Loan Regulation Probably Wouldn't Have Prevented This Crisis

I've made the case that de-regulation is not the culprit in the current financial crisis. It's a complex issue for sure, but I think this article provides good insight. Jack Guttentag, a professor at Wharton School of Business, explains why regulation may not be the answer.

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Deregulation, meaning the scrapping of existing regulations, was not a factor in the crisis. The only significant financial deregulation in the past three decades applied to commercial banks. Restrictions on where they could have branches and on their involvement in investment banking were both removed. Most economists, including me, believe that these actions made the banks stronger than they would have been otherwise.

Regulation in itself is a weak defense against financial crises. One major reason is that it tends to look backward, similar to generals fighting the last war. ...
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The Obama Temptation

This is a great pieces by Mark Levin. I've met countless people who support Obama adamantly, yet when I challenge their beliefs they get very angry and defensive. It's been hard for me to understand - debate and discussion are cherished activities in America. What has caused so many Americans to believe one side so strongly without considering the other? Mark Levin explores.
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The Obama Temptation [Mark R. Levin]

I've been thinking this for a while so I might as well air it here. I honestly never thought we'd see such a thing in our country - not yet anyway - but I sense what's occurring in this election is a recklessness and abandonment of rationality that has preceded the voluntary surrender of liberty and security in other places. I can't help but observe that even some conservatives are caught in the moment as their attempts at explaining their support for Barack Obama are unpersuasive and even illogical. And the pull appears to be rather strong. Ken Adelman, Doug Kmiec, and others, reach for the usual platitudes in explaining themselves but are utterly incoherent. Even non-conservatives with significant public policy and real world experiences, such as Colin Powell and Charles Fried, find Obama alluring but can't explain themselves in an intelligent way.

There is a cult-like atmosphere around Barack Obama, which his campaign has carefully and successfully fabricated, which concerns me. The messiah complex. Fainting audience members at rallies. Special Obama flags and an Obama presidential seal. A graphic with the portrayal of the globe and Obama's name on it, which adorns everything from Obama's plane to his street literature. Young school children singing songs praising Obama. Teenagers wearing camouflage outfits and marching in military order chanting Obama's name and the professions he is going to open to them. An Obama world tour, culminating in a speech in Berlin where Obama proclaims we are all citizens of the world. I dare say, this is ominous stuff.

Even the media are drawn to the allure that is Obama. Yes, the media are liberal. Even so, it is obvious that this election is different. The media are open and brazen in their attempts to influence the outcome of this election. I've never seen anything like it. Virtually all evidence of Obama's past influences and radicalism — from Jeremiah Wright to William Ayers — have been raised by non-traditional news sources. The media's role has been to ignore it as long as possible, then mention it if they must, and finally dismiss it and those who raise it in the first place. It's as if the media use the Obama campaign's talking points — its preposterous assertions that Obama didn't hear Wright from the pulpit railing about black liberation, whites, Jews, etc., that Obama had no idea Ayers was a domestic terrorist despite their close political, social, and working relationship, etc. — to protect Obama from legitimate and routine scrutiny. And because journalists have also become commentators, it is hard to miss their almost uniform admiration for Obama and excitement about an Obama presidency. So in the tank are the media for Obama that for months we've read news stories and opinion pieces insisting that if Obama is not elected president it will be due to white racism. And, of course, while experience is crucial in assessing Sarah Palin's qualifications for vice president, no such standard is applied to Obama's qualifications for president. (No longer is it acceptable to minimize the work of a community organizer.) Charles Gibson and Katie Couric sought to humiliate Palin. They would never and have never tried such an approach with Obama.

But beyond the elites and the media, my greatest concern is whether this election will show a majority of the voters susceptible to the appeal of a charismatic demagogue. This may seem a harsh term to some, and no doubt will to Obama supporters, but it is a perfectly appropriate characterization. Obama's entire campaign is built on class warfare and human envy. The "change" he peddles is not new. We've seen it before. It is change that diminishes individual liberty for the soft authoritarianism of socialism. It is a populist appeal that disguises government mandated wealth redistribution as tax cuts for the middle class, falsely blames capitalism for the social policies and government corruption (Fannie Mae and Freddie Mac) that led to the current turmoil in our financial markets, fuels contempt for commerce and trade by stigmatizing those who run successful small and large businesses, and exploits human imperfection as a justification for a massive expansion of centralized government. Obama's appeal to the middle class is an appeal to the "the proletariat," as an infamous philosopher once described it, about which a mythology has been created. Rather than pursue the American Dream, he insists that the American Dream has arbitrary limits, limits Obama would set for the rest of us — today it's $250,000 for businesses and even less for individuals. If the individual dares to succeed beyond the limits set by Obama, he is punished for he's now officially "rich." The value of his physical and intellectual labor must be confiscated in greater amounts for the good of the proletariat (the middle class). And so it is that the middle class, the birth-child of capitalism, is both celebrated and enslaved — for its own good and the greater good. The "hope" Obama represents, therefore, is not hope at all. It is the misery of his utopianism imposed on the individual.

Unlike past Democrat presidential candidates, Obama is a hardened ideologue. He's not interested in playing around the edges. He seeks "fundamental change," i.e., to remake society. And if the Democrats control Congress with super-majorities led by Nancy Pelosi and Harry Reid, he will get much of what he demands.

The question is whether enough Americans understand what's at stake in this election and, if they do, whether they care. Is the allure of a charismatic demagogue so strong that the usually sober American people are willing to risk an Obama presidency? After all, it ensnared Adelman, Kmiec, Powell, Fried, and numerous others. And while America will certainly survive, it will do so, in many respects, as a different place.





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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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