Archive for December, 2010
Supreme Court Should Tell Courts to Stay Out of Global Warming Cases
The Supreme Court is finally starting to put some interesting non-First Amendment cases on this term’s docket.
Today, the Court agreed to review American Electric Power Co., Inc. v. Connecticut, in which eight states, some non-profits, and New York City are suing a number of energy companies and utilities for harms they allegedly caused by contributing to global warming. This is the third major lawsuit to push global warming into the courts (another being Comer v. Murphy Oil USA, in which Cato also filed a brief). It’s America, after all, where we sue to solve our problems — even apparently, taking to court the proverbial butterfly that caused a tsunami.
Mind you, you can sue your neighbor for leaking toxic water onto your land. Courts are well positioned to adjudicate such disputes because they involve only two parties and have limited (if any) effects on others. But it is a different case when, using the same legal theory by which Jones sues Smith for his toxic dumping (called “nuisance”), plaintiffs selectively sue a few targeted defendants for a (quite literally) global problem. As I discussed with reference to a previous such case, global warming is the type of issue that should be decided by the political branches. The Second Circuit ruled, however, that this suit could go forward. (Justice Sotomayor was involved in the case at that stage and so will be recused going forward.)
The Supreme Court has always recognized that not all problems can or should be solved in the courtroom. Thus, the issue in AEP v. Connecticut – which the Court will now decide – is whether the states meet the legal requirements necessary to have their suit heard in court, what lawyers call “standing.” Historically, issues of policy have been decided by the legislative and executive branches while “cases and controversies” have been decided by courts. Therefore, when litigants have asked courts determine matters of broad-ranging policy, the Court has often termed the cases “political questions” and dismissed them. The reasoning is that, not only do unelected courts lack the political authority to determine such questions, they also lack any meaningful standards by which the case could be decided (called “justiciability”).
Indeed, even if the plaintiffs can demonstrate causation, it is unconstitutional for courts to make complex policy decisions — and this is true regardless of the science regarding global warming. Just as it’s unconstitutional for a legislature to pass a statute punishing a particular person (bill of attainder), it’s unconstitutional — under the “political question doctrine” — for courts to determine wide-ranging policies in which numerous considerations must be weighed against each other in anything but a bilateral way.
We pointed out in our brief supporting the defendants’ request for Supreme Court review — and will again in the brief we plan to file at this next stage — that resolving this case while avoiding those comprehensive and far-reaching implications is impossible and that the Constitution prohibits the judicial usurpation of roles assigned to the other, co-equal branches of government. After all, global warming is a global problem purportedly caused by innumerable actors, ranging from cows to Camrys. This fact not only underscores the political nature of the question, but it has constitutional significance: In order to sue someone, your injury must be “fairly traceable” to the defendant’s actions. Suits based on “butterfly effect” reasoning should not be allowed to move forward.
Perhaps surprisingly, the federal government –which is involved because one of the defendants is the Tennessee Valley Authority — agrees with Cato . The administration aptly played its role in our constitutional system by asserting that global warming policy was a matter for the executive and legislative branches to resolve, not the judiciary.
Hmmm, Cato and Obama on the same side in a global warming dispute… but I still won’t be holding my breath awaiting an invite to the White House Christmas party.
To Track or Not to Track? That’s Actually Not the Question.
A subcommittee of the House Committee on Energy and Commerce held a hearing last week to consider a proposal, floated in a recent Federal Trade Commission report, for “Do Not Track” legislation aimed at giving Web users greater control over how information about their online activities is collected and used by sites and advertisers. The name is a deliberate reference to the wildly popular “Do Not Call” list, a sort of virtual “No Tresspassing” sign for the telephone, which has spared scores of Americans the annoyance of telemarketers pitching FABULOUS DEALS! and LOW INTEREST RATES! during dinner. Subcommittee Chair Bobby Rush repeatedly invoked the Do Not Call program’s success in his opening remarks. And under the headline “Don’t Track technology is simple, experts say” USA Today declared that a “Do Not Track” policy for the Internet would be even “simpler and more powerful than Do Not Call.”
But as technology researcher Harlan Yu has argued, it’s actually a good deal less simple than it sounds—and the analogy to “Do Not Call” may obscure more than it illuminates. The experts consulted by USA Today are right that a Do Not Track policy would, in one respect, be technically simpler to implement than Do Not Call. It would not be necessary—or, indeed feasible—to have some kind of centrally administered list of people who have opted out of tracking. Instead, the idea seems to be that browsers could incorporate a “Do Not Track” mode which, when activated by users, would send a legally enforceable signal to deactivate tracking in the header of all communications, which would be automatically recognized by sites and ad networks.
What’s not so simple—as the FTC official who testified at last week’s hearing acknowledged—is determining exactly what “tracking” means, who is obligated to listen to the Do Not Track request, and what compliance with it entails. The appeal of a legally enforceable Do Not Track header is that it targets a functional class of behavior rather than any particular technological tracking mechanism, with the goal of ending the “arms race” that characterizes individual efforts by users to safeguard their privacy. So as users learn that they can delete tracking cookies, or block cookies from ad networks using their browser’s privacy settings, the advertisers turn to Flash cookies. When users figure that out, the trackers turn to system fingerprinting or history sniffing. How much simpler for users to simply be able to know they can demand not to be tracked without worrying about whether they’ve anticipated the latest clever method.
There’s the rub, though: There are many different kinds of information sites collect when interacting with users—much of which can be used for tracking, but which is also necessary for other purposes. So, for instance, IP addresses are not a particularly good way of tracking users for behavioral marketing purposes—on many networks they’re dynamically assigned and change frequently, and a single IP may actually represent many different computers and users behind a NAT firewall. Nevertheless, they often will be relatively persistently identified with a particular user—yet it would be utterly infeasible to suggest that sites be forbidden from maintaining their own server logs, including visitor IPs, for any connection that includes a Do Not Track header. Similarly, while sites can collect information about a user’s system configuration for the purpose of “fingerprinting” and tracking, there are lots of other reasons to collect that data—providing browser or OS-specific functionality or a smoother user experience, diagnosing bugs, and so on.
A browser-embedded header may be technically simpler than a government-administered “Do Not Call” list, but “Do Not Call” is conceptually much simpler: A marketer either places an unsolicited call to a particular number, or it doesn’t. When it comes to the information generated by the interaction between a user and a Website, the datastream may be binary, but the question of whether someone is being “tracked” or not is anything but. And as the “arms race” alluded to above shows, it’s not always going to be clear in advance which kinds of information will facilitate tracking. And of course, users will find it useful and convenient to permit the collection of certain types of information even as they prohibit others, making it desirable, as the FTC’s David Vladeck put it in his testimony, for Do Not Track to enable “granular control” by users, rather than a simple on-off switch. But the more types of data collection and sharing need to be controlled—including new types that become prevalent as technology evolves—the more elusive the clarity and simplicity promised by Do Not Track (relative to mechanism-specific self help) becomes.
Maybe there’s a solution to these difficulties—it would be premature to declare it hopeless a priori without seeing a proposed standard. But while the Internet is global, the reach of the FTC is confined to the United States. Even if the arms race could be halted within those borders, many users would frequently—and probably unwittingly—visit sites that are based abroad, or include content from third-party sites that are. (Expect that to increase if legislation gives those foreign ad networks a competitive advantage.) If the sense of security provided by Do Not Track therefore proves to be largely illusory, a more openly acknowledged arms race might be preferable.
The Appeal of Trusted Traveler
There is a natural appeal to “trusted traveler” programs. We all see ourselves as trustworthy, and getting into such a program might improve our experience at the airport. This video captures the notion—and some of the difficulties—entertainingly.
I would fly on a plane even knowing that Jimmy Johnson had brought a machete on board. But what level of trust should attach to a Super Bowl ring?
Dave Meggett helped the New York Giants win Super Bowl XXV. He was sentenced to 30 years in prison last month after being convicted of criminal sexual misconduct and burglary. Super Bowl MVP Ray Lewis was charged with murder in 2000, avoiding trial by agreeing to testify against others. The point is not to beat up on the NFL, but to beat up on the idea that you can trust a large-scale “trusted traveler” program.
Having some weakness is not fatal to the trusted traveler idea. A trusted traveler program might reduce costs and inconveniences without reducing risks by a greater amount. Indeed, it might make sense to trust all travelers more than the TSA does under its strip/grope policy.
In a recent, less entertaining post, I argued that the TSA shouldn’t do “trusted traveler.” Airlines should be free to implement trusted traveler systems, winning the rewards for getting it right and paying the costs for getting it wrong.
Keeping WikiLeaks in Perspective
As the WikiLeaks story unfolds, it draws forth many themes. Two such, seemingly unconnected and even at odds, are national security and privacy. Yet they are intimately connected.
Set aside issues I discussed here briefly last week – the overclassification problem, the complex prosecutorial issues concerning Julian Assange, and the government’s abysmal failure to better protect classified material – the national security issues were brought out nicely this morning by Gordon Crovitz in his Wall Street Journal column. Take it as given that the main function of government is to secure our rights: In a dangerous world, after all, we abandoned the Articles of Confederation for the Constitution precisely to better protect ourselves. To do that effectively, however, intelligence is necessary; and intelligence that is ample and useful requires confidentiality.
But as Crovitz writes, WikiLeaks will result in less intelligence – and that, he argues, is Assange’s express intention. Thus,
Mr. Assange is misunderstood in the media and among digirati as an advocate of transparency. Instead, this battening down of the information hatches by the U.S. is precisely his goal. The reason he launched WikiLeaks is not that he’s a whistleblower—there’s no wrongdoing inherent in diplomatic cables—but because he hopes to hobble the U.S., which according to his underreported philosophy can best be done if officials lose access to a free flow of information.
Drawing from a pair of essays Assange wrote in 2006, one entitled “Conspiracy as Governance,” a title sure to appeal to anarchists, Crovitz notes that Assange “sees the U.S. as an authoritarian conspiracy.” Not that there isn’t ample evidence, to be sure, for the misuse of that authority, but Assange would cripple even the government’s legitimate functions. As he wrote:
We can marginalize a conspiracy’s ability to act by decreasing total conspiratorial power until it is no longer able to understand, and hence respond effectively to its environment. . . . An authoritarian conspiracy that cannot think efficiently cannot act to preserve itself.
Anarchists may rejoice at that thought, but the implications, not least for privacy, were brought out nicely last week by Theodore Dalrymple, writing in the City Journal. After noting how unremarkable, and even useful, some of the revelations have been, Dalrymple writes that “WikiLeaks goes far beyond the need to expose wrongdoing, or supposed wrongdoing: it is unwittingly doing the work of totalitarianism.” And he adds:
The idea behind WikiLeaks is that life should be an open book, that everything that is said and done should be immediately revealed to everybody, that there should be no secret agreements, deeds, or conversations. In the fanatically puritanical view of WikiLeaks, no one and no organization should have anything to hide. It is scarcely worth arguing against such a childish view of life.
Yet he does, and he argues well.
The actual effect of WikiLeaks is likely to be profound and precisely the opposite of what it supposedly sets out to achieve. Far from making for a more open world, it could make for a much more closed one. Secrecy, or rather the possibility of secrecy, is not the enemy but the precondition of frankness. WikiLeaks will sow distrust and fear, indeed paranoia; people will be increasingly unwilling to express themselves openly in case what they say is taken down by their interlocutor and used in evidence against them, not necessarily by the interlocutor himself.
Indeed, alluding to life in Eastern Europe not that long ago, Dalrymple envisions that “a reign of assumed virtue would be imposed, in which people would say only what they do not think and think only what they do not say.” And he reminds us that “the dissolution of the distinction between the private and public spheres was one of the great aims of totalitarianism.”
But government is different, one hears. And it is. That’s why the presumption in the case of government, unlike in the private sphere, must be in favor of openness. That does not mean, however, that there is no place for secrecy in government, and for institutional measures to secure that secrecy. In fact, the point was well captured by Claire Berlinski at Ricochet, taking off from Dalrymple’s post:
The hypocrisy and double-standard of journalists, in particular, who fail to understand why the government must sometimes protect its sources of information is mind-blowing. Journalists, of all people, should understand this better than anyone else. Many sources would lose their jobs, their reputations, their liberty or their lives for talking to journalists on the record. If the people who spoke to us didn’t think we could keep their names out of the story, they would never open their mouths again. Would that make the world more transparent?
The only way you could argue that this logic doesn’t also apply to the US government is by assuming that all journalists only have good intentions and do only good things–all the time–and the US government only has bad intentions and does only bad things–all the time. This appears to be the justification offered by the Guardian, but I suppose that’s to be expected.
At some level, the post-WikiLeaks world was probably inevitable: as Crovitz puts it, it has “ended the era of innocent optimism about the Web.” But the world is still a dangerous place. Perhaps no one would better understand that, were he here today, than Benjamin Franklin, who in heading the Committee of Secret Correspondence during the Revolutionary War kept most of his dealings secret even from Congress. Come to think of it, even the debates of the Constitutional Convention, years later, were kept secret, and we’re doubtless the better for it.
Cato Unbound: Property Rights in Social Democracy
This month at Cato Unbound, Daniel Klein touches on a topic I’ve long found fascinating — Where do property rights come from? Although he doesn’t answer directly, he does challenge one popular modern idea, namely that property rights are merely grants of permission by the state, which retains a residual ownership. This idea, which Klein terms “overlordship,” I find disturbingly popular among my left-of-center friends.
While the state is certainly tasked with enforcing the claims commonly called property rights, I have a hard time agreeing that the claims themselves — as opposed to their enforcement — are produced only, or primarily, by the state. Consider three objections.
First, there have been plenty of societies where the state is either nonexistent or else a very different creature from the one we know today. Yet those societies have had moral claims about personal and even real property all the same. (This is where one of this month’s contributors, David Friedman, should have plenty of interesting thoughts to add, thanks to his work on stateless societies.) In societies like these, social norms about property didn’t vanish. They were just enforced through other means.
Second, as I said in the pitch text this month:
[I]f the government stopped existing tomorrow, would you still own your property? A simple answer might be: You’d hope so. Even if you didn’t have any guarantees of it, you could still make the moral claim, couldn’t you? Or does it really all depend on the state, whose disappearance would throw your ownership claim into confusion?
I doubt very much that anyone would renounce their property claims and consider themselves paupers if the state were to disappear. Yes, our money would be worthless, but our money really is a creation of the state, and no one can sensibly deny it. Property in other things, though, would remain, even if our enforcement mechanisms suddenly became a lot cruder, less effective, and costlier, which they might well do if the state were to vanish. (On the other hand, Friedman makes medieval Iceland look pretty attractive, especially compared to its contemporaries.)
Third, people of all political persuasions continually observe instances where they think that the state has behaved wrongly in its treatment of property rights. If the state were the true owner of all property in society, and if our property rights were merely the assignments it temporarily made, we would have very little ground to object to any state actions at all. Did the state just raise taxes? We can’t object. Did the state just lower taxes? Again, we can’t object, and by the very same token: The state is the real owner, after all, and it may gift its property as it thinks best.
No one reasons this way. And it gets worse, particularly when we consider removing the property rights of defenseless minorities. That should be fine, right? Their property was only a temporary assignment, wasn’t it? And the owner — the state — can do as it pleases?
One possible objection here is that a democracy wouldn’t allow such a re-assignment, but people making this objection appear to have more faith in democracy than I do. And what if their faith were disappointed? Even if the majority approved of it, I’d like to have some justification for saying the state had done wrong here. And clearly I do.
It seems to me that our real moral intuitions on the nature of property, as on so many other things, are that (1) the state must be able to account for its actions on principles of abstract justice, (2) we are competent to think about state actions as potentially either good or bad, and (3) we can and should change the course of the state’s behavior to be more in keeping with our ideas of justice.
It’s clearly a further leap from all of this to an individualistic account of property rights, but that’s where Klein is heading. Along the way he takes some possibly surprising shots at social contract theory, too. Libertarians who have been feeling complacent as they read these lines would do well to read Klein’s full essay, which might just shake them up.
Slow Death for High-Speed Rail
Tea party victories in November likely signal the beginning of the end for President Obama’s ambitious and expensive high-speed rail plans. Republican governors-elect of both Ohio and Wisconsin have vowed to return federal high-speed rail funds that had been granted to those states. The governor-elect of Florida is also a rail skeptic, and more and more obstacles are being thrown in front of California’s rail plans.
Obama Replaces Costly High-Speed Rail Plan With High-Speed Bus Plan
The prospects for high-speed rail are so dire that the Onion recently suggested that President Obama would shift his support to high-speed buses instead. Even the Washington Post has sounded caution about spending much more money on this obsolete form of travel.
Robert Kaplan Is Not Making Sense
Robert D. Kaplan
The main article in Sunday’s Washington Post Outlook section was an essay by Robert Kaplan titled “A World with No One in Charge.” Kaplan has traveled much more widely than he has read, and this essay demonstrates that fact in spades. The article is rife with internal contradiction and errant theorizing, to the point of bordering on the psychedelic.
The thesis is basically a rehash of “The Coming Anarchy,” Kaplan’s 1994 article warning that Western strategists needed to start concerning themselves with “what is occurring . . . throughout West Africa and much of the underdeveloped world: the withering away of central governments, the rise of tribal and regional domains, the unchecked spread of disease, and the growing pervasiveness of war.” Kaplan went on to warn, “The coming upheaval, in which foreign embassies are shut down, states collapse, and contact with the outside world takes place through dangerous, disease-ridden coastal trading posts, will loom large in the century we are entering.”
The center of gravity in Kaplan’s work, from Coming Anarchy through this piece, is that the natural state of the world is swirling chaos, and the only thing preventing the sorts of horrors discussed in the paragraph above is empire, be it Roman, British, or American. Now Kaplan warns us that America is in slow-mo decline, and consequently our “ability to bring a modicum of order to the world is simply fading in slow motion.” So probably you’d better strap a helmet on and get ready.
Is Wikileaks Libertarian?
In response to Wikileaks’ complaints that Amazon.com will no longer host the whisteblower site’s activities, Chris Moody, over at the Daily Caller, writes:
Unfortunately for WikiLeaks’ argument, Amazon is a private company that can legally sever ties with anyone it wants. If anything, the company is exercising its right to free speech and association by choosing not to work with another independent organization.
That’s correct, though I would add that it was Senator Joe Lieberman (I-CT), Chairman of the Homeland Security Committee, who bullied Amazon into cutting Wikileaks from its server. Thus, it was partially government coercion, not private consent, that severed a business relationship.
As an aside, Wikileaks founder Julian Assange said in a recent interview with Forbes that he is influenced by “American libertarianism, market libertarianism.” (Hat tip: Reason’s Matt Welch.) For more on Assange, check out his old website.
Promoting Free Trade–Sort Of
The U.S. and South Korean governments have agreed to changes in the free trade agreement negotiated by the Bush administration. The president rightly lauded the FTA as a good deal for Americans:
“This agreement shows the U.S. is willing to lead and compete in the global economy,” the president told reporters at the White House, calling it a triumph for American workers in fields from farming to aerospace.”
Approving the FTA has taken on added urgency after the European Union negotiated a similar accord with the South. Once that agreement takes effect, Europeans would have better access than Americans to the world’s 13th largest economy. Protectionism is always foolish, but especially so when one’s competitors are promoting open markets.
The accord also offers important geopolitical benefits. With much nervousness in the U.S. and throughout East Asia over an increasingly assertive China, Washington should work to break down barriers to Americans trading with China’s neighbors. Already Koreans do more business with China than the U.S. While the FTA won’t reduce the appeal of products from next door China in South Korea, it will allow American producers to compete more freely in that market.
The president deserves credit for pushing the agreement forward, but he also needlessly held up ratification by two years. Moreover, his “fix” punishes American consumers. As the official government fact sheet explains:
Car Tariff Elimination: The 2007 agreement would have immediately eliminated U.S. tariffs on an estimated 90 percent of Korea’s auto exports, with remaining tariffs phased out by the third year of implementation. The 2010 supplemental agreement keeps the 2.5 percent U.S. tariff in place until the fifth year. At the same time, Korea will immediately cut its tariff on U.S. auto imports in half (from 8 percent to 4 percent), and fully eliminate that tariff in the fifth year.
Truck Tariff Elimination: The 2007 agreement would have required the United States to start reducing its tariff on Korean trucks immediately and phase it out by the agreement’s tenth year. The 2010 supplemental agreement allows the United States to maintain its 25 percent truck tariff until the eighth year and then phase it out by the tenth year – but holds Korea to its original commitment to eliminate its 10 percent tariff on U.S. trucks immediately.
That is, the Obama administration forced a delay in the reduction of U.S. auto tariffs. This obviously hurts Korean exporters, but the highest price will be paid by American consumers. The provision is simply a special interest payoff to the auto industry, which already has benefited from a big federal financial bail-out. So much for bringing “change” to Washington.
Free trade is good for Americans. That means bringing down foreign trade barriers. It also means bringing down U.S. trade barriers.
FDA Expansion and the ‘Arcane’ U.S. Constitution
Last Tuesday, despite warnings of regulatory overreach, the Senate voted 73-25 in favor of S. 510, the Food Safety Modernization Act, which would greatly expand the powers of the federal Food and Drug Administration and impose extensive new testing and paperwork requirements on farmers and food producers. Almost at once, however, the bill was derailed — whether temporarily or otherwise remains to be seen — by what the New York Times called an “arcane parliamentary mistake” and the L.A. Times considered a purely “technical flaw“. Roll Call put it more bluntly: “[Senate] Democrats violated a constitutional provision requiring that tax provisions originate in the House.” While the New York Times weirdly cast Senate Republicans as the villains in the affair, other news sources more accurately reported that it was the (Democratic) House leadership that was standing up for its prerogatives:
“Unfortunately, [the Senate] passed a bill which is not consistent with the Constitution of the United States, so we are going to have to figure out how to do that consistent with the constitutional requirement that revenue bills start in the House,” [House Majority Leader Steny] Hoyer said.
According to Hoyer, this has happened multiple times this Congress, causing severe legislative angina.
“The Senate knows the rule and should follow the rule and they should be cognizant of the rule,” Hoyer scolded. “Nobody ought to be surprised by the rule. It is in the Constitution, and you have all been lectured and we have as well about reading the Constitution.”
To those familiar with the history of the U.S. Constitution, the Origination Clause should hardly count as arcane or technical. It stands as the very first sentence of Article I, Section 7: “All bills for raising revenue shall originate in the House of Representatives; but the Senate may propose or concur with amendments as on other Bills.” Behind that simple statement were centuries of history in which one of the most dearly fought battles for partisans of liberty was to secure for the more popular of the parliamentary branches, in Britain’s case the House of Commons, the “power of the purse,” that is, the power to raise public revenue through taxation. While tinkering with the exact details a bit, the framers of the U.S. Constitution would never for a moment have thought of dropping the general principle, in those days familiar as it was to every schoolchild. Thus it is that the House Ways and Means Committee, with its jurisdiction over revenue measures, descends to this day as a much more important entity on Capitol Hill than its counterpart Senate Finance Committee.
With its two-year terms of office and less populous constituencies, the House of Representatives was of course designed to be the legislative branch closest to the people, most readily thrown out of office when it strays from the public mood. Those considerations aside, the Constitution is rightly celebrated for the way its framers made the House and Senate different from each other precisely in order to ensure jealousies and dissensions between the two, those jealousies and dissensions serving as a safeguard against hasty or ill-considered legislation. In this case it worked exactly as planned, and the self-regard of the House leadership will serve as the reason for another round of scrutiny for a bill that could badly use some. Somewhere up above the spirit of James Madison may have heard the scolding words of Rep. Hoyer, and smiled.
Welcome to the Future
Chris Cardiff notes that Brad Paisley has put the libertarian optimism of Matt Ridley, Deirdre McCloskey — and me — to music in his new song and video “Welcome to the Future”:
When I was a young boy, I dreamed of having my own jukebox. Jukeboxes always had this huge selection of great songs compared to the few 45 singles I owned. And you could select whichever songs you liked just by pushing a button instead of waiting for your favorite songs to play on the radio. Of course, in my imagination I owned a standard floor-sized jukebox, not something the size of a credit card that also records video.
Brad Paisley brought back these memories with the opening lyrics of his hit song, “Welcome to the Future.” He dreamed of his own floor-sized arcade game when he was a boy – now he’s got one on his phone. “Welcome to the Future” starts with a familiar theme: technology-driven product innovation. But Paisley uses the second stanza to segue to the more profound theme of social change.
On the surface, the second stanza continues the theme of technological change as it contrasts writing letters to video conferencing. But it is really making a deeper point when you realize his grandfather wrote the letters from his base in the Philippines, where he was fighting the Japanese during World War II. Paisley illustrates the transformative power of economic freedom, when he sings that he “was on a video chat this morning, with a company in Tokyo.” From mortal enemies to premiere trading partners in a generation.
Paisley’s final stanza evokes the most powerful image of social change. The mood changes as all the instruments are stripped away so it’s just Paisley and his guitar. I won’t spoil it for you but I will say that when I first heard this part, it gave me chills.
Advocates Complain Banks Not Putting FHA at Enough Risk
A constant narrative of the financial crisis is that banks out-smarted the government by taking excessive risks, and that if only we had empowered regulators, the whole crisis would have been avoided. The truth, however, is that government was often the driver of excessive risk-taking, and nowhere is that more true than in the mortgage market.
One of the worst offenders has been the Federal Housing Administration (FHA). Even today, one can get an FHA backed loan with only a 3.5% downpayment. After the financing of seller concessions, the borrower can leave the closing table with zero, or even negative, equity. FHA will even offer these low equity loans to subprime borrowers, those with the worst credit history. If there’s anything to be learned from the financial crisis, combining high risk borrowers with low downpayment loans is asking for default.
Despite FHA’s loose standards, several lenders have responsibly chosen to impose higher underwriting standards than FHA. Sadly instead of being praised for being slightly more responsible than FHA, these lenders are being attacked by so-called consumer advocates for not taking enough risk.
The Washington Post reports that a coalition of advocates is planning to file complaints against lenders who have higher standards than FHA, claiming that higher standards discriminate against minorities, since minorities on average have lower credit scores. It seems some have learned nothing, continuing to push the very same policies that contributed to the crisis. If anything, FHA should start moving in the direction of the more responsible lenders and improve its woefully weak underwriting standards. Congress should also move in the direction of requiring meaningful downpayments on FHA loans, as well as shifting some of the credit risk back to the lender.
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