Obama: ‘All Part of the Job’
Via the Spectator’s Alex Massie, comes this ABC News report on last Thursday’s Obama town hall in New Orleans:
“Why do people hate you?”, a fourth-grade boy asked Obama …. “They’re supposed to love you. And God is love.”
Massie comments,
Obama’s answer is actually pretty reasonable. But this is what happens when you make a mere elected politician assume the status of Priest-King. It is, in its own way, a corrupting influence. I don’t blame the kid asking the question since, heck, there are plenty of professional journalists in DC who basically think along the same lines. This isn’t Obama’s fault, but it’s a problem nonetheless.
True enough, Americans had an irrational conception of presidential responsibility long before 44 took office. Still, Obama’s far from blameless. At the same town hall, Obama commented :
“You know, I listen to, sometimes, these reporters on the news: Well, why haven’t you solved world hunger yet?” he joked.
Ha: silly reporters! They should ask the president about something he’s actually promised to do, like provide “a cure for cancer in our time,” or stop the oceans’ rise, or “create a Kingdom right here on Earth.”
Obama’s right that it’s “part of the job” that the president gets an outsized share of credit or blame for the direction of the country. It’s been that way for a long time. As Thomas Cronin put it in his classic 1970 essay “Superman: Our Textbook President”:
on both sides of the presidential popularity equation [the president’s] importance is inflated beyond reasonable bounds. On one side, there is a nearly blind faith that the president embodies national virtue and that any detractor must be an effete snob or a nervous Nellie. On the other side, the president becomes the cause of all personal maladies, the originator of poverty and racism, inventor of the establishment, and the party responsible for a choleric national disposition.
Barack Obama didn’t create this view of presidential responsibility; he inherited it. But, other than the occasional “change is hard” caveat, it’s not as though Obama’s sought to dispel the irrational expectations people invest in the office. To the contrary, he’s done more than any president in living memory to encourage the view that the president is a benevolent father protector endowed with magical powers — a living American talisman against hurricanes, terrorism, economic downturns, and spiritual malaise. It’s the sort of view that people ought to — but often don’t — grow out of by, say, fifth grade. And a good deal of the burgeoning public dissatisfaction with Obama stems from his aggressive attempts to secure powers to match the boundless responsibilities he embraces.
Eyewitness to Government’s Robbery of Chrysler Creditors
Further to Ilya Shapiro’s post this morning, let me also point you to a concise chronology of events culminating in the government’s robbery of Chrysler creditors.
The story is that of Richard Mourdock, Treasurer of the State of Indiana and the man responsible for stewardship of the state’s pension funds, some of which were victimized by the Obama administration’s pre-packaged and then forced-fed bankruptcy deal for Chrysler. I strongly urge you to read Mr. Mourdock’s testimony, which is at once revealing, sobering, compelling and, regrettably, a frightening sign of the times.
Mourdock will be speaking on this very topic at Cato, along with bankruptcy law expert David Skeel, on Thursday, October 15 at noon. Reserve your seat now.
Filed under: Finance, Banking & Monetary Policy; Government and Politics; Law and Civil Liberties
Housing Bailouts: Lessons Not Learned
The housing boom and bust that occurred earlier in this decade resulted from efforts by Fannie Mae and Freddie Mac — the government sponsored enterprises with implicit backing from taxpayers — to extend mortgage credit to high-risk borrowers. This lending did not impose appropriate conditions on borrower income and assets, and it included loans with minimal down payments. We know how that turned out.
Did U.S. policymakers learn their lessons from this debacle and stop subsidizing mortgage lending to risky borrowers? NO. Instead, the Federal Housing Authority lept into the breach:
The FHA insures private lenders against defaults on certain home mortgages, an inducement to make such loans. Insurance from the New Deal-era agency has enabled lending to buyers who can’t make a big down payment or who want to refinance but have little equity. Most private lenders have sharply curtailed credit to those borrowers.
In the past two years, the number of loans insured by the FHA has soared and its market share reached 23% in the second quarter, up from 2.7% in 2006, according to Inside Mortgage Finance. FHA-backed loans outstanding totaled $429 billion in fiscal 2008, a number projected to hit $627 billion this year.
And what is the result of this surge in FHA insurance?
The Federal Housing Administration, hit by increasing mortgage-related losses, is in danger of seeing its reserves fall below the level demanded by Congress, according to government officials, in a development that could raise concerns about whether the agency needs a taxpayer bailout.
This is madness. Repeat after me: TANSTAAFL (There ain’t no such thing as a free lunch).
C/P Libertarianism, from A to Z
The Post and Times Push for Cap and Trade
Since the June House vote on the Waxman-Markey “cap-and-trade” bill, lawmakers from both chambers have backed significantly away from the legislation. The first raucous “town hall” meetings occurred during the July 4 recess, before health care. Voters in swing districts were mad as heck then, and they’re even more angry now. Had the energy bill not all but disappeared from the Democrats’ fall agenda, imagine the decibel level if members were called to defend it and Obamacare.
But none of this has dissuaded the editorial boards of the The New York Times and Washington Post. Both newspapers featured uncharacteristically shrill editorials today demanding climate change legislation at any cost.
The Post, at least, notes the political realities facing cap-and-trade and resignedly confesses its favored approach to the warming menace: “Yes, we’re talking about a carbon tax.” The paper—motto: “If you don’t get it, you don’t get it”—argues that in contrast to the Boolean ball of twine that is cap-and-trade, a straight carbon tax will be less complicated to enforce, and that the cost to individuals and businesses “could be rebated…in a number of ways.”
Get it? While ostensibly tackling the all-encompassing peril of global warming, bureaucrats could rig the tax code in other ways to achieve a zero net loss in economic productivity or jobs. Right. Anyone who makes more than 50K, or any family at 100K who thinks they will get all their money back, please raise you hands.
The prescription offered by the Times, meanwhile, is chilling in its cynicism and extremity. It embraces the fringe—and heavily discredited—idea of “warning that global warming poses a serious threat to national security.” It bullies lawmakers with the threat that warming could induce resource shortages that would “unleash regional conflicts and draw in America’s armed forces.”
(Note to the Gray Lady: This is why we have markets. Not everyone produces everything, especially agriculturally. For example, it’s too cold in Canada to produce corn, so they buy it from us. They export their wheat to other places with different climates. Prices, supply, and demand change with weather, and will change with climate, too. Markets are always more efficient than Marines, and will doubtless work with or without climate change.)
Appallingly, the piece admits that “[t]his line of argument could also be pretty good politics — especially on Capitol Hill, where many politicians will do anything for the Pentagon. … One can only hope that these arguments turn the tide in the Senate.” In other words: the set of circumstances posited by the national-security strategy are not an object reality, but merely a winning political gambit.
There’s no way that people who see through cap-and-trade are going to buy the military card, but one must admire the Times’ stratagem for durability. Militarization of domestic issues is often the last refuge of the desperate. How many lives has this cost throughout history?
Nevertheless, one must wonder at the sudden and inexplicable urgency that underpins the positions of both these esteemed newspapers. Global surface temperatures haven’t budged significantly for 12 years, and it’s becoming obvious that the vaunted gloom-and-doom climate models are simply predicting too much warming.
Still, one must admire the Post and Times for their altruism. The economic distress caused by a carbon tax, militarization, or any other radical climatic policy certainly won’t be good for their already shaky finances, unless, of course, the price of their support is a bailout by the Obama Administration.
Now that’s cynical.
End the Credit Rating Monopoly
Earlier this week, SEC Chair Mary Shapiro appeared before Congress to suggest ways to fix the failings in our credit rating agencies. Sadly her proposals miss the market, although that shouldn’t be so surprising as her suggestions appear to rest upon a misunderstanding of the problem.
The thrust of the SEC’s current approach is more disclosure, such as releasing “pre-ratings” that debt issuers may get before final issuance. Additional disclosure of ratings methodology and assumptions is likely to be useless. Almost all that information was available during the building housing bubble. The problem is that the rating agencies had little incentive to go beyond the consensus forecasts of increasing to at most modest declines in home prices. These same assumptions were the foundation of almost all government economic forecasting as well, yet few believe that forcing CBO or OMB to disclosure more of their forecasts will cure our budget imbalances. What is needed is a change in incentives.
Why Promiscuous Bail-Outs Never Was a Good Idea
Jeffrey A. Miron explains in Reason why a government bail-out of most everyone was neither the only option nor the best option:
When people try to pin the blame for the financial crisis on the introduction of derivatives, or the increase in securitization, or the failure of ratings agencies, it’s important to remember that the magnitude of both boom and bust was increased exponentially because of the notion in the back of everyone’s mind that if things went badly, the government would bail us out. And in fact, that is what the federal government has done. But before critiquing this series of interventions, perhaps we should ask what the alternative was. Lots of people talk as if there was no option other than bailing out financial institutions. But you always have a choice. You may not like the other choices, but you always have a choice. We could have, for example, done nothing.
By doing nothing, I mean we could have done nothing new. Existing policies were available, which means bankruptcy or, in the case of banks, Federal Deposit Insurance Corporation receivership. Some sort of orderly, temporary control of a failing institution for the purpose of either selling off the assets and liquidating them, or, preferably, zeroing out the equity holders, giving the creditors a haircut and making them the new equity holders. Similarly, a bankruptcy or receivership proceeding might sell the institution to some player in the private sector willing to own it for some price.
With that method, taxpayer funds are generally unneeded, or at least needed to a much smaller extent than with the bailout approach. In weighing bankruptcy vs. bailouts, it’s useful to look at the problem from three perspectives: in terms of income distribution, long-run efficiency, and short-term efficiency.
From the distributional perspective, the choice is a no-brainer. Bailouts took money from the taxpayers and gave it to banks that willingly, knowingly, and repeatedly took huge amounts of risk, hoping they’d get bailed out by everyone else. It clearly was an unfair transfer of funds. Under bankruptcy, on the other hand, the people who take most or even all of the loss are the equity holders and creditors of these institutions. This is appropriate, because these are the stakeholders who win on the upside when there’s money to be made. Distributionally, we clearly did the wrong thing.
It’s too late to reverse history. But it would help if Washington politicians stopped plotting new bail-outs. At this stage, most every American could argue that they are entitled to a bail-out because most every other American has already received one.
Filed under: Finance, Banking & Monetary Policy; Tax and Budget Policy
Congress Just Raised Our Credit Card Fees
Technically, it was the companies which raised their fees. But they did so to anticipate new legislative restrictions on fees taking effect. Congress wanted to cut costs for consumers, but ended up costing them instead.
Credit card companies are raising interest rates and fees seven months before new rules go into effect that will limit their ability to do so, much to the irritation of Congress and consumer advocates.
Chase, for instance, will raise the minimum payment required of some of its customers from 2 percent to 5 percent of the statement balance starting in August. Chase and Discover have increased the maximum fee charged for transferring a balance to the card to 5 percent of the amount, up from 3 and 4 percent, respectively. Bank of America last month raised the transaction fee for balance transfers and cash advances from 3 to 4 percent. Card issuers including Bank of America and Citi also continue to cut limits and hike up rates, which they have been doing with more frequency since January.
“This is a common practice and will continue to be common, because issuers can do these things for really no reason until February,” said John Ulzheimer, president of consumer education for Credit.com, which tracks the industry. “It’s what I call the Credit Card Trifecta — lower limits, higher rates, higher minimum payments.”
It’s not just the top card issuers making changes. Atlanta-based InfiBank, for example, will raise the minimum annual percentage rate it charges nearly all of its customers in September “in order to more effectively manage the profitability of our credit card account portfolio in a very challenging economic environment,” said spokesman Kevin C. Langin.
The flurry of activity, which the banks say is necessary to shore up their revenue losses, has irked members of Congress, who passed a new credit card law, which was signed by President Obama in May. The law, among other things, would prevent card companies from raising rates on existing balances unless the borrower was at least 60 days late and would require the original rate to be restored if payments are received on time for six months. The law would also require banks to get customers’ permission before allowing them to go over their limits, for which they would have to pay a fee.
One hates to think of what additional “help” Congress plans on providing for us in the future.
Filed under: Finance, Banking & Monetary Policy; Government and Politics; Regulatory Studies
Administration Reform Plan Misses the Mark
The Obama Administration is presenting a misguided, ill-informed remake of our financial regulatory system that will likely increase the frequency and severity of future financial crises. While our financial system, particularly our mortgage finance system, is broken, the Obama plan ignores the real flaws in our current structure, instead focusing on convenient targets.
Shockingly, the Obama plan makes no mention of those institutions at the very heart of the mortgage market meltdown – Fannie Mae and Freddie Mac. These two entities were the single largest source of liquidity for the subprime market during its height. In all likelihood, their ultimate cost to the taxpayer will exceed that of TARP, once TARP repayments have begun. Any reform plan that leaves out Fannie and Freddie does not merit being taken seriously.
Instead of addressing our destructive federal policies aimed at extending homeownership to households that cannot sustain it, the Obama plan calls for increased “consumer protections” in the mortgage industry. Sadly, the Administration misses the basic fact that the most important mortgage characteristic that is determinate of mortgage default is the borrower’s equity. However, such recognition would also require admitting that the government’s own programs, such as the Federal Housing Administration, have been at the forefront of pushing unsustainable mortgage lending.
While the Administration plan recognizes the failure of the credit rating agencies, it appears to misunderstand the source of that failure: the rating agencies’ government-created monopoly. Additional disclosure will not solve that problem. What is needed is an end to the exclusive government privileges that have been granted to the rating agencies. In addition, financial regulators should end the outsourcing of their own due diligence to the rating agencies.
The Administration’s inability to admit the failures of government regulation will only guarantee that the next failures will be even bigger than the current ones.
Senators Want to Delay Housing Recovery
As discussed in a recent Bloomberg piece, several U.S. senators from both parties are pushing to almost double the recently enacted $8,000 tax credit for first-time homebuyers to $15,000. The same senators are also pushing to remove the current income restrictions — $75,000 for individuals and $150,000 for couples — while also removing the first-time buyer requirement.
The intent of the increase, and the original credit, is to increase the demand for housing and to create a “bottom” to the housing market. The flaw of this approach is that it creates a false bottom, one characterized by government-inflated prices and not fundamentals. It was excessive government subsidies into housing that helped create the housing bubble, additional subsidies to re-inflate the bubble will only prolong the actual market adjustment.
If it were only a matter of prolonging the adjustment, then the huge cost of the tax credit might be easier to justify. Yet by encouraging increased housing production, the tax credit will increase supply when we already have a huge glut of housing. Despite housing starts being near 50-year lows, there is still too much construction going on. The way to spur demand in housing is the same way you spur demand in any market: you cut prices.
Removing the income limits makes clear the real intention of the tax credit, to help the wealthiest households. About three-fourths of existing families already fall under the income cap of $75,000. As we move up the income latter, home equity makes up a smaller percentage of one’s total wealth. The richest families can make do with a decline in their housing wealth and continue spending; they have other substantial sources of wealth. If we have learned anything from the housing boom and bust, it should be that continued government efforts to rearrange the housing market have been costly failures.
Who’s Going to Buy Your Debt, Mr. President?
The administration’s presumption that America can borrow its way to prosperity has taken a couple of big hits over the last couple days.
First, just as the Third World debt crisis destroyed the belief among international bankers that countries don’t go bankrupt, so is the West’s borrowing binge ending the belief among international investors that the U.S. and other Western nations are safe economic bets.
Reports the Wall Street Journal:
Britain was warned by Standard & Poor’s Ratings Service that it may lose its coveted triple-A credit rating, triggering a drop in U.K. bonds and sparking global fears about the consequences of massive debts being incurred by the U.S. and other major nations as they try to dig out from the economic crisis.
…
The announcement quickly sent waves across the Atlantic. Investors initially dumped U.K. bonds and the pound, heading for the relative safety of U.S. Treasurys. But within hours, worries about an onslaught of new U.S. bond sales and the security of America’s own triple-A rating drove down the prices of U.S. Treasurys.
The yield of the benchmark U.S. 10-year bond, which moves in the opposite direction to the price, rose by 0.15 percentage point from Wednesday to 3.355%, its highest level in six months.
The relative gloom about the U.K. and the U.S. was apparent Thursday in the market for credit-default swaps, where investors can buy and sell insurance against sovereign defaults. Five years of insurance on $10 million in U.K. debt jumped to around $81,000 a year, from $72,000 earlier in the day. U.S. debt insurance cost the equivalent of $37,500 — in the same range as France at $38,000, and Germany at $35,000.
A shot across the bow of the American ship of state, some analysts have called it.
But shots also were being fired from another direction: East Asia. The Chinese are starting to have doubts about Uncle Sam’s creditworthiness. Reports the New York Times:
Filed under: Finance, Banking & Monetary Policy; Government and Politics; International Economics and Development; Tax and Budget Policy
Support for Private School Choice Officially “Mainstream”
The USA Today editorializes this morning in support of the DC voucher program and school choice in general. That’s a shift from last year when Robert Enlow of the Friedman Foundation had to respond to their dismissal of vouchers. From the enlightened board:
As an Education Department spokesman says, “The unions are not happy.” But 20 million low-income school kids need a chance to succeed. School choice is the most effective way to give it to them.
The shift of center-left elite opinion on school choice is a hugely important development, as I noted with the first wave of mainstream media attention to the DC voucher program’s death-sentence:
When elites unite on mainstream issues, the public’s response is relatively nonideological and lopsided. School choice is progressively mainstreaming, slowly but surely moving from a polarized elite debate to one where the intensity and support is weighted in favor of school choice.
When an issue that used to be considered free-market fringe is embraced as a moral litmus test for politicians by liberal editorial boards, the issue-argument has been won. That’s certainly not to say the policy war has been won, but an important battle toward realizing that goal has been.
The opposition’s intensity and moral certitude is bleeding out one program at a time. School choice is no longer an abstract proposition; faces and lives are attached to the 24 private school-choice programs in 14 states and the District of Columbia. In the past four years, four education tax-credit programs have passed that serve at least low-income children. . .
School-choice opponents might have won the battle over vouchers in the District, but they are losing the larger war. They have inadvertently revealed what’s truly at stake; not funding issues or public school ideology, but our promise to all children of a fair shot at success in life.
Choice opponents are on the wrong side of right and the wrong side of history.
Congress “Helps” Credit Card Customers
One of the best laugh lines always has been “I’m from the government and I’m here to help you.” Certainly that’s true when it comes to consumer protection.
In the name of saving customers from the evil, rapacious credit card companies Congress plans on limiting access to credit. It also is working to hike costs for people with good credit.
Now Congress is moving to limit the penalties on riskier borrowers, who have become a prime source of billions of dollars in fee revenue for the industry. And to make up for lost income, the card companies are going after those people with sterling credit.
Banks are expected to look at reviving annual fees, curtailing cash-back and other rewards programs and charging interest immediately on a purchase instead of allowing a grace period of weeks, according to bank officials and trade groups.
“It will be a different business,” said Edward L. Yingling, the chief executive of the American Bankers Association, which has been lobbying Congress for more lenient legislation on behalf of the nation’s biggest banks. “Those that manage their credit well will in some degree subsidize those that have credit problems.”
This makes a lot of sense. We’re worried about bad debt, bad mortgages, and bad loans. So Congress is going to penalize people with good credit who carefully manage their financial affairs. Of course!
It has long been evident that Congress has the reverse Midas touch. Everything congressmen touch turns to, well, this is a family-oriented blog. You can fill in the blank.
If Congress wants to help consumers, the best thing it could do is take an extended recess.
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