimplified way of thinking about the problem and a great example of why America's health care system is broken. Allow me to point out two flaws in this reasoning and an alternative viewpoint:

First, by requiring insurers to cover specific illnesses, the government is making a judgment that the total cost of treating that illness should be spread over all insurance policy holders. In addition to my belief that the government has no place to make these kind of decisions, not all people are at risk for eating disorders. Why should I be forced to pay for anorexia coverage when I know there is no risk of me ever battling that illness?

Second, the proposed solution makes the flawed assumption that all people should have access to the most advanced possible health care. Can you think of any other service where this is the case? Medical professionals generally uphold an ethical obligation to serve all in need. I believe it is reasonable to assume that services will continue to be available for less wealthy patients in the absence of a regulated system.

The problem with the current system is that it does not allow me to shop for what I want and pay for what I get. Like most people, my health coverage is partially covered by my employer. I have exactly two options for coverage, of which the only difference is the deductible and the percentage covered. I have very little flexibility to customize the type of coverage that I am offered.

In a free market system, if coverage for Anorexia (or any illness) is something the market needs, then it will be provided at an appropriate price. If the price of coverage is expensive and the treatment does not apply to a large percentage of people, that it will be offered as an optional service rather than part of the base package. Requiring insurance carriers to cover specific illnesses is like raising the price of auto insurance and saying it now covers watercraft, even if you don't own one. Would that make sense?

As a healthy individual who averages one doctor visit per year, my policy is very profitable for the insurer, and my premium should be low. My premium is already over $2,000/year, and Newsweek and the Meiskin's believe that my premium should go up further to cover the cost of their daughter's anorexia treatment.

Sorry but I cannot agree.




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Take your liberal agenda to someone who cares

I see you chanting outside my office, protesting on my way out of Lollapalooza, and trying to hit me up for donations when I go to lunch. Here's an idea, why don't you move out of the condo your parents bought you, get a real job, and start contributing to society. Seriously, I'm tired of supporting your lifestyle and your high and mighty attitude.

Recently I witnessed a discussion went something like this:
p1: Taxes are way too high in Chicago
p2: Yea it sucks
p3: We really need to impeach Bush

These type of contradictory statements really undermine your credibility. Do you have anything else to say, any real ideas? Can you back up these statements with facts or supporting evidence for your position? Is it better to just close your eyes and jump on the impeach Bush bandwagon because many celebrities advocate it?

Taxes

If it were up to Gore, Kerry, or any other liberal, you would still be paying up to 39% tax on corporate dividends (instead of 15%) and would only be able to contribute $2,000 to your IRA next year (instead of $5,000). Do you realize how this affects you? A persons ability to control their own financial security should take precedence over any social program. When you support higher taxes and government sponsored benefits, in effect you are saying knows how to spend your money better than you do. Why would you ever support a candidate who wants you to work harder and longer so that others don't have to? In a free society you can contribute money to any cause you find worthy, wouldn't you rather have control over what you do and don't support?

Iraq

Look, we'd all like to leave Iraq as soon as possible - its not that simple. I agree that we underestimated what it would take to win this war, but now we are left with the responsibility to help establish a real government. The decision to invade Iraq was supported by both parties and approved through the house and senate, deal with it. Just because you don't like it anymore doesn't mean we should leave. If the US were to leave Iraq now, the country would plunge into a state of civil war. The US is still there because stability provides long term benefit.

Regardless of whether you think the reasons given for invading Iraq justified the action, the bottom line is that Iraq was an enemy state of the U.S, harboring a deep resentment for us and our allies, and had been threatening aggression against us. If you've studied history, you should know that enemies cannot be allowed to fester and plot. They must be crushed completely or their hatred will smolder and burn until it becomes a raging inferno.

The US still reigns as the world superpower. Do not ever forget all the incredible advantages and luxuries that affords you, including the right to voice your opposition to our occupancy of Iraq. You act as though their civilization carries the same benefits, it does not. It is our governments duty to protect our citizens and allow them to prosper, this includes maintaining our interests around the globe. We will see to it that this job is completed, and your anti-American sentiment hinders our progress.

Illegal Immigrants

I have no problem with illegal immigrants being in the country. I have a problem with the fact that illegal immigrants don't pay taxes. As a guest in the US, illegal immigrants gain access to the advantages of living in a developed country - therefore they to pay taxes. Why should the entire tax burden be carried by those of us who live here legally? If you're a legal business and you hire illegal aliens who don't pay taxes, or for whom you do not pay taxes, you are also contributing to the problem

Conversely, it is too difficult for educated, legal immigrants to stay in the country. After four years of education in the US, my college roommate (from India) graduated as the top engineering student of his class, yet had trouble finding a desirable employer who would sponsor his visa. After some searching, he returned to India without ever working in the US (and paying US taxes.) Shouldn't we want to make it easy for people like this to stay? Perhaps even require it after becoming educated here?

So next time you're about to ask me to donate to the Missing Children's Project or the National Arthritis Association, just so you know - I already gave at the federal level.




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