What if we wanted to borrow a bunch of money and no one would lend it to us? How would that affect the “stimulus” or bailout? The government would have to either raise taxes or print money, wouldn’t it? One leads to an extended recession and the other leads to the same thing plus inflation.
Asian investors won’t buy debt and mortgage-backed securities from Fannie Mae and Freddie Mac until they carry explicit U.S. guarantees, similar to those given on bonds issued by Bank of America Corp. or Citigroup Inc.
The risks are too great without a pledge that the U.S. will repay the debt no matter what, according to Hideo Shimomura, chief fund investor in Tokyo for Mitsubishi UFJ Asset Management Co., and other bondholders and analysts in Japan, China and South Korea interviewed by Bloomberg. Overseas resistance may hamper U.S. efforts to hold down home-loan rates and shore up the nation’s largest mortgage-finance companies.
This shows a real lack of confidence in foreign investors. If you want to view it this way, this is a de facto downgrading of the credit rating of the two FMs. And, as pointed out in the final sentence, this may trip up efforts to hold down interest rates for home owners. It certainly means trouble for the plan to refinance Freddie and Fanny and for the mortgage bailout plan.
And as the problem deepens, the effort to borrow money for the FMs will only get harder. My guess is that’s just a prelude to the same problems being encountered more broadly as the government tries to borrow the promised stimulus money. This is a very dangerous, and in my estimation, unnecessary road we’re traveling. The law of unintended consequences is setting up an ambush the likes of which we’ve never seen before.
That is how the headline should have been written.
However, Think Progress chose to characterize it this way: “Jindal Rejects $90 Million In Recovery Funding That Would Have Benefited 25,000 Louisiana Residents“. Says Think Progress:
Today, however, Louisiana Governor Bobby Jindal announced his intention to oppose changing state law to allow his Lousiana citizens to qualify for the second two unemployment provisions.
So why did Louisiana Governor Bobby Jindal do what he did? Well here’s what his office says in a press release:
The Governor said the state will not use a portion of the stimulus package that requires the state to change its law to expand unemployment insurance (UI) coverage to qualify for up to $32.8 million of the federal stimulus funding because it ultimately would result in a tax increase on Louisiana businesses.
Sounds like a governor who feels he and his legislature should be deciding their law and not the federal government.
Isn’t that what he’s elected to do? Doesn’t that sound like a perfect 10th amendment defense? Someone point out to me where the Constitution specifies that the federal government can reach down and, without debate or legislative or executive input, force a change of state law as a requirement to receive the aid.
Think Progress says:
But it is not clear why participating in the expanded unemployment insurance program would result in tax increases for business. By Jindal’s own estimate, the recovery package would have funded his state’s unemployment expansion for three years, at which point the state could — if it chose to do so — phase out the program.
Here’s a better idea – pull the requirement at a federal level. Why isn’t that the Think Progress position instead?
TP quotes a real expert in this area to close out the post:
As New Orleans Mayor Ray Nagin suggested earlier today, perhaps Jindal’s presidential ambitions are “clouding” his judgement. “I think he’s been tapped as the up-and-coming Republican to petition a run for president the next time it goes around. So he has a certain vernacular, and a certain way he needs to talk right now,” Nagin said.
Leave it to Mr. “Chocolate City” to see it that way instead of understanding Jindal’s position is the right position for his state. You have to wonder how Nagin would feel if Jindal told him the state would only pay for levee repair if he changed the law in New Orleans and did something the state required, even if it wasn’t in the city’s best interest?
We’d hear him hollering “no way” clear to Atlanta.
You could hear jaws dropping all over the world’s human right’s establishment as Secretary of State Hillary Clinton stated the Obama administration’s new policy about human rights vs economic, environmental and security concerns:
Amnesty International and a pro-Tibet group voiced shock Friday after US Secretary of State Hillary Clinton vowed not to let human rights concerns hinder cooperation with China.
Paying her first visit to Asia as the top US diplomat, Clinton said the United States would continue to press China on long-standing US concerns over human rights such as its rule over Tibet.
“But our pressing on those issues can’t interfere on the global economic crisis, the global climate change crisis and the security crisis,” Clinton told reporters in Seoul just before leaving for Beijing.
Hmmm … 4th place.
“We should look at the vehicular miles program where people are actually clocked on the number of miles that they traveled.”
Why that would be Ray LaHood, the supposed Republican Secretary of Transportation.
“The policy of taxing motorists based on how many miles they have traveled is not and will not be Obama administration policy.”
Well if you guessed Barack Obama, you’re wrong. And if your second guess was Robert Gibbs, President Obama’s Press Secretary, you’re 0-2.
No, it was Lori Irving.
And who is Lori Irving?
Well she’s the department spokeswoman for Secretary Ray LaHood’s Transporation Department.
Which begs the question – who is running Transportation? Or, perhaps, for whom is Lori Irving really the spokeswoman?
And more importantly why is a Republican putting this idea forward in the first place, I mean if its true they’ve finally “found” themselves?
David Brooks does his usual NYT spin job:
Our moral and economic system is based on individual responsibility. It’s based on the idea that people have to live with the consequences of their decisions. This makes them more careful deciders. This means that society tends toward justice — people get what they deserve as much as possible
That’s the rumor. The reality, as we’ll see, doesn’t conform with the rumor. The why is in a single word: ‘justice’. What Brooks talks about here are the supposed foundations of our civilization and way of life. Individual responsibility and justice. Individuals are responsible for their condition (through their choices) and expected to live with them. Their condition isn’t anyone else’s fault or problem barring force or fraud. A just society understands that and, as is necessary, holds them responsible for their choices. Lessons are only learned when one has to live with the consequences of one’s choices. But what a just society doesn’t do is penalize those which have made the right or proper choices in their lives. It doesn’t require such people to prop up or rescue those who have made poor choices. Such a society would see that as “unjust” and work against the concept of individual choice and individual responsibility.
A just society is where everyone is afforded the same opportunities and held to the same standards of behavior and the law. Success, however, is left up to individual effort and ability. In a just society you are free to do, within reason, whatever you desire to do, but you’re expected to live with the consequences.
With that preface, let’s look at Brooks’ next couple of paragraphs:
Over the last few months, we’ve made a hash of all that. The Bush and Obama administrations have compensated foolishness and irresponsibility. The financial bailouts reward bankers who took insane risks. The auto bailouts subsidize companies and unions that made self-indulgent decisions a few decades ago that drove their industry into the ground.
The stimulus package handed tens of billions of dollars to states that spent profligately during the prosperity years. The Obama housing plan will force people who bought sensible homes to subsidize the mortgages of people who bought houses they could not afford. It will almost certainly force people who were honest on their loan forms to subsidize people who were dishonest on theirs.
While Brooks properly chastises the banks, automakers and state governments, he leaves out one of the most irresponsible of entities which played as large a role as any other contributor to this current financial debacle – the federal government. If ever there was an enabler for all of this, it is Washington DC. Much of what happened can be laid directly at the feet of the Fed. The financial implosion didn’t start on Wall Street but with the insolvency of the quasi-governmental entities Freddie Mac and Fannie Mae. Yet they’ve not been in the spotlight of Congressional hearings or had the millions paid their top execs complained about and capped. Where’s the justice in that?
So to get back on topic after that brief aside to assail writers like Brooks for excusing the Federal government from their condemnations (and you’ll see why he did so in a moment), the reason that Brooks seems so angry in this part of his op-ed is he is giving lip service to some foundational American ideals and pretending to be outraged that they’re being violated just before he pulls the rug out from under them. It is obvious to Brooks and anyone with the IQ of a melon that those who are running the show in DC have absolutely no desire for a “just” society based on individual responsibility anymore but he wants to break it to you gently. That’s the old America. The new America is one based in “fairness” and collective responsibility. At this point, Brooks wants you believing he’s an “old America” kind of guy.
So he relates the fact that many in America are still mired in their old fashioned belief in justice and are, consequently, a little ticked about this payoff to the irresponsible among us. People are complaining about it. And after a reasonably good, but disingenuous start, it is here where Brooks pulls the mask off completely:
These injustices are stoking anger across the country, lustily expressed by Rick Santelli on CNBC Thursday morning. “The government is promoting bad behavior!” Santelli cried as Chicago traders cheered him on. “The president … should put up a Web site … to have people vote … to see if they want to subsidize losers’ mortgages!”
Well, in some cases we probably do. That’s because government isn’t fundamentally in the Last Judgment business, making sure everybody serves penance for their sins. In times like these, government is fundamentally in the business of stabilizing the economic system as a whole.
Irresponsibility is not really penalized in New America. New America is driven by the belief that it is our collective responsiblity to those in need, regardless of how they got there or what it entails, to satisfy that need. So when the life vest of your money (via taxes and debt you will be taxed to repay) is offered to someone drowning as a result of their own irresponsible choices, you are expected to accept that as your duty and not complain about it.
You see, per Brooks, government isn’t in the justice business, it’s in the “economic stabilization” business.
Really? Since when?
And since when did the economic stabilization business involve rewarding incompetence and irresponsibility while punishing their opposites? Isn’t such a policy of rewarding incompetence and irresponsibility a huge moral hazard, not to mention self-defeating? Why would someone change their behavior if there is no real punishment for their present behavior? Isn’t government picking “winners” and “losers” even while Brooks claims government isn’t in the “Last Judgment” business?
In fact it is and has been in the “Last Judgment” business for a while. And in the case here, the judgment made by government is that it is only fair to pick up those who’ve fallen short at the expense of those who haven’t. It has made the judgment that their need is far greater than the need of those who have played by the rules and done their part – after all those who have done the right thing are relatively better off than those who haven’t aren’t they? If, as Obama claimed at the Greek Temple, “we are our brother’s keepers” (well except in a real, Obama-family sense), then the “last judgment” was made then and is now merely being implemented.
We are, apparently, no longer a nation which seeks justice and equal opportunity. That’s Old America. New America seeks fairness as its highest goal. And in the New America, that means an equality of outcome where new “rights” are invented which entitle us to our desires, even at the expense of others.
Brooks goes on to apologize and attempts to minimize the horrific damage being done to America as we used to know it. He serves his purpose and spins the utter destruction of Old America and the emergence of New America as something which just had to be done by our new leader and his benevolent band of brothers, all of whom have your best interest at heart.
It’s enough to make you sick.
Remember the organization that refused to pay its own workers a “living wage” even while it agitated for higher minimums for other businesses? The same organization that has been the subject of several voting fraud investigations? And the same one to receive $2 Billion from the stimulus bill? Well, its now in the process of “peacefully” occupying homes that are in the process of foreclosure. That organization, of course, is ACORN:
A community organization breaks into a foreclosed home in what they are calling an act of civil disobedience.
The group wants to train homeowners facing eviction on peaceful ways they can remain in their homes.
“The mortgage went up $300 in one month,” said Hanks, former homeowner.
She says the bank refused to modify her loan and foreclosed, kicking her out of the house in September.
The community group ACORN calls Hanks a victim of predatory lending.
“This is our house now,” said Louis Beverly, ACORN.
And on Thursday afternoon, they literally broke the foreclosure padlock right off the front door and then broke into the house, letting Hanks back in for the first time in months.
“We are actually trespassing, and so this is a way of civil disobedience to try to stay into our house,” said Beverly. “Legally it’s wrong, but homesteading is the only means that she has left to stay into her house. And we feel as though this is the right thing to do at this particular time to save this family.”
So even though they know it’s “legally wrong” ACORN is going to go ahead and do it anyway? Maybe they could take some of the $2 Billion they received and help Ms. Hanks pay her mortgage or even renegotiate it. Presumably ACORN received the stimulus money to do something other than commit criminal acts. Didn’t it?
[HT: Rick Moore]
As you recall, the following is partially blamed for getting us into the current housing crisis:
Ever since the credit crisis began, a lot of blame has been heaped on adjustable-rate mortgages, home loans that recalibrate according to market fluctuations. One brand of these innovative mortgages that have come under special criticism has been so-called “exploding A.R.M.’s” that lured borrowers with unusually low teaser rates that then reset skyward a few years later. These have often been derided as predatory, and lenders who offered them accused of luring homeowners into buying homes they couldn’t afford for the long-term.
So is the Obama administration, with its $75 billion mortgage bailout, any better than those previous lenders who were described as “predatory”? Well not according to the plan he’s put forward:
Critics of these might want to check out the Homeowner Stabilization Plan put forward by the Obama administration today. The plan would reduce mortgage payments and interest rates for homeowners who have seen their payments rise to more than 38% of their monthly income. But those reductions last just five years, after which they begin to reset to higher rates. In short, Obama is just drawing out the teaser rates a bit longer.
During the next five years, the Stabilization Plan will encourage lenders to lower loan payment below 38% of the owners’ income and provide subsidies for banks that lower the payments to 31%. The actual rate of payment will be even lower, since the government will also pay homeowners with the reduced rates $1000 a year to stay current on their payments.
After five years however, those government sponsored adjustable-rate mortgages will reset. The Obama adminstration promises they will reset at a moderate phased in level. But the loss of both the subsidy and the $1000 payment will automatically make the monthly payments much more expensive. What’s more, many market watchers expect interest rates will be much higher five years from now, putting additional pressure on mortgage rates. We could, in short, simply be prolonging the housing crisis.
Nothing like kicking the can down the road 5 years is there? The hope, obviously, is that Obama is safely in his second term when this new crisis hits, and, of course, by then he can safely denounce those who default on their mortgages again as people who were given a chance but didn’t take advantage of it.
Now obviously the people who get this “help” can sell their homes in that 5 years (and, of course, that was the idea when many of these people took out the low adjustable rate loans previously – a quick flip. But the market tanked.). However, it will be a buyer’s market in the coming years. So there’s a very good chance that in 5 years we’re going to see the very same problem we have now resurface.
So what are we doing with this 75 billion?
More pain avoidance which, it appears, will simply prolong the problem.
Unproven science is apparently going to drive an administrative (instead of legislative) push to regulate carbon dioxide. In the middle of a “crisis” which President Obama calls the worst since the 1930s, the EPA is apparently going to drastically raise the cost to do business in critical sectors:
The Environmental Protection Agency is expected to act for the first time to regulate carbon dioxide and other greenhouse gases that scientists blame for the warming of the planet, according to top Obama administration officials.
The decision, which most likely would play out in stages over a period of months, would have a profound impact on transportation, manufacturing costs and how utilities generate power. It could accelerate the progress of energy and climate change legislation in Congress and form a basis for the United States’ negotiating position at United Nations climate talks set for December in Copenhagen.
Note that none of the “change” appears to be good for the US or its consumers. Instead, we’re likely to see it put even further stress on families on the margin and drive more layoffs and higher unemployment. But the world will love us, or at least the UN.
I don’t think there’s any question at the moment as to whether Obama is going to govern as a centrist or liberal, is there?
Amazing that it is Russia giving the advice and the US deciding it isn’t valid:
Russian Prime Minister Vladamir Putin has said the US should take a lesson from the pages of Russian history and not exercise “excessive intervention in economic activity and blind faith in the state’s omnipotence”.
“In the 20th century, the Soviet Union made the state’s role absolute,” Putin said during a speech at the opening ceremony of the World Economic Forum in Davos, Switzerland. “In the long run, this made the Soviet economy totally uncompetitive. This lesson cost us dearly. I am sure nobody wants to see it repeated.”
Unfortunately I think this lesson is mostly lost on us and it will, just as it did Russia, cost us dearly.
Most economists agree that America has enjoyed unprecedented prosperity, based primarily on excessive debt. Thus, any healthy correction would necessarily involve serious deleveraging and a severe recession. After a lot of pain, the economy would rebuild with healthier fundamentals. Infrastructure improvement would aid, but not cause, the eventual recovery.
Recession is the natural cure for the politically inspired profligacy that America has enjoyed for almost 40 years. Unfortunately, the side effects of this medicine, namely the rapid reallocation of labor resources and deflationary damage to debtors, are still unpalatable to pandering politicians.
The Washington regime, particularly members of the Democrat persuasion, leans towards a socialist solution of avoiding recession at any cost. After all, the bills are paid by others, such as taxpayers and holders of US dollars. This results in an increasing amount of other people’s money being spent on “public” works that would in other times carry the label “pork barrel”.
Washington is choosing to pursue the policy of continued and ever-increasing false prosperity, financed eventually by hyper-taxation, hyper-debt and hyper-inflation accompanied by a gradually eroded standard of living. The jobs created by the bill are by and large non-productive and will divert resources from the private sector and rob consumers of their power to make free choices in the marketplace.
Pain avoidance drove the call for stimulus. Politicians are naturally for that because it ensures their future. But in reality it isn’t pain avoidance at all, but simply a form of pain management. And since that management will be spread over many years, those who will lose under it will be less likely to notice that loss over the years than they would if that loss happened all at once. But there’s a price for that, and it will become apparent eventually. That gradual loss won’t allow the recovery to the previous standard of living because government will have supplanted much of the private sector and many of those options (and resources) for regaining that level are no longer available.
Of course, the good news for the present crop of politicians is that realization of loss won’t happen on their watch. And as far as the political class is concerned, that’s all that matters.
Let the good times roll!