Where’s the Compensation for Victims in the Mortgage Settlement?
After reading the few details provided on the mortgage settlement, it could be easy to forget that this whole thing was supposed to be about compensating families who lost their homes to foreclosure due to “robo-signing” and other foreclosure process abuses.
Out of the $25 billion settlement, guess how much goes to borrowers who “lost” their homes to foreclosure? $1.5 billion. That’s correct, only 6% of the settlement actually could go to the victims it was all supposed to be about. What’s worse is that the settlement does not even require that money to go to parties actually harmed. The money can go to any borrower that had a foreclosure, harmed or not. In fact, as far as I can tell, a borrower could get the money even if he got into the house via fraud, like over-stating his income.
While coverage has been a little loose on details, it appears that about $3 billion of the settlement is going into the coffers of state governments. You read that right: state governments are looking to get about twice what the actual victims might get. But then that doesn’t sound too far off from the typical class-action: lawyers make out like bandits and victims get peanuts.
If you’re wondering where the rest of the money is going, it is headed to homeowners who are still in their homes, and hence by defintion not victims of foreclosure abuse. So much for actually helping victims. But then, since the state AGs apparently never bothered to look for any real victims, it should not be too surprisingly that they completely forgot about them when crafting the settlement.
Obama’s Political Prophylactic
“White House compromise still guarantees contraceptive coverage for women,” reads the Washington Post headline coming out of President Obama’s press conference this afternoon. Trying to tamp down the escalating political storm his administration created three weeks ago when it ruled that, under Obamacare, employers with religious objections to providing contraceptive and abortifacient coverage must do so anyway, his team has come up with a “compromise.”
Here it is, as reported by the Post – read carefully:
Women still will be guaranteed coverage for contraceptive services without any out-of-pocket cost, but will have to seek the coverage directly from their insurance companies if their employers object to birth control on religious grounds.
Religiously-affiliated non-profit employers such as schools, charities, universities, and hospitals will be able to provide their workers with plans that exclude such coverage. However, the insurance companies that provide the plans will have to offer those workers the opportunity to obtain additional contraceptive coverage directly, at no additional charge.
Got that? Then who’s going to pay for that additional coverage? (It’s not “free.”) The insurance companies? They’ll simply pass the costs back to the religious employer – insofar as the employer picks up at least part of the cost of covering his employees’ health insurance premiums, as most do. So we’re right back where we started from.
This is a fig leaf, which is why progressives have quickly rallied behind the “compromise.” It’s just another example of the something-for-nothing mindset that drives their agenda. Stay tuned. We haven’t heard the end of this.
This Week at Libertarianism.org
Libertarianism.org keeps adding new stuff, so if you’re not a regular reader, now’s a great time to become one. This week we added the following:
- George H. Smith gave us a glance at economic regulations from the past in his new Excursions essay, “Monopolies, Mercantilism, Illegal Buttons, and Saltpeter Men.”
- Jason Kuznicki published a review of Charles Murrary’s new book, Coming Apart: The State of White America, 1960-2010. Kuznicki concludes, “I’ll admit to doubting the problem, and to doubting the solution, and in particular to doubting whether a book by Charles Murray could possibly bring it about (sorry). But is it objectionable? Eh. No. It just isn’t.”
- I published three new blog posts, the first two expanding on my piece from last week about the lessons the tech community should have learned from SOPA. In “How Absolute is Libertarian Skepticism,” I clarified what exactly skepticism in the face of government action looks like. In “Why Should We Be Skeptical About Government?” I explained why skepticism is the proper response to most government proposals. Finally, today I published “‘Why does the stupid government get to take some of my money?’” discussing bad arguments for increasing taxes.
- Libertarianism.org’s media section grew with the addition of the Cato Home Study Course. This 30-hour audio series explores the major ideas and figures in the history of libertarianism.
- We released another short video featuring Douglas Rasmussen, this time on what libertarians can learn from Aristotle.
- Finally, we released two more talks from our archives: Richard Ebeling on the intellectual roots of spontaneous order and David Kelly on the Objectivist movement.
SOPA’s Last Gasp: Was the Internet Misinformed?
On the basis of no discernible evidence, Sherman is determined to believe that literally millions of Internet users who spoke out against online censorship—to say nothing of the scores of eminent constitutional scholars, network engineers, security specialists, and entrepreneurs—were little more than dupes of a few big tech companies. This was a widely-condemned, lobbyist-scripted proposal whose political viability was so plainly purchased that Hollywood all but demanded a refund when it didn’t pass—yet in Sherman’s mind, incredibly, it was the immense popular backlash against this that “raised questions about how the democratic process functions in the digital age.”
There is a perverse logic to this: What Sherman has in mind is the familiar “democratic process” where policy is ultimately crafted and debated behind closed doors by powerful institutional stakeholders. Broader public involvement—should it become an unpleasant necessity—consists exclusively of being roused to enthusiasm or opposition, as necessary, by the stakeholders’ competing marketing campaigns. The defining principle of the modern Web—that users are not passive consumers of ideas, but the source of whatever value and creativity the platform enables—is alien to the model.
Unsurprisingly, Sherman’s op-ed doesn’t really read as though it’s aimed at the general public, but rather as a last desperate pitch over their heads to members of Congress: Pay no attention to the folks in front of the curtain! Since Sherman never takes seriously the possibility that opposition was grounded in well-informed concerns, it is little surprise that he makes scant attempt to seriously address them.
CBO Spending Projections, Then and Now
Each January the Congressional Budget Office provides updated projections of the federal budget for the coming decade. Let’s compare the January 2011 projections to the January 2012 projections to see whether the switchover of the House to Republican control during 2011 has made a dent in spending.
We will look at CBO projections for the three basic components of federal spending: discretionary, entitlements, and interest. The three figures below are CBO “baseline” projections of fiscal year outlays, with historical data back to 2007.
Figure 1 shows that discretionary outlays jumped from $1.04 trillion in 2007 to $1.35 trillion in 2011. The CBO’s new projection (red line) for spending in 2012 is $44 billion below what the CBO projected for 2012 last year (blue line). That small reduction is partly attributable to GOP spending restraint efforts.
Looking ahead to 2021, spending is now projected to go down significantly from what was projected last year. That is the result of the budget caps that the Republicans negotiated with the Democrats in the Budget Control Act enacted last summer, and it includes the further reduction in caps stemming from the failure of the “supercommittee.”
If the caps hold, discretionary outlays will be 16 percent lower in 2021 than they might otherwise have been. However, that’s a giant “if” given the track record of Congress. And even if the caps do hold, it would only be a cut of $256 billion in 2021, which would be less than 5 percent of total federal spending that year of more than $5 trillion.
School Choice Lowers Crime
New research by Harvard professor David J. Deming studied the crime rates of young adults who participated in a random lottery at the middle or high school level. The lotteries decided whether students were able to attend a school of their choice or whether they were forced to attend their assigned public school. Students who won the lottery committed significantly fewer crimes as young adults than those who lost it. So here is another in the long list of educational outcomes improved by market freedoms and incentives.
Send this to a friend who is still on the fence about the merits of educational freedom.
Under ObamaCare, Anti-Discrimination Law Trumps Religious Liberty
The three-week battle over ObamaCare’s contraceptive-abortifacient ruling isn’t letting up. Catholics for Choice has a full-page ad in this morning’s Washington Post, urging the president to stay firm. And it’s the lead story today on NPR’s Morning Edition, which in printed form devotes fully 2 of 16 paragraphs—the last 2—to the other side (not bad for NPR). The gist of the piece is, what’s the big deal? “The only truly novel part of the plan is the ‘no cost’ bit,” says NPR’s Julie Rovner.
“Now millions more women and families are going to have access to essential health care coverage at a cost that they can afford,” says Sarah Lipton-Lubet, policy counsel with the ACLU. “But as a legal matter, a constitutional matter, it’s completely unremarkable.”
Unfortunately, they’re right: our modern anti-discrimination law has been so extended that today it undermines religious liberty on many fronts. Two terms ago, for example, a bitterly divided Supreme Court ruled that the Christian Legal Society, a student group at the Hastings Law School, had to admit “all comers,” not only as members but as officers. (See Cato’s amicus brief defending the group’s right to discriminate in the name of religious liberty and freedom of association.)
Here, the federal Equal Employment Opportunity Commission ruled in 2000 that failure to provide contraceptive coverage violates the 1978 Pregnancy Discrimination Act, an amendment to Title VII of the 1964 Civil Rights Act that outlaws, among other things, discrimination based on gender. And 26 states today have similar “contraceptive equity” laws on the books, Rovner reports, which state courts have upheld in suits brought by Catholic Charities and others. She quotes from the 2006 decision of New York State’s top court:
When a religious organization chooses to hire non-believers, it must, at least to some degree, be prepared to accept neutral regulations imposed to protect those employees’ legitimate interests in doing what their own beliefs permit.
Right there, of course, is the problem. As I wrote over the past two days, no one on the other side is asking employees to do anything contrary to their religious beliefs—or not do “what their own beliefs permit.” Employers are not “imposing their religious beliefs” on their employees, as some have argued. Those employees are still perfectly free to use contraceptives and abortifacients. They just shouldn’t expect their employers, through the group health insurance plans the employers offer, to provide and pay for such measures if doing so violates their religious beliefs. But that would be to discriminate against women, the courts have held, since only women get pregnant. Thus does our antidiscrimination law, as found in statutes, trump religious liberty, as once protected by the Constitution. “To each his own” falls by the wayside when “we’re all in this together,” as ObamaCare requires us to be.
Obamacare Challenge Not Barred By a Weird Technicality
Cato’s third Supreme Court brief in the Obamacare litigation concerns the issue of whether the federal tax Anti-Injunction Act prevents federal courts from timely reviewing Congress’s most egregious attempt to exceed its power to regulate interstate commerce. The AIA bars courts from enjoining “any tax” before that tax is assessed or collected.
One would think that such a law would have no application to the penalty that enforces the individual health insurance mandate, which is not a tax but rather a punishment for not complying with the mandate. Accordingly, most of the courts to consider the issue have found the AIA to be inapplicable to individual mandate challenges. Moreover, the government itself has long conceded that the AIA does not bar these suits.
A Fourth Circuit majority and the dissenting Judge Brett Kavanaugh in the D.C. Circuit, however, reached a contrary conclusion, reasoning that the AIA applies to all exactions assessed under the Internal Revenue Code, including “penalties.” Out of an abundance of caution, and because the AIA may be a jurisdictional bar, the Supreme Court appointed an amicus curiae to argue for the position that the AIA bars these suits.
The plaintiffs here — the 26 states, the National Federation of Independent Business, and several individuals — have advanced several strong arguments for why the AIA doesn’t apply. Cato’s brief expands on one of those arguments: that the words “any tax” in the AIA do not include “penalties” simply because they may be codified in the Code.
First, we demonstrate that the Supreme Court has always held that “taxes” and “penalties” are not interchangeable for AIA purposes. Second, we show that, with one exception, all of the cases cited in the amicus briefs filed by two former IRS commissioners, Mortimer Caplin and Sheldon Cohen — which appear to have heavily influenced the Fourth Circuit and Judge Kavanaugh — concerned penalties that were statutorily defined as taxes. This refutes the commissioners’ erroneous claim that those cases concerned penalties that were not defined as taxes. As we say in our brief, “the influence of Amici Caplin & Cohen’s [D.C. Circuit] brief is surpassed only by its misdirection.” The one exception is the Mobile Republican case (Eleventh Circuit 2003), which we explain is properly understood as applying the AIA to penalties that enforce substantive tax provisions.
In short, the AIA cannot bar suits to enjoin the individual mandate penalty because that penalty neither is defined as a tax nor enforces a substantive tax provision.
Thanks very much to Cato legal associate Chaim Gordon for taking the lead in drafting this brief and helping me with this blogpost.
Prison Terms for Not Installing ADA Ramps?
We’ve often deplored the continued push of criminal prosecution into matters that were once considered more suitable for regulation or for the operation of civil law. A little-noted report a few weeks back in the Los Angeles Times may indicate the next milestone in overcriminalization:
The U.S. attorney has launched a fraud investigation to determine whether Los Angeles city officials ignored federal laws designed to protect the disabled when building or fixing up housing. …
The investigation spans January 2001 to the present, the letters said. If violations are uncovered, city agencies that used federal housing funds could face financial penalties, lose out on future grants or possibly become the subject of a criminal investigation, said [city official] Bill Carter…
Disabled activists sought an investigation because, to quote the LAT again,
In testimony and in person, activists alleged that doors were sometimes too heavy for wheelchair users to open, elevators were not working in at least one city-funded building, and managers either refused to rent to wheelchair users or did not have apartments available for them, [advocate Becky] Dennison said.
The activists also felt ignored because various management recommendations they made to local officials had been ignored. They already have a right to file civil suits over their grievances: indeed, shortly after the U.S. Attorney’s investigation came to light three advocacy groups did file a civil suit against the city.
There are very real problems of fraud — plain old graft and money-raking — on the L.A. public housing scene. But the idea of redefining fraud to include ADA noncompliance is a different matter. If taken seriously, it would mean exposing ordinary as well as dishonest local officials across the country to the specter of criminal liability. It’s notoriously hard to assure that either new or renovated buildings are 100% compliant with ambitious interpretations of the law; a design fix that satisfies three ADA consultants may displease a fourth. Criminal liability should arise from very clear, preannounced standards of conduct. That’s not the ADA.
Maybe the U.S. Attorney’s office is just raising the criminal issue as a bit of bravado to please its friends in the advocacy world and strong-arm the city into settling. But as playwrights know, if a shotgun is shown above the fireplace in Act I, by the middle of Act III a shot will ring out. This misguided extension of federal fraud law is worth challenging now.
Questions and Thoughts on the Mortgage Settlement
If you missed the news (Obama actually made a “big” speech about it), the federal government, along with 49 state AGs, reached a settlement with the largest mortgage servicers over servicing violations. In some ways, what little detail has been offered raises more questions than answers.
Perhaps the biggest question is how much of the actual losses will be borne by the banks and how much will be passed along to investors, who were not even represented at the table. One hears that both first and second mortgages would be written down “in proportion” so that if the first loan is reduced 10%, then the second is also reduced 10%. Obviously this flies in the very face of what a first and second loan are. The first shouldn’t take any loss until the 2nd is completely wiped out. But since investors often hold the first while banks hold the second, it looks like Obama has blessed the banks sticking a good deal of their losses to the investors, which include pension funds, retirement accounts etc.
And while I was of course moved by the touching picture of a couple and their child featured so predominantly on the settlement’s website, I was also left wondering, what is the process for determining which foreclosed homeowners receive assistance. The settlement is actual quite clear that “$1.5 billion will be distributed nationwide to some 750,000 borrowers” but that such borrowers need not have actually been harmed. This really seems little more than a lottery trying to pass as consumer protection. But then I suspect your chances for getting a piece are bigger if you happen to live in a swing state (sorry California).
What really worries me is the massive payment to states. Of course they claim this is going to help “fund consumer protection” but then we also told that the tobacco settlements would help smokers; it instead turned into state government slush funds. Even more troubling is the high probability that such funds will flow to various non-profits, whatever the current incarnation of ACORN is calling itself.
Fortunately the entire settlement has to be approved by a federal judge. Given that these issues really should have been decided in the courts in the first place (separation of powers, anyone?), this is the opportunity for the courts to ask for the AGs and Obama to actually produce some evidence of wrong-doing. And also to ask that parties actually harmed be the ones compensated. Anything else would be a perversion of justice.
Cochrane on ObamaCare’s Contraceptive-Coverage Mandate
My Cato colleague John Cochrane – who is way smarter than I am — has a generally excellent op-ed in today’s Wall Street Journal on ObamaCare’s contraception mandate:
Salting mandated health insurance with birth control is exactly the same as a tax—on employers, on Catholics, on gay men and women, on couples trying to have children and on the elderly—to subsidize one form of birth control…
The tax rate and spending debates that occupy the media are a small part of the effective taxes and spending that the government achieves by these regulatory mandates…
The natural compromise is simple: Birth control, abortion and other contentious practices are permitted. But those who object don’t have to pay for them. The federal takeover of medicine prevents us from reaching these natural compromises and needlessly divides our society…
Sure, churches should be exempt. We should all be exempt.
My only quibble is with his claim, “Insurance is a bad idea for small, regular and predictable expenses.”
That’s generally true. But medicine is an area where, potentially at least, small up-front expenditures (e.g., on hypertension control) could prevent large losses down the road. So it may be economically efficient for health plans to cover some small, regular, and predictable expenses. Both the carrier and the consumer would benefit. In fact, that would be the market’s way of telling otherwise uninformed consumers, “Hey! Controlling your hypertension is a really good for you!” And really, if someone is so risk-averse that they want health insurance with first-dollar coverage of everything – and they’re willing to pay the outrageous premiums that would accompany such coverage — why should we take issue with that?
ObamaCare’s contraceptive-coverage mandate demonstrates that government does a horrible job of picking only those types of “preventive” services for which first-dollar coverage will leave consumers better off. But I also think advocates of free-market health care generally need to let go of the idea that health insurance exists only for catastrophic expenses.
Data in New World Bank Report Shows that Large Public Sectors Reduce Economic Growth
When Ronald Reagan said that big government undermined the economy, some people dismissed his comments because of his philosophical belief in liberty.
And when I discuss my work on the economic impact of government spending, I often get the same reaction.
This is why it’s important that a growing number of establishment outfits are slowly but surely coming around to the same point of view.
- The European Central Bank published a study showing “…a significant negative effect of the size of government on growth.”
- A study by two Harvard economists found that “large adjustments in fiscal policy, if based on well-targeted spending cuts, have often led to expansions.”
- The Organization for Economic Cooperation and Development noted in recent research that welfare programs are economically destructive because they lure people into dependency because “net disposable income would increase despite putting in fewer hours.”
- A study from the International Monetary Fund concluded that “Cuts to pension and health entitlements had the most beneficial effect on economic growth.”
This is remarkable. It’s beginning to look like the entire world has figured out that there’s an inverse relationship between big government and economic performance.
That’s an exaggeration, of course. There are still holdouts pushing for more statism in Pyongyang, Paris, Havana, and parts of Washington, DC.
But maybe they’ll be convinced by new research from the World Bank, which just produced a major report on the outlook for Europe. In chapter 7, the authors explain some of the ways that big government can undermine prosperity.
There are good reasons to suspect that big government is bad for growth. Taxation is perhaps the most obvious (Bergh and Henrekson 2010). Governments have to tax the private sector in order to spend, but taxes distort the allocation of resources in the economy. Producers and consumers change their behavior to reduce their tax payments. Hence certain activities that would have taken place without taxes, do not. Workers may work fewer hours, moderate their career plans, or show less interest in acquiring new skills. Enterprises may scale down production, reduce investments, or turn down opportunities to innovate. …Over time, big governments can also create sclerotic bureaucracies that crowd out private sector employment and lead to a dependency on public transfers and public wages. The larger the group of people reliant on public wages or benefits, the stronger the political demand for public programs and the higher the excess burden of taxes. Slowing the economy, such a trend could increase the share of the population relying on government transfers, leading to a vicious cycle (Alesina and Wacziarg 1998). Large public administrations can also give rise to organized interest groups keener on exploiting their powers for their own benefit rather than facilitating a prosperous private sector (Olson 1982).
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