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Welcome to the Great American Handout

February 17th, 2009
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The dependency-creating “stimulus” bill seeks to hasten the death of free market capitalism in the U.S. February 10, 2009 – by Pam Meister. Back when Barack Obama was running for president, he famously explained his socialist governing philosophy to a five-year-old:We’ve got to make sure that people who have more money help the people who have less money. If you had a whole pizza, and your friend had no pizza, would you give him a slice?

He made a similar analogy later on in the campaign when responding to John McCain’s assertions that Obama is a socialist:

By the end of the week, he’ll be accusing me of being a secret communist because I shared my toys in kindergarten. I shared my peanut butter and jelly sandwich.

No one’s arguing about how nice it is to share pizza, toys, and PB&J sandwiches. And Americans as a whole are a generous people. Back in 2007, charitable giving in this nation exceeded $300 billion for the first time. The problem is when a third party — government bureaucracy — takes your pizza, toys, and sandwiches and decides how much you get to keep and how much goes to the people they decide are worthy of enjoying the things you bought and paid for with the money you earned.

That’s not sharing. That’s redistribution. It’s something that had its start with FDR’s New Deal, reemerged during LBJ’s Great Society, and now seems poised to catch up to the socialist states that the American left has long admired in Europe.

So here we are: faced with a ginormous “stimulus bill” that has less to do with stimulating the economy and more to do with the expansion of government power, and when we wonder about the lack of direction Congress has when it comes to actually spending the money, our self-appointed betters say, “So what?” and absolve themselves from blame if the money is misspent.

Economist Thomas Sowell explains the obvious:

What are the Beltway politicians buying with all the hundreds of billions of dollars they are spending? They are buying what politicians are most interested in — power.

In the name of protecting the taxpayers’ investment, they are buying the power to tell General Motors how to make cars, banks how to bank, and, before it is all over with, all sorts of other people how to do the work they specialize in, and for which members of Congress have no competence, much less expertise.

This administration and Congress are now in a position to do what Franklin D. Roosevelt did during the Great Depression of the 1930s — use a crisis of the times to create new institutions that will last for generations.

To this day, we are still subsidizing millionaires in agriculture because farmers were having a tough time in the 1930s. We have the Federal National Mortgage Association (”Fannie Mae”) taking reckless chances in the housing market that have blown up in our faces today because FDR decided to create a new federal housing agency in 1938.

Barney Frank is really getting into the spirit of things, explaining that not only do CEOs of companies receiving government bailouts face compensation restrictions, but that said restrictions could actually extend to all U.S. companies.

In other words, Congress wants to tell private companies how much they can pay their top executives. This might sound great to those who don’t earn millions of dollars each year, but if the government can tell CEOs how much they are allowed to earn, what’s stopping them from eventually deciding what a fair wage is for everyone else? They already tell small business owners that they cannot pay their employees any less than a certain amount per hour via the minimum wage law. Again, it sounds like a nice idea until you realize that many small businesses end up having to cut their workforce so they can pay the remaining employees what Congress decides is a fair hourly rate, putting more people out of work and on the unemployment rolls.

Wow, what I wouldn’t give to be able to set a cap on House and Senate salaries — and that would include the expensive spa retreats that cost the taxpayer tens of thousands of dollars for transportation, phone, Internet, and security. It may seem like peanuts compared to the near-trillion-dollar price tag of the so-called “stimulus bill,” but it’s a little galling that the same people who screamed murder when Wall Street execs went on similar retreats do the whole “pot meet kettle” routine.

My mother wonders if such a CEO salary cap is legal, since it would bypass the authority of the corporations’ boards and shareholders. I really don’t know. What I do know is this bodes ill for free market capitalism, upon which America was built.

We’re being told that a failure to act will “turn crisis into a catastrophe” by the same man who told us we need to get beyond the “politics of fear.” I guess it’s different to scare people about the economy than it is to inform them about the dangers to our nation posed by Islamist extremists that have struck more than once and who are busy striking other nations as well.

Despite his support for the bill, Joe Biden is one of the few who see the potential for voter backlash — everyone else seems to be drunk on their own power, which includes the desire to shut up the opposition by shutting down talk radio.

Thomas Jefferson once said, “A wise and frugal government, which shall leave men free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor the bread it has earned — this is the sum of good government.” He also said, “The democracy will cease to exist when you take away from those who are willing to work and give to those who would not.”

According to Obama, we’re rebuilding America — and indeed we are. We’re turning it from the USA to the USSA.

The Mortgage Crisis Blog Featured

Bank of England cut its key rate to 1%

February 5th, 2009
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Bank of England cut its key rate to 1% Posted Feb 5th 2009 10:00AM by Connie Madon Filed under: International markets, Money and Finance Today, Financial Crisis The Bank of England cut its key rate by half a percentage point to 1%. However, even with the move, the Monetary Policy Committee (MPC) said that there was still disruption in money markets and the rate cuts have not yet had their full impact.

The MPC cited the sharp drop in output in the fourth quarter of last year and a similar drop early this year.

Nationwide, the UK’s largest building society announced that it reduced its base mortgage rate to 3% from 3.5%.The MPC pointed to the global nature of the current slowdown and stated that the supply of credit to households and businesses remained constrained.

The bank’s data showed how significant the credit squeeze is on non financial companies. In the fourth quarter, deposits of these companies fell by 6.9 billion pounds while lending grew only 1/10 billion pounds.

Jane Milne, business director of the British Retail Consortium said that the key issue is the “availability” of credit. She said that the Bank of England is walking a fine line between a weakening sterling and the need to revive the economy.

Banks in both the U.S. and England have money to lend. Do you believe that they just don’t want to lend it at these low rates?

The Mortgage Crisis Blog Featured, Mortgage Crisis

Reviving the City of Aspiration: A Study of the Challenges Facing New York City’s Middle Class

February 5th, 2009
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For much of its history, New York City has thrived as a place that both sustained a large middle class and elevated countless people from poorer backgrounds into the ranks of the middle class. The city was never cheap and parts of Manhattan always remained out of reach, but working people of modest means—from forklift operators and bus drivers to paralegals and museum guides—could enjoy realistic hopes of home ownership and a measure of economic security as they raised their families across the

The Mortgage Crisis Blog Featured, Mortgage Crisis

Six more months of credit crunch

February 3rd, 2009
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The Federal Reserve today extended for six months emergency funding programs meant to ease the credit crunch. Its programs, which will end Oct. 30, are designed to support short-term lending to businesses as well as loans to consumers such as auto loans, student loans and credit card debt. The Fed also seeks to protect investors in money market funds. Apparently, the Fed fears the credit crisis will continue through much of this year. To read the Fed’s announcement, which includes a brief des

The Mortgage Crisis Blog Featured, Mortgage Crisis

What Cooked the World’s Economy? It wasn’t your bad mortgage

February 1st, 2009
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We are living through the worst financial scandal in history. It dwarfs 1929, Ponzi’s scheme, Teapot Dome, the South Sea Bubble, tulip bulbs, you name it. Credit derivatives—those securities that few have ever seen—are one reason why this crisis is so different from 1929.

It’s 2009. You’re laid off, furloughed, foreclosed on, or you know someone who is. You wonder where you’ll fit into the grim new semi-socialistic post-post-industrial economy colloquially known as “this mess.”

You’re astonished and possibly ashamed that mutant financial instruments dreamed up in your great country have spawned worldwide misery. You can’t comprehend, much less trim, the amount of bailout money parachuting into the laps of incompetents, hoarders, and miscreants. It’s been a tough century so far: 9/11, Iraq, and now this. At least we have a bright new president. He’ll give you a job painting a bridge. You may need it to keep body and soul together.

The basic story line so far is that we are all to blame, including homeowners who bit off more than they could chew, lenders who wrote absurd adjustable-rate mortgages, and greedy investment bankers.

Credit derivatives also figure heavily in the plot. Apologists say that these became so complicated that even Wall Street couldn’t understand them and that they created “an unacceptable level of risk.” Then these blowhards tell us that the bailout will pump hundreds of billions of dollars into the credit arteries and save the patient, which is the world’s financial system. It will take time—maybe a year or so—but if everyone hangs in there, we’ll be all right. No structural damage has been done, and all’s well that ends well.

Sorry, but that’s drivel. In fact, what we are living through is the worst financial scandal in history. It dwarfs 1929, Ponzi’s scheme, Teapot Dome, the South Sea Bubble, tulip bulbs, you name it. Bernie Madoff? He’s peanuts.

Credit derivatives—those securities that few have ever seen—are one reason why this crisis is so different from 1929.

Derivatives weren’t initially evil. They began as insurance policies on large loans. A bank that wished to lend money to a big, but shaky, venture, like what Ford or GM have become, could hedge its bet by buying a credit derivative to cover losses if the debtor defaulted. Derivatives weren’t cheap, but in the era of globalization and declining American competitiveness, they were prudent. Interestingly, the company that put the basic hardware and software together for pricing and clearing derivatives was Bloomberg. It was quite expensive for a financial institution—say, a bank—to get a Bloomberg machine and receive the specialized training required to certify analysts who would figure out the terms of the insurance. These Bloomberg terminals, originally called Market Masters, were first installed at Merrill Lynch in the late 1980s.

Subsequently, thousands of units have been placed in trading and financial institutions; they became the cornerstone of Michael Bloomberg’s wealth, marrying his skills as a securities trader and an electrical engineer.

It’s an open question when or if he or his company knew how they would be misused over time to devastate the world’s economy.

Fast-forward to the early years of the Clinton administration. After an initial surge of regulatory behavior in favor of fair markets, especially in antitrust, that sort of behavior was abandoned, and free markets triumphed. The result was a morass of white-collar sociopathy at Archer Daniels Midland, Enron, and WorldCom, and in a host of markets ranging from oil to vitamins.

This was the beginning of the heyday of hedge funds. Unregulated investment houses were originally based on the questionable but legal practice of short-selling—selling a financial instrument you don’t own in hopes of buying it back later at a lower price. That way, you hedge your bets: You cover your investment in a company in case a company’s stock price falls.

But hedge funds later diversified their practices beyond that easy definition. These funds acquired a good deal of popular mystique. They made scads of money. Their notoriously high entry fees—up to 5 percent of the investment, plus as much as 36 percent of profits—served as barriers to all but the richest investors, who gave fortunes to the funds to play with. The funds boasted of having genius analysts and fabulous proprietary algorithms. Few could discern what they really did, but the returns, for those who could buy in, often seemed magical.

But it wasn’t magic. It amounted to the return of the age-old scam called “bucket shops.” Also sometimes known as “boiler rooms,” bucket shops emerged after the Civil War. Usually, they were storefronts where people came to bet on stocks without owning them. Unlike their customers, the shops actually owned blocks of stock. If customers were betting that a stock would go up, the shops would sell it and the price would plunge; if bettors were bearish, the shops would buy. In this way, they cleaned out their customers. Frenetic bucket-shop activity caused the Panic of 1907. By 1909, New York had banned bucket shops, and every other state soon followed.

In the mid-’90s, though, the credit-derivatives industry was hitting its stride and argued vehemently for exclusion from all state and federal anti-bucket-shop regulations. On the side of the industry were Federal Reserve Chairman Alan Greenspan, Treasury Secretary Robert Rubin, and his deputy, Lawrence Summers. Holding the fort for the regulators was Brooksley Born, who headed the Commodity Futures Trading Commission (CFTC). The three financial titans ridiculed the virtually unknown and cloutless, but brilliant and prophetic Born, who warned that unrestricted derivatives trading would “threaten our regulated markets, or indeed, our economy, without any federal agency knowing about it.” Warren Buffett also weighed in against deregulation.

The Mortgage Crisis Blog Featured, Mortgage Crisis