Something my mother sent me (funny)

I'm sure this is making the email rounds and I cannot attribute the original author.

Subject: A Little Irish Humor
Date: Wed, 24 Sep 2008 00:28:58 +0000
An e-mail from Ireland

An email from Ireland to all of their brethren in the States...a point to ponder despite your political affiliation:

'We, in Ireland, can't figure out why you people are even bothering to hold an election in the United States.

'On one side, you had a pants wearing female lawyer, married to another lawyer who can't seem to keep his pants on, who just lost a long and heated primary against a lawyer, who goes to the wrong church, who is married to yet another lawyer, who doesn't even like the country her husband wants to run!

Now...On the other side, you have a nice old war hero whose name starts with the appropriate 'Mc' terminology, married to a good looking younger woman who owns a beer distributorship!!

What on earth are ya lads thinkin over in the colonies!

Bailout blame?

You may have seen that Bob Barr has filed a lawsuit in Texas to keep Obama and McCain off the ballot there, since (he claims) they failed to follow Texas election law.

A blogger commenting on a article snidely remarked “With their [Libertarians] penchant for deregulation, I wonder how the markets would have reacted if they had been in charge for the last 8 years?”

I tried to overlook the partisan sneer on the Bush administration, but couldn't (even though it's not my Party). I point out that Democrats have been in charge of Congress for nearly two years and have done absolutely nothing that they could have done to rectify any problems they may have been concerned about. Similarly, President Clinton was supported by a Democrat-led Congress for six years of his term and did nothing. In fact, the current Administration tried to overhaul Fannie and Freddie in 2003 but was snubbed by powerful Democrats in Congress.

The Bush administration today recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago.

Under the plan, disclosed at a Congressional hearing today, a new agency would be created within the Treasury Department to assume supervision of Fannie Mae and Freddie Mac, the government-sponsored companies that are the two largest players in the mortgage lending industry.

The new agency would have the authority, which now rests with Congress, to set one of the two capital-reserve requirements for the companies. It would exercise authority over any new lines of business. And it would determine whether the two are adequately managing the risks of their ballooning portfolios.

The plan is an acknowledgment by the administration that oversight of Fannie Mae and Freddie Mac -- which together have issued more than $1.5 trillion in outstanding debt -- is broken. A report by outside investigators in July concluded that Freddie Mac manipulated its accounting to mislead investors, and critics have said Fannie Mae does not adequately hedge against rising interest rates.

''There is a general recognition that the supervisory system for housing-related government-sponsored enterprises neither has the tools, nor the stature, to deal effectively with the current size, complexity and importance of these enterprises,'' Treasury Secretary John W. Snow told the House Financial Services Committee in an appearance with Housing Secretary Mel Martinez, who also backed the plan.

It's very interesting now to notice who immediately opposed the idea and especially to read the comments of Barney Frank against this oversight (emphasis mine):

Significant details must still be worked out before Congress can approve a bill. Among the groups denouncing the proposal today were the National Association of Home Builders and Congressional Democrats who fear that tighter regulation of the companies could sharply reduce their commitment to financing low-income and affordable housing.

''These two entities -- Fannie Mae and Freddie Mac -- are not facing any kind of financial crisis,'' said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. ''The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.''

Representative Melvin L. Watt, Democrat of North Carolina, agreed.

''I don't see much other than a shell game going on here, moving something from one agency to another and in the process weakening the bargaining power of poorer families and their ability to get affordable housing,'' Mr. Watt said.

I have said in an earlier posting that there is plenty of blame to go around., and I'm not trying to excuse any Republican involvement, I just can't stand it when someone knee-jerks a partisan comment.

This crisis was a long time brewing, but it was foreseen by many people, including Alan Greenspan and other Fed leaders, long ago. Congress knew about the problem and did nothing, mostly because Democrats fought regulation of Fannie & Freddie tooth and nail. I found a link to a Wall Street Journal chronology where the WSJ has focused on problems with Fannie Mae for a long time. Several of these articles name Mr. Frank as a ring-leader for changes that more than likely exacerbated the current crisis.

So determined are Barney Frank and Chuck Schumer to "do something" about subprime mortgages that they have come up with a proposal that is unnecessary, will do little to help distressed borrowers, and would increase the risk to taxpayers from Fannie Mae and Freddie Mac. Other than that, it's a fabulous idea.

One more note, in 1995 the Clinton Administration revamped the Community Redevelopment Act. Here's Wikipedia's entry on the law. It is interesting to note the name of the first company to take advantage of the changes the law wrought. It is also interesting to note that the Bush administration, as mentioned above, tried to insert some checks-and-balances into the system but Barney Frank and Democrats kept it from passing Congress.

In 1995, as a result of interest from President Bill Clinton's administration, the implementing regulations for the CRA were strengthened by focusing the financial regulators' attention on institutions' performance in helping to meet community credit needs. These revisions^[1] with an effective starting date of January 31, 1995 were credited with substantially increasing the number and aggregate amount of loans to small businesses and to low- and moderate-income borrowers for home loans. These changes were very controversial and as a result, the regulators agreed to revisit the rule after it had been fully implemented for seven years. Thus in 2002, the regulators opened up the regulation for review and potential revision.^{[citation needed]}

Part of the increase in home loans was due to increased efficiency and the genesis of lenders, like Countrywide, that do not mitigate loan risk with savings deposits as do traditional banks using the new subprime authorization. This is known as the secondary market for mortgage loans. The revisions allowed the securitization of CRA loans containing subprime mortgages. The first public securitization of CRA loans started in 1997 by Bear Stearns. ^[2] The number of CRA mortgage loans increased by 39 percent between 1993 and 1998, while other loans increased by only 17 percent. ^{[3] [4]}

An article in Forbes puts it succinctly: The Government Did It.

The government has promoted bad loans not just through the stick of the CRA but through the carrot of Fannie Mae and Freddie Mac, which purchase, securitize and guarantee loans made by lenders and whose debt is itself implicitly guaranteed by the federal government. This setup created an easy, artificial profit opportunity for lenders to wrap up bundles of subprime loans and sell them to a government-backed buyer whose primary mandate was to "promote homeownership," not to apply sound lending standards.

I never got around to answer the basic question, I got so sidetracked in pointing out the root of the problem can hardly be laid in the category of "failed Bush economic policies."

Some topical links

I don't want to miss the chance to at least get these out even if I can't take time right now for commenting on them:

"Obamanomics"

WSJ on high tax rates vs economic prosperity

Democrats doling out "free gas"

And $50B more "free money" from Dems:

More mortgage fraud arrests (again *against* not by the mortgage companies)

AJC series on bailouts 1 2 3

Bail out for automakers coming? USA today (For, against)

Chuck Norris,the Fair Tax, and the pursuit of good government

ADD kids can't drive, Mommy's whining about kid losing license

More bailouts: $55B here, $85B there...

and pretty soon you're spending more nationalizing companies than you are pursuing the war. according to USA Today, this year the federal government has provided $900B in "rescues and special loans".

This figure discounts the fact that now the US taxpayers are on the hook for about $4.5 trillion dollars after the government took over the liabilities of Freddie Mac and Fannie Mae. It only includes the expected expenditures to cover this years losses.

That includes the $30B we're on tap for in the bailout of Bear Stearns, where the government has loaned $30B to JP Morgan so they could buy out BS. The terms of the loan are way better than anything they could get anywhere except from the taxpayers.

The government skipped a chance to bail out Lehman brothers. Whew. But then 3 days later they basically nationalize a large insurance company buy "buying" 80% of the company for $85B dollars. In reality, what the government did was open a line of credit of $85B to the company, with 80% of the company as collateral. Of course, if the company continues downhill, the "loan" will not be paid back and the taxpayers are left owning 80% of a worthless company.


What caused this "sub-prime meltdown," which is claimed to be the root of all this market turmoil. Basically, mortgages were made to people who had no business borrowing that kind of money. The real question is why these loans were made in the first place?

It boils down to, I think, that it's easy to spend someone else's money. Banks were uneasy with easy credit and often turned down "subprime" borrowers. These are people who have a combination of factors like poor credit history, questionable income or job history, criminal records, or are borrowing more than they can comfortably repay. A subprime loan is more likely to be defaulted on by the borrower, and so carries higher interest rates.

It turns out that minorities are disproportionately represented in the subprime category. So the government, in 1988 ammended the Fair Housing Act to make it easier to claim discrimination. Since this opens banks up to what would usually be unfounded lawsuits just becuase they turned someone down for a loan (with good cause), the government at the same time offered to back these subprime loans. In other words, the goverment basically told banks "You have to give these loans out, pretty much to anyone who asks for one (especially if they're a protected minority). But don't worry, we'll buy those loans (through Freddie, Ginnie, Frannie), bundle them in lots and resell them. Of course, no one will really want to buy them since so many will default, so we'll sweeten the deal to the buyers by promising that taxpayers will make good on any losses." So the banks did what they needed to do, made the loans, and sold the paper to Fannie and friends.

And then...the banks turned around and bought the bundles right back from Fannie and friends! They weren't worthless, risky loans anymore, but had been converted into what amounted to Treasury Bonds.

But even Fannie and friends have some minimum standards, so not all these loans are in their hands. While all this was going on the Federal Reserve Bank had cut interest rates to the bone to stimulate the economy, while housing values were rapidly increasing. This allowed banks to justify making riskier loans by selling adjustable rate mortgages, 100% or even %110 financing, interest-only loans, etc. While these loans sometime make sense, they were also sometimes marketed to people as a way for them to get into a house when nothing else worked. That is, here's a loan that requires little or no down payment, minimum payments (at least in the short term), and if 3 or 5 years down the road you can't make payments (like the 3 or 5 year balloon payment, or if rates adjust upward sharply), the worst that is likely to happen is that you have to sell the house, pay back the loan, and pocket your profit -- the house will have appreciated by a lot in the meantime.

This had all the makings of a bubble waiting to burst. And it did. With inflation now becoming a problem, the Fed started to raise rates, which triggered ARMs to adjust rates upwards. With higher cost of borrowing, fewer people could get mortgages (and those high-risk loans dried up, since they didn't make much sens anymore). Fewer buyers means a downturn in housing values. Some people couldn't pay, and when they found out that their house was worth less than what they owed, badness ensued.

Now taxpayers are having to pick up the pieces of a problem that was, in large part, a direct result of the government interfering in the mortgage marketplace. Mortgages are essentially a commodity. The mortgage market simply needed regulation for real nondiscriminatory lending practices: banks must be able to demonstrate a risk-assessment based strictly on objective measures to justify a decision to grant or reject a loan or setting interest rates (as a commodity, there's not really much need to make subjective decisions) . They could require truthfulness and transparency, by regulating disclosure requirements (standard forms with standard content). Instead the government effectively became the nation's mortgage company.

It's not surprising that we're where we are.

Libertarian VP choice?

Mrs. Percy has suggested that Verne Troyer run with Bob Barr on the Libertarian ticket.

The posters could read "Barr and Mini-Barr".

Teacher shortage

On Sunday, the AJC ran a series of columns on a supposed "teacher shortage". I have not had a chance to read them all yet, but the first one I read was written by Jim Hubbard, who is the president of the Georgia Association of Educators.

The topic here is second-career teachers. These are people who have left a career to take up teaching. The basic tenor of the column was that 2nd career teachers may have experience doing something else, but they will not be able to be teachers unless they are re-educated themselves, as he puts it "these new teachers must be grounded in the preparation for the reality of our classrooms." This is necessary "no matter how well-versed they are in their real-life subject matter."

And I'm not sure what he means by these teachers will need to "slant pedagogy for more diverse learners." But if I had to guess I'd say he means don't actually expect anyone to learn from you, and certainly don't do anything so rash as to fail someone.

Of course, he also wants these new teachers to join the union.

Oh, and one last thing: "While we will never be in favor of any compensation package based solely on performance, we are very much open to the discussion and study of compensation models where performance could be a part of an overall package of educator pay."

A second column discusses a proposed pay change, where low-supply high-demand teachers like physics and calculus teachers would get paid more. Here's a few telling quotes:

“All teachers are special,” said Kelly Henson, executive secretary for the Georgia Professional Standards Commission, which presented the study to legislators. “We are not suggesting that differentiated pay only be extended to math and science teachers, but that is the right place to start.”

“You are slapping the other teachers in the face by saying you are not worth as much as science and math teachers,” said Barbara Wilson, co-president of the Gwinnett Association of Educators, who has a doctorate in language arts.

Once again, someone fails to understand that supply-and-demand applies to labor, and compounds the error by equating wages with value as a human-being.

Virtually any literate adult can teach a child how to read, to understand the parts of speech, and how to communicate. This is clearly evidenced by the number of children who learned to speak and read before they enter school. Far fewer people understand calculus or physics or chemistry well enough to effectively teach it to someone else. It should be plain then that the pool of "qualified" 3rd grade language arts teachers is much larger than the pool of qualified biology teachers. In fact, I would suspect that any math or science teacher at Ms. Wilson's school could effectively teach her class, while I was suspect that the opposite is not the case.

Small things I'd change if I was king

These are the small things, not grand policy ideas or anything.

My first things are consumer-oriented:

• No car commercial can feature "Professional drivers on closed course." I want a car that requires neither.
  
• Gasoline cannot be sold for per-gallon costs that include that stupid 9/10ths of a cent. $3.219 is not something you can make change for if I buy exactly one gallon of gas. Just sell it for $3.22 and be done with this ugly charade.
• Rebates are evil, but if as a producer you think you must use rebates there's some new rules. First, you may not advertise the after-rebate price. That TV is not $200 (after $100 rebate). It's $300 and a $100 rebate may apply. Second, the rebate redemption process must be sane: a form that human beings can fill out my name and address (not some 1" square I have to cut out from the box and microprint my life story onto), receipt, UPC. That's it. Then 4-6 weeks later you send a check. No tricks or gimmicks that allow you to disqualify 99.999% of all submissions.
• If your ISP or cell phone provider advertises "Unlimited" use, then they're not allowed to disconnect you for "excessive use".
  

Unionizing Illegals

I saw a few minutes of a movie called "Bread and Roses" on the IFC this morning while I was getting ready for work. Yes, I watch IFC. This movie, based on a true story, was about a guy trying to unionize illegal immigrants working as cleaning staff in L.A.

Indeed, I found an article about the main guy:

By 1995, Justice for Janitors, part of a nationwide effort led by the Service Employees International Union, had lifted wages for 7,000 L.A. County cleaners, many of them illegal immigrants, and won them paid vacation time and family health insurance. The janitors’ three-week strike in 2000 – the year the movie came out – pushed hourly pay to about $12 in downtown L.A.

Somehow it doesn't seem right that that illegal immigrants--people who have no right to work in this country and who are technically (administratively, at very least) criminals, many whom have committed multiple federal felonies just by being here--can turn around and use the laws of this country to agitate to improve the working conditions for jobs at which they should not even be working.

And they even went on strike. Did you know that in some cases striking workers are entitled to unemployment benefits after two weeks of strike time?

Next bailout?

USA Today reported today that "Unemployment trust funds are running low in many states, making a federal bailout likely to keep the funds solvent."

No big surprise, bailout of Freddie and Fannie

Congress and the Administration have teamed up to cover the losses of these mortgage behemoths. They essentially took them over as government operations, kinda like Hugo Chavez did for many industries in Venezuela.

Now, between the three of them (Fannie, Freddie, Ginnie), US taxpayers are on the hook for about half of the existing $12T in mortgage debt.

Oh, and by forcing the bail-out, the Government has driven the stock share prices of Fannie Mae down from $7 to about $1, Freddie Mac from about $5 to about $1. Given the market capitalization of these entities, this resulted in a net loss to the market of about $10.33B in one day. Of course, last October Fannie was trading at nearly $70 and Freddie was at about $65, so the majority of the meltdown was over (already lost $120B since last October).

What next?

We are also looking at bail-out for the auto industry ("too important to let fail").

The student loan industry is a mirror image of the mortgage industry and is likely to face a similar explosion. Government creates a perverse incentive (usually in the name of diversity) to loan money to people who cannot pay it back. As a government supported program, private lenders are willing to take more and more risk, pocketing the profits and turning to the Government to cover to losses.

9/11 gifts to victims families, Katrina support for 3+ years and still some have not bother to find a job or a place to live, unemployment benefits extended and re-extended (why bother to get a minimum wage job when you can collect 39 weeks of unemployment (soon to be extended another 13 weeks, so one year of unemployment payments). This list can go on and on.

Our Government is a classic enabler and we are all codependent. An enabler is a person who by their actions make it easier for an addict to continue their self-destructive behavior by rescuing the addict. The codependent party exhibits behavior that controls, makes excuses for, pities, and takes other actions to perpetuate the obviously needy party's condition, because of their desire to be needed and fear of doing anything that would change the relationship.

I forgot about Ginnie Mae

Not only is the federal government in the mortgage business with Fannie Mae and Freddie Mac, they have a sister, Ginnie May. All three "companies" do essentially the same thing: buy mortgages from banks (i.e., supply banks with money) and bundle the mortgages up into a security instrument that is then resold to investors. Their "value-add" is the backing, real or implied, of the US Government--read taxpayers--so that if the mortgages are not repaid, then the Government will cover the losses.

Since I cannot explain a good reason why the Government is in the mortgage business, I surely cannot explain why they created not one but three distinct entities with about 95% overlapping missions.

Ginnie Mae was split off of Fannie Mae when Fannie Mae was recharted in 1968.

Fannie & Freddie

The AJC (Atlanta Journal-Constitution) ran a series of columns & articles on Fannie Mae and Freddie Mac, but first, some questions:

Why is the federal government of the USA in the mortgage business? Some might argue that there is an inherent advantage in encouraging home-ownership. And that perhaps there might be a few people who need just a little help getting started, people for whom private mortgages appear to be unavailable. Even if you accept that, let's consider why they cannot get a private mortgage: bad credit, not enough income, criminal records all make it hard to get someone to lend you tens or hundreds of thousands of dollars. Why then should taxpayers be expected to lend these people money, and then politicians act shocked when they don't pay it back? You could argue about potential discrimination when other factors like the aforementioned are not relevant, but it seems to me that vigorous anti-discrimination regulation and enforcement of same would be a better role for government than setting up a public-cum-private bank like Fannie Mae.

And even if so far you still think Fannie may is a good idea, would you be as surprised as I was to find out that Fannie and Freddie, i.e. taxpayers, are holding the paper for 42% of mortgages in this country? Exposure measured in trillions of dollars, all set at the foot of taxpayers.

http://www.ajc.com/opinion/content/printedition/2008/08/31/fanfred.html

Fannie Mae and Freddie Mac, known as government-sponsored enterprises, have for decades played an important role in markets that bankroll American housing.

Fannie and Freddie, created to boost homeownership, own or guarantee at least 42 percent of the $12 trillion in U.S. residential-mortgage debt outstanding. They make money by buying home loans and mortgage securities, profiting on the difference between their borrowing cost and the yield on the debt.

They also guarantee and package loans as securities, charging a fee.

Fannie and Freddie have reported $14.9 billion in net losses for the past four quarters as loan delinquencies rose.

Fannie Mae Chief Executive Daniel Mudd announced a top management shake-up last week in a move to restore investor confidence.

Many investors and policy-makers are concerned that the companies do not have enough capital to withstand rising losses from homeowner defaults.

Last month, Congress authorized the Treasury Department to pump billions of dollars into the companies, if needed.

During the current housing crisis, Freddie and Fannie have been criticized for rewarding shareholders using private profits while relying on taxpayers to absorb losses.

Fannie Mae

In 1938, Fannie Mae was created during the presidency of Franklin D. Roosevelt. An inconsistent supply of mortgage financing at that time meant that millions of families could not buy homes, or were at risk of losing properties.

Congress “rechartered” Fannie in 1968 as a shareholder-owned company that funded its operations using private money from investors around the globe.

Freddie Mac

Chartered in 1970, Freddie Mac plays a similar role to Fannie Mae, undergirding what’s called the secondary mortgage market.

http://www.ajc.com/opinion/content/printedition/2008/08/31/housinged.html

Back in 2005, when the troubles of Fannie Mae and Freddie Mac weren’t yet commanding the front page so regularly, the government was already spending about $41 billion to subsidize housing directly.

More than triple that amount, or $147 billion, was foregone on indirect tax subsidies to homeowners. That chunk of change might have been used for any number of government projects: pounding percentages into fifth-graders’ heads, lowering the capital gains tax, declaring summer gas holidays. Phelps’ anti-house argument calls to mind the analysis of one of his Columbia colleagues, Michael Heller. Heller’s new book, “The Gridlock Economy,” posits that “too much ownership wrecks” the economy.

http://www.ajc.com/opinion/content/printedition/2008/08/31/fanned.html

As government-sponsored enterprises, Fannie and Freddie have long had one foot in the free market and the other firmly planted on Capitol Hill. To get their way through the years, both agencies have spent millions of dollars on campaign contributions, lobbyist fees and foundation grants unavailable to true government agencies. At the same time, the pair has been exempt from local and state taxes, giving them a financial advantage over truly private competitors. They also paid lower rates than their private competitors because investors assumed taxpayers would ultimately make good on their obligations, come what might.

In return, of course, Fannie and Freddie have played a valuable role in mortgage markets, buying home loans, repackaging them and selling the end products to investors. Millions of Americans likely would not own their homes today without assistance from those two agencies.

Even so, government should ask if there’s a better, more efficient way to undergird the market and deliver the same impact. Most likely, there is.

In analyzing the matter, Congress should start with the belief that the time may have come, as the Cato Institute urges, to start dismantling Fannie and Freddie as we have come to know them. That step would allow the private sector to gradually assume their role of risk-taking in the marketplace. At the very least, numbers need to be crunched and a spirited public debate should begin over the spreadsheet results and what they portend for Fannie and Freddie’s future.

Among the advocates for phasing out Fan and Fred is William Poole, a Cato Fellow and, until earlier this year, president of the Federal Reserve Bank of St. Louis. In a New York Times op-ed piece recently, Poole argued that “Fannie Mae and Freddie Mac are not essential to the mortgage market; if they were put out of business in an orderly fashion over five to 10 years, the market would pick up the business they abandon.”

http://www.ajc.com/opinion/content/printedition/2008/08/31/fannbox.html

The Housing and Economic Recovery Act of 2008 will provide crucial support for the housing market and … also establishes a series of landmark reforms that will put U.S. housing and mortgage finance on solid footing for the long term. Chief among these is the establishment of a new regulatory framework for the federally chartered housing enterprises that are at the center of the mortgage market: Fannie Mae, Freddie Mac and the Federal Home Loan Banks.”

—- Daniel H. Mudd, president and chief executive officer, Fannie Mae


“Fannie and Freddie’s continued activity is central to the speed with which we emerge from this housing correction and remove the underlying financial-market and financial-institution uncertainty. The temporary liquidity and capital backstops included in this new [housing recovery] law are aimed at supporting the short- and longer-term stability of financial markets, not just these two enterprises.”

—- Treasury Secretary Henry Paulson, in a July 31 speech

“Congress and the president are congratulating themselves for bailing out Fannie and Freddie and imposing more regulatory control, with the excuse that they pose a threat to financial market stability. A better solution, however, is to make these and other government-sponsored enterprises play by the same rules as other businesses, and to end the distortions caused by federal subsidies.”

—- Daniel J. Mitchell, Senior Fellow, Cato Institute

"Don't come in here!"

My nephew was about 5 or 6 and was visiting our house. During dinner he proclaimed he had to use the bathroom, so off he went. After about ten minutes or so, he hadn't come out. I had finished eating so I knocked on the door to remind him his food was getting cold and asked if he was coming out soon.

"Don't come in here!" he stridently proclaimed. Since I could hear noises that did not sound like he was just sitting there waiting for things to happen, I knocked again and asked him if everything was O.K.

"Don't come in here!" again. More sounds.

I went in. He started screaming "Don't come in here! Don't come in here!" as soon as he heard the doorknob turning.

Scene: pants around his ankles, a plunger fixed in his little hands, the sink was running full blast, the toilet was edging toward overflowing the rim with what appeared to be about 8000 sheets of toilet paper roiling around.

Ever since in my family "Don't come in here!" is invoked, usually in falsetto, whenever you've screwed up big-time and are about to be busted. Somehow it seemed like an apropos title for my various rants.