Confusing, coercive and corrupt financial contracts

Our President is making a concerted effort to reform credit card issuers. Emphasis mine.

Obama Seeks Reform of Credit Card Firms’ Practices
By Michael D. Shear and Nancy Trejos
Washington Post Staff Writers

…”So that if somebody gets a credit card, they don’t find that their rates go up exponentially on a certain day based on fine print in a contract that no one is ever going to read, [like TARP?] or that we find out that certain fees — you know, interest is charged, [like on the National Debt?] an interest rate is charged on certain fees involved in a credit card,” [press secretary Robert] Gibbs said.

“He’s going to outline and go through some principles of what he would like to see and that he believes Congress can get done [Congressman Rangel could pay his taxes?] in order to protect the American people,” Gibbs added.

Obama pushing for credit-card reforms
By Ruth Mantell, MarketWatch

…Obama laid out four core principles:

  • Banning unfair rate increases, fees and penalties
  • Providing transparent and easy-to-understand forms and statements [like the IRS?]
  • Providing easy-to-access contract terms [ditto] to enable simplified comparison shopping for consumers
  • Creating more accountability in the system, with stronger monitoring and enforcement [like Secretary Geithner’s tax evasion?]

Tough talk at WH for credit card execs

…In Thursday’s meeting, Obama discussed four principles that he’d like to see included in any legislation. According to a White House statement, they included:

  • “Strong and reliable protections for consumers — protections that ban unfair rate increases and forbid abusive fees and penalties.
  • “All the forms and statements that credit card companies send out have to have plain language that is in plain sight. No more fine print, no more confusing terms and conditions.
  • “Requirement that all firms make their contract terms easily accessible and provide consumers with the information they need to go online and do some comparison shopping. It also means requiring firms to offer at least one simple, straightforward credit card that offers the strongest protections along with the simplest terms and prices. [like a flat tax?]
  • “Increased accountability in the system, so that we can hold those responsible who do engage in deceptive practices [Rangel, Geithner and many others] that hurt families and consumers. [like inflation?] This will require beefing up monitoring and enforcement, and also penalties for any violations of the law.” [Not Rangel, Geithner or any other members of the Administration, however.]

If these rules make for better credit card companies, wouldn’t they also make for better government? I mean, I’d really like to go online and compare alternatives.

My credit card agreement, for example, is the very model of transparency and simplicity when compared to the tax code. No contest. And I don’t remember any stories about Congressmen, Treasury Secretaries, et. al., having difficulty with their credit card payments, just their taxes.

Never mind that this “evil corporations” rhetoric will substantially reduce the availability of consumer credit and damage several recipients of TARP funds – the exact opposite of what TARP is supposed to be doing – the burning question is why can’t these same principles be applied to the IRS, an organization intended to be regulated by the general government?

And where’s my advance notice and opt-out form from Obama concerning the fact that my tax rates are going to go up “exponentially” (I don’t think Mr. Gibbs actually knows the meaning of the word exponential.)?

I am a creditor of the general government and I think we need to rexamine the contract.

Bailout; brought to you…

…by the same people who got us into the problem.

Think about it. In July, Sen Charles Schumer asserted publicly that IndyMac, “Could face a collapse,” precipitating the bank run that the Senator assures us had nothing to do with the bank’s collapse.

That was the week after Senator Dodd assured us that everything was fine at Fanny Mae and Freddie Mac, “Just fine.”

This week Majority Leader Harry Reid caused a huge drop in insurance company stocks, and your 401k, by announcing in a press conference that a major insurer was “about to go bankrupt.”

Main Street vs. Wall Street
By Arnold Kling

The financial bailout isn’t as bad as Main Street thinks. It’s worse.

…The American people are being given two reasons to support the bailout, namely, that it is needed to prevent another Great Depression and that it will actually earn a profit for taxpayers. Both rationales are suspect.

The most credible evidence that the Main Street economy is in danger is that “Ben Bernanke is worried, so everyone should be worried.” In fact, no economic textbook, including Bernanke’s, offers any theory that predicts depression as a result of consolidation in the financial sector.

…The other claim that is made on behalf of the bailout is that Treasury will make a profit for taxpayers by buying distressed mortgage-related assets. However, this claim is being made by the same people who did not see the crisis coming, in large part because they do not understand how the values of these sorts of securities behave.

Read the whole thing

Fire Congress

It wouldn’t be quite so galling if they could at least acknowledge it was their social engineering that cost a trillion dollars – and rising – did severe economic damage to the very people they intended to help and has screwed everybody except their corporatist buddies. Instead, Barney Frank promises to do a better job of social engineering next year.

Clinton Democrats are to blame for the credit crunch

For generations, America’s bankers have been firmly refusing credit to those they judged unworthy of it. Yet the mountain of toxic subprime debt that has threatened to overwhelm the entire financial system, and the astonishing number of mortgage foreclosures across the United States, is proof that, at some point in the relatively recent past, bankers radically altered their behaviour and began to shower mortgages on borrowers who had no realistic prospect of keeping up their repayments. What could possibly have induced them to act so recklessly, and so out of character? The facile answer to that question is greed, the lure of a fast and easy buck. The correct answer is that banks were bullied, cajoled and coerced into lowering their lending standards by politicians in pursuit of an ideological agenda.

How Government Stoked the Mania

Fannie and Freddie played a significant role in the explosion of subprime mortgages and subprime mortgage-backed securities. Without Fannie and Freddie’s implicit guarantee of government support (which turned out to be all too real), would the mortgage-backed securities market and the subprime part of it have expanded the way they did?

Perhaps. But before we conclude that markets failed, we need a careful analysis of public policy’s role in creating this mess. Greedy investors obviously played a part, but investors have always been greedy, and some inevitably overreach and destroy themselves. Why did they take so many down with them this time?

Part of the answer is a political class greedy to push home-ownership rates to historic highs — from 64% in 1994 to 69% in 2004. This was mostly the result of loans to low-income, higher-risk borrowers. Both Bill Clinton and George W. Bush, abetted by Congress, trumpeted that rise as it occurred. The consequence? On top of putting the entire financial system at risk, the hidden cost has been hundreds of billions of dollars funneled into the housing market instead of more productive assets.

Beware of trying to do good with other people’s money. Unfortunately, that strategy remains at the heart of the political process, and of proposed solutions to this crisis.

Government Made the Mess

Bankers and politicians say that the government needs to save the $62 trillion credit default swap market from collapse, but how can $700 billion fix a broken market that is nearly 90 times the size of that amount of money? The total derivatives market, which is the real source of the turmoil in credit markets, is $1,400 trillion.

That is 200 times the size of this $700 billion rescue plan. If either the credit default swaps market, which involves companies placing bets on and insuring risk against the likelihood of default on different types of bonds, or the derivatives market is really broken and going to collapse, this relatively small amount of money will not stop that process from happening.

… Nevertheless, the banks and their political friends are asking investors and taxpayers to “just trust them” about the value of these assets on bank balance sheets. If it already weren’t obvious, this is the most blatant attempt yet by the “fat cats” on Wall Street and in Washington to sucker investors and the taxpayer. It’s also strikingly similar to what the Japanese banks pulled off after their bubble burst with government support, and we know how well that worked. It took Japan more than a decade to work through its banking crisis.

It failed miserably and probably made their problems a lot worse. Is that the outcome we want here? My view is that the further away we move form honest and transparent markets, the worse this crisis of confidence is going to get.

Why the Bailout is Bad for America

When government tries to redistribute wealth from rich people to poor people, it causes economic damage by discouraging productive activity by the most successful and by discouraging productive activity from those who are lured into government dependency. The proposed bailout is even more pernicious. It would redistribute wealth from poor people to rich people, and simultaneously encourage reckless behavior by recipients and impose an immoral burden on those that behaved responsibly.

Re: Wooden Arrows — The Rest of the Story

Whatever the merits or not of tax relief on kids’ bows and arrows, it’s got nothing to do with a Super-Duper-Mega-Ultra-Urgent Act-Now-Or-Else Save-The-Global-Economy Bailout Bill. No reasonable person would expect to find the urgent issue of toy arrows addressed in such a bill. So, when it is, it’s an arrow at the heart of one of the great bedrock principles of republican government: public accountability. No citizen can follow the dispositions of his legislature in a world in which the Highways (Emergency Paving) Bill also includes a tax credit for transgendered blow-up dolls. Earmarks are an affront to government by the people.

Reading all of all of the above is recommended.

This bailout is just one more in a series of disastrous attempts at central planning that began with Herbert Hoover and was perfected as a technique by FDR. When faced with what they were convinced was a crisis of hundred year proportions, Congress piled on to citizens by larding the bill up with pork and earmarks. They couldn’t focus on the problem without their Pavlovian salivation over the opportunity to redistribute some loot in exchange for votes. They may have miscalculated. Everyone except the likes of Franklin Raines and Angelo Mozilo, and, of course Chris Dodd and Barney Frank et. al., should be outraged. If not, the experiment is over. Firing Congress is probably too late, and we’re very likely to have Democrats controlling Congress and the White House going forward. Or Republicans who make inconsequentially different noises.

As a nation, we deserve what we’re going to get. It isn’t going to be pretty.

We also deserve to have some principled defense of capitalism in national elected office. But we don’t: We have John McCain, who started this debate by accepting the statists’ premises. I take little comfort in the fact that his principled lack of principle screwed him, too. Sleeping with the enemy is only a good idea if you’re James Bond, and then only once.

This bailout was the largest single step on the Road to Serfdom this country has ever taken.

World’s greatest deliberative body? ROTFLMAO!

How Did the Bailout Bill Get So Long?
The original bill was just three pages long, now it’s up to 450 – in a week. How did they read it all? Who wrote it? WTF does it condemn us to?

They don’t know, either.

Senate Folds Mental Health Parity Into Wall Street Bailout Bill

Seems appropriate. They should have done the mental health thing before the bailout vote, though.

Bailout bill: rum, racetracks and wool research
Nelson says bailout money could come from China

I’m all for drunken Chinese racing-sheep research.
(Note to bettinak, See? Borrow from the ChiComs. Probably better if we’d just printed it.)

By the way, when did the House become the chamber of serious deliberation and sober second thought?

And as I go to post this, I note this from James Taranto:

By a vote of 74-25, the U.S. Senate last night approved a bill aimed at “providing stability to and preventing disruption in the economy and financial system and protecting taxpayers”–popularly called the bailout.

Or, as it is formally known, the Paul Wellstone Mental Health and Addiction Equity Act of 2007.

When the House rejected the same measure Monday, it was known as the Emergency Economic Stabilization Act of 2008. The Providence Journal explains what happened:

In part, it has to do with the U.S. Constitution. Article 7, Section 1 says tax bills must originate in the House of Representatives.

In order to improve chances that the bailout bill, which the House defeated on Monday, would be approved this time around, the Senate tacked on several popular provisions, such as extending the life of business tax cuts that were set to expire and changing the alternative minimum tax, a much-loathed part of the tax code intended to ensure that the well-to-do pay their fair share but that in recent years has increasingly affected the middle class.

And an element of the tax package was legislation advanced by [Rhode Island’s Rep. Patrick] Kennedy that requires health-insurance companies to offer coverage of mental illness on a par with that of physical illness.

Once the Senate added those provisions to the rescue bill, it qualified as a tax bill, which the upper chamber is constitutionally prohibited from originating.

In order to get around the Constitution, the leaders turned to the time-honored stratagem of finding a live but dormant House bill–Kennedy’s mental-health parity bill–to use as a shell.

“They take out the entire text” of Kennedy’s old bill, “and then, by amendment, they substitute the other bill,” said Don Ritchie, an assistant Senate historian.

So the bailout ended up attached to a measure that extends benefits to people suffering from depression and is named after a lawmaker who died in a crash. Never let it be said that the U.S. Senate lacks a sense of humor.

It’s time for a revolution.

Ambisinistrous II

Yesterday’s post elicited a comment from bettinak, who contributes to She closed with “To be fair, I will post your article and my comment on my blog, I hope you do the same.”

Well, she “posted” my article as an unlinked URL (like those I just provided to her blog). No big deal except for her readers who might have appreciated a bit of, you know, context. In any case, I thought I would provide some context, and some education, by also posting my TOC comment response as a comment at her blog. Unfortunately, when I went to do that I found that it either doesn’t like Macs, or it doesn’t like Firefox. Couldn’t get it done. So, I’ve decided to reciprocate at a higher level. This (you can also just scroll down) is my post upon which Bettina comments. Here’s her comment:

Yes, rely on Sarah Palin to carry your libertarian agenda tonight. Good luck! :)

Your “fact sheets” on tax proposals (only 5% of those targeted for a tax cut by Obama pay taxes) and on bank bailouts are so flawed, it’s amusing…Lehman was allowed to fail, AIG might still fail.

Wall Street investment bank giants are dead on arrival already. The only institutions “bailed out” will probably your and my community banks– you know, the one that gives a you a small business loan when you need it as well as foreign institutions that hold a giant portion of our debt. But of course, you think, the world will continue to invest in US instruments even if they turn out as worthless as – say- Chechen junk bonds? You probably think we don;t need foreign investments to carry our one trillion dollar federal budget deficit, nor do we owe anyone pay back to restore the trust in our “this the greatest nation in the world’s” financial system. Let everything default and money will continue to flow our way..:)

Yes, the poor minority homeowner wanna bes caused it all, along with the liberal political cronies who enabled them. How about your friend, Sen. John McCain’s economic advisor and longtime ally, Republican Sen. Phil Gramm?

” In 1999, former Senator Phil Gramm (who is, incidentally, Senator John McCain’s economic adviser and cochairs his presidential campaign) set out to completely gut the Glass-Steagall Act… allowing commercial banks, investment banks, and insurers to merge … Sen. Gramm was the driving force behind the Gramm-Leach-Bliley Act, as he had received over $4.6 million from the FIRE sector (Finance, Insurance and Real Estate donations) over the previous decade, and once the Act passed, an influx of “megamergers” took place among banks and insurance and securities companies, as if they had been eagerly awaiting the passage of Gramm’s Act. “Shortly after George W. Bush was elected president… Senator Phil Gramm clandestinely slipped a 262-page amendment into the omnibus appropriations bill titled: Commodity Futures Modernization Act. It is likely that few senators read this bill, if any. The essence of the act was the deregulation of derivatives trading (financial instruments whose value changes in response to the changes in underlying variables; the main use of derivatives is to reduce risk for one party). The legislation contained a provision — lobbied for by Enron, a major campaign contributor to Gramm — that exempted energy trading from regulatory oversight. Basically, it gave way to the Enron debacle and ushered in the new era of unregulated securities. Interestingly enough, Gramm’s wife, Wendy, had been part of the Enron board, and her salary and stock income brought in between $900,000 and $1.8 million to the Gramm household, prior to the passage of the Commodity Futures Modernization Act…”

The people who speculated with other people’s debts caused this crisis and they were from your side of the fence.

Your experts say:

“Talk of Armageddon, however, is ridiculous scare-mongering. If financial institutions cannot make productive loans, a profit opportunity exists for someone else. This might not happen instantly, but it will happen.” Hey, I hope you come through for us!

Great idea to let everything bankrupt! That way, if AIG fails, and credit markets dry up, the municipal bonds insured by AIG and dependent on income from their investments will go to hell, too, taking with them the communities themselves. Then you Libertarians can sit there and live out your Libertarian utopia: No taxes, no infrastructure, no roads, police and schools– a return to caveman society. a dog-eat-dog world of survival of the fittest. I prefer a society in which we take responsibility for each other’s mistakes best as possible to help all of us out of this crisis with probably, positive returns in five years

Here is the response I couldn’t make on her blog:


Thanks for your comment.

I can’t see where I (or any of those quoted) claimed only 5% of those to whom Obama wants to give a tax cut actually pay taxes. What I said was 2/3’s didn’t pay taxes. That was a place holder from a draft and I neglected to change it. It’s 41% of Americans who don’t pay taxes, but will get a “refund” under Obama’s plan.

I am correcting the post.

Actually, it’s far worse than that, Obama’s plan actually increases marginal tax rates at the low end of incomes:

As the chart shows, Obama’s give-and-take tax policy results in marginal tax rates of 34 percent to 39 percent in the $31,000 to $45,000 income range for this family. That’s an increase of 13 percentage points or more from the current rates.

What accounts for the higher rates? First, Obama expands the maximum child and dependent care credit for families with one young child from $1,050 to $1,500 and phases down the credit over a longer income range, from $30,000 to $58,000. Throughout this income range, the credit is phasing out at a rate of $30 per $1,000 of income, thus raising the effective tax rate by 3 percentage points. Obama also makes certain credits refundable, which introduces a tax penalty of 10 percent or 15 percent, depending on the income bracket.

I don’t know, but now that I think about it, maybe he’s giving tax cuts to the people whose taxes he’s raising and that’s how he gets 95%.

Yes, Lehman failed. Your point? So did Bear-Stearns, IndyMac, WaMu, Wachovia… If AIG fails it will be with the US government as an 81% owner.

I’m not going to bother to reply to inferential speculation about what I think. I will point out that much of our trillion dollar deficit is owed to the Chinese already, and they’ve threatened us with it.

So to get the $700 billion, we’ll either borrow more from them or just print it. Which do you prefer?

If 0 down, interest only, ARMs were such good idea for the “homeowner wanna bes,” we can certainly ask Dr. Phil’s question -”Hows that workin’ out for ya?”

On the Glass-Steagall reform, I’ll let Bill Clinton, who signed it, respond:
[When] asked … whether he regretted signing that legislation. Mr. Clinton’s reply: “No, because it wasn’t a complete deregulation at all. We still have heavy regulations and insurance on bank deposits, requirements on banks for capital and for disclosure. I thought at the time that it might lead to more stable investments and a reduced pressure on Wall Street to produce quarterly profits that were always bigger than the previous quarter.

“But I have really thought about this a lot. I don’t see that signing that bill had anything to do with the current crisis. Indeed, one of the things that has helped stabilize the current situation as much as it has is the purchase of Merrill Lynch by Bank of America, which was much smoother than it would have been if I hadn’t signed that bill.“”

The people who speculated with other people’s money were first and foremost Fannie and Freddie as front-men for the Democrats in Congress. They wildly encouraged greed in Wall St. and no doubt Wall Street deserves to be punished – typically that would mean failure. These weren’t capitalists, they were corporatists, so they expect to be bailed out as Fannie and Freddie promised. As Barney Frank said, “I want to roll the dice a little bit more in this situation towards subsidized housing.” Snake-eyes, Barney.

I’ll again skip over the parts where you tell me what I want, and go to the bottom line: It’s fine that you “prefer a society in which we take responsibility for each other’s mistakes best as possible to help,” it just isn’t relevant to your hope for positive returns now or in 5 years, much less are your intentions useful to people with marginal credit who could have gotten loans before Fannie and Freddy screwed things up and now won’t be able to – bailout or no bailout.

Finally, you do realize that the $700 billion was a number picked out of a hat? No one has a clue whether it will even be effective in anything except devaluing the dollar.


On Monday, Nancy Pelosi infamously blamed “right-wing ideology of anything goes, no supervision, no discipline, no regulation” for the financial pickle in which we find ourselves.

Well, here are Pelosi’s forces of “right-wing ideology.”

Apparently she’s talking about Democrats, and she can’t tell sinister from dexter. She’s equally clumsy on both sides.

Mona Charon points out that it’s as if nothing Democrats said in the past counts.

Now you could make the case that before 2008, well-intentioned people were simply unaware of what their agitation on behalf of non-credit-worthy borrowers could lead to. But now? With the whole financial world and possibly the world economy trembling and cracking like a cement building in an earthquake, Democrats continue to try to fund their friends at ACORN? And, unashamed, they then trot out to the TV cameras to declare “the party is over” for Wall Street (Nancy Pelosi)? The party should be over for the Democrats who brought us to this pass. If Obama wins, it means hiring an arsonist to fight a fire.

Well, as things have unfolded I don’t actually think you can make a case that these Democrats were well-intentioned. Half of them got sweetheart loans from Angelo Mozilo. Most of them got big campaign money from Fannie and Freddy. None of them were interested in talking about accounting practices that would have made Enron blush. They passed laws to force private enterprise to make bad loans, set up government run enterprises to “finance” those loans, and then refused to consider the possibility that anything could go wrong with that. Fannie Mae and Freddie Mac pushed bad paper at the instruction of these Democrats.

Thomas Sowell notes the essential fault: government manipulation of the market. Bailout Politics

If Fannie Mae and Freddie Mac were free market institutions they could not have gotten away with their risky financial practices because no one would have bought their securities without the implicit assumption that the politicians would bail them out.

It would be better if no such government-supported enterprises had been created in the first place and mortgages were in fact left to the free market. This bailout creates the expectation of future bailouts.

Jeff Jacoby: Frank’s fingerprints are all over the financial fiasco

Barney Frank’s talking points notwithstanding, mortgage lenders didn’t wake up one fine day deciding to junk long-held standards of creditworthiness in order to make ill-advised loans to unqualified borrowers. It would be closer to the truth to say they woke up to find the government twisting their arms and demanding that they do so – or else.

The roots of this crisis go back to the Carter administration. That was when government officials, egged on by left-wing activists, began accusing mortgage lenders of racism and “redlining” because urban blacks were being denied mortgages at a higher rate than suburban whites.

The pressure to make more loans to minorities (read: to borrowers with weak credit histories) became relentless. Congress passed the Community Reinvestment Act, empowering regulators to punish banks that failed to “meet the credit needs” of “low-income, minority, and distressed neighborhoods.” Lenders responded by loosening their underwriting standards and making increasingly shoddy loans. The two government-chartered mortgage finance firms, Fannie Mae and Freddie Mac, encouraged this “subprime” lending by authorizing ever more “flexible” criteria by which high-risk borrowers could be qualified for home loans, and then buying up the questionable mortgages that ensued.

All this was justified as a means of increasing homeownership among minorities and the poor. Affirmative-action policies trumped sound business practices. A manual issued by the Federal Reserve Bank of Boston advised mortgage lenders to disregard financial common sense. “Lack of credit history should not be seen as a negative factor,” the Fed’s guidelines instructed. Lenders were directed to accept welfare payments and unemployment benefits as “valid income sources” to qualify for a mortgage. Failure to comply could mean a lawsuit.

We got where we are because of Democrats. Getting out of it is going to be hard. John Berlau: Doing Something?

So a substantial indirect effect of the bailout will be higher prices for food and gasoline, and this will probably hit ordinary households sooner than many politicians expect. When speculators expect the dollar to fall or be volatile, they immediately try to hedge an unstable currency through buying commodity futures. Thus, last week saw a big spike in oil prices, which had been steadily declining over the last few months. Other commodities, notably gold, also shot up. Corn and wheat prices, already boosted because of ethanol mandates, will also likely shoot up in response to a falling dollar. An article in Stocks, Futures and Options Magazine entitled “New Rules in the Commodity Game” notes that the dollar is now a stronger day-to-day factor in corn futures trading than even weather conditions.

On top of this inflation, the bill might even worsen the very credit contraction it is trying to stop. This is because of its effects on financial firms that have to follow mark-to-market accounting rules. As I wrote earlier this month in the Wall Street Journal, the credit “contagion” has been spread in large part by these rules, adopted by the Securities and Exchange Commission and bank regulators in the last few years, and subject to a big expansion last November with Financial Accounting Standard 157.

Because the mark-to-market rules require writedowns of even performing loans based on the last sale of similar assets, good banks holding mortgages that haven’t been impaired often have to adjust their books based on another bank’s sale — even if they plan to hold their loans to maturity. And because the rules are tied to solvency requirements from the government’s bank regulators, banks lose “regulatory capital,” even if the loss is only on paper. Thus, in the scramble to conserve capital, financial firms have less money to lend.

But the bailout — in addition to putting taxpayers on the hook and massively increasing government’s role in the economy — would likely make mark-to-market and hence the credit crisis worse, according to experts who have reviewed Paulson’s plan. Paulson proposes a “reverse auction” approach by which government would choose a selling price to buy a financial firm’s mortgage-backed securities. But unless mark-to-market rules were changed, this sale would force other firms to write down their assets to this price, which could further constrain the amount of money they can lend.

An Associated Press story paraphrases American Enterprise Institute scholar Vincent Reinhart, a former Federal Reserve monetary affairs director, as saying that “if the auctions set too low a price for mortgage-related assets, other institutions with bad debt may be forced to take the distressed valuation onto their books under mark-to-market accounting rules.” Similarly a Washington Post story by financial reporter Neil Irwin says that the purchase could force more regional banks to write their assets down. Thus, regional banks as well as big banks will be subject to credit constraints.

As of today, some accounts say the bills will include authority for the SEC to suspend mark-to-market. But the SEC and the banking agencies already have the authority to suspend it and use any accounting rules they wish. Since they have been resistant to doing so thus far, even in the midst of this crisis, putting in what amounts to at best Congressional “wishes” will likely not move these agencies. The only way Congress could make a meaningful change would be to require this suspension of rules, and lawmakers do not seem willing to do that yet.

Note, the “mark-to-market” rule was deregulated yesterday.

Finally, getting government out of getting out of this mess seems like a good idea. Jeffrey A. Miron: Commentary: Bankruptcy, not bailout, is the right answer

This bailout was a terrible idea. Here’s why.

The current mess would never have occurred in the absence of ill-conceived federal policies. [Regulations!] The federal government chartered Fannie Mae in 1938 and Freddie Mac in 1970; these two mortgage lending institutions are at the center of the crisis. The government implicitly promised these institutions that it would make good on their debts, so Fannie and Freddie took on huge amounts of excessive risk.

Worse, beginning in 1977 and even more in the 1990s and the early part of this century, Congress pushed mortgage lenders and Fannie/Freddie to expand subprime lending. The industry was happy to oblige, given the implicit promise of federal backing, and subprime lending soared.

This subprime lending was more than a minor relaxation of existing credit guidelines. This lending was a wholesale abandonment of reasonable lending practices in which borrowers with poor credit characteristics got mortgages they were ill-equipped to handle.

Once housing prices declined and economic conditions worsened, defaults and delinquencies soared, leaving the industry holding large amounts of severely depreciated mortgage assets.

The fact that government bears such a huge responsibility for the current mess means any response should eliminate the conditions that created this situation in the first place, not attempt to fix bad government with more government.

The obvious alternative to a bailout is letting troubled financial institutions declare bankruptcy. Bankruptcy means that shareholders typically get wiped out and the creditors own the company.

Bankruptcy does not mean the company disappears; it is just owned by someone new (as has occurred with several airlines). Bankruptcy punishes those who took excessive risks while preserving those aspects of a businesses that remain profitable.

In contrast, a bailout transfers enormous wealth from taxpayers to those who knowingly engaged in risky subprime lending. Thus, the bailout encourages companies to take large, imprudent risks and count on getting bailed out by government. This “moral hazard” generates enormous distortions in an economy’s allocation of its financial resources.

Thoughtful advocates of the bailout might concede this perspective, but they argue that a bailout is necessary to prevent economic collapse. According to this view, lenders are not making loans, even for worthy projects, because they cannot get capital. This view has a grain of truth; if the bailout does not occur, more bankruptcies are possible and credit conditions may worsen for a time.

Talk of Armageddon, however, is ridiculous scare-mongering. If financial institutions cannot make productive loans, a profit opportunity exists for someone else. This might not happen instantly, but it will happen.

Further, the current credit freeze is likely due to Wall Street’s hope of a bailout; bankers will not sell their lousy assets for 20 cents on the dollar if the government might pay 30, 50, or 80 cents.

Today, the Senate takes up a slightly tweaked version of the bailout. Frankly, it’s hard to see that passage of this bill will be better in the long term. But, since Obama is likely to be our next President and since the pain of a decades long government experiment in market manipulation won’t be over for a long while no matter what; we’re going to see more socialist intervention in the economy anyway. I don’t think it much matters whether we have a bailout or not. The damage will take as long to undo as it did to set up.

So, advice for Sarah Palin and John McCain:

1-Don’t accept the Democrat premise that we have free-market evil, “failure to regulate,” and degenerate into a me-too populist hissy-fit, as John McCain has already done. This was a failure to regulate government – not a failure of government regulation. It’s preponderantly the Democrats who have demonstrated failure in the first case. Unable to learn or be accountable, they will provide way too much in the second.

When “blame capitalism” frenzy seizes the Democrats, forcefully point out that it is precisely regulation that got us into this mess – mainly the Community Reinvestment Act requiring banks make bad loans or be fined, added to the cozy collusion with Fannie and Freddy of Democrats like Barney Frank and Chris Dodd. Be prepared to quote them extensively.

Further, make note that Angelo Mozilo and his ilk were not practicing capitalism, but were rent seeking corporatist welfare queens. Don’t fail to point out that their government sponsored analogs, Jim Johnson and Franklin Raines were even worse.

Be prepared to say Bear-Stearns, Lehman and AIG should have been allowed to fail – except maybe since the government led them into failure we should fix it and never get into such a position again. If we had had a free market, they never would have taken on the risk they did. They thought it was mitigated by F&F.

If Katy Couric wants to know what other regulation John McCain has suggested (aside from reining in F&F) to stop this “corporate greed,” tell her that’s the wrong question. The question is, “What will government do to reform itself after causing this abject failure?” In this case, I know McCain has actually made his own campaign theme difficult to execute by jumping on the bandwagon of “Wall Street Greed” (which is true, but irrelevant), but Sarah Palin could distinguish herself in debate by rejecting McCain’s goof and going after the statists who caused the problem.

Deregulation is – rescinding rules forcing banks to make bad loans. Deregulation is – never having set up Fannie and Freddy in the first place because of how statists will always prevert such entities. (Setting up F&F was regulation.)

2-While we’re on advice, stop letting the Dems get away with talking about a “tax-cut” for 95% of Americans. Ask Obama what a tax cut for 95% of Americans actually means. Two-thirds Correction Forty-one percent of Americans don’t even PAY taxes. Obama has to conflate welfare with tax-cuts to even make the claim. Ask him how much of an income tax refund should reasonably be given to people who haven’t paid any income tax. What is being refunded? He’ll natter about sales tax. Tell him that’s a problem for the States and covered under the 10th Amendment.

3-Palin especially should have this ready: If Biden says in tomorrow’s debate, as Obama did Friday, that the US has only 3% of the world’s oil reserves, call him on it. We have far more. We don’t know exactly how much more because the Democrats have prohibited offshore exploration studies for decades. Even so, ask Biden how much oil there is in either Colorado shale or in the Bakken Formation compared to Saudi Arabia. That oil isn’t even counted in US “reserves.” Mention his confusion on clean coal while you’re at it.

ACORN Obama Axis Update

Further thoughts and links.

ACORN is a “community organizer” master-reseller whose “downstream” contractors are regularly convicted for voter fraud. The fraud is habitual and formulaic, not accidental and creative. ACORN engages otherwise hard-to-employ individuals to register cartoon characters, dogs and dead people as voters.

ACORN is at least as good as Jesse Jackson’s Rainbow Coalition at using the race card to shake down businesses (Banks, in ACORN’s victim-industry niche.) for cash and to force loans to be made to people who can’t pay the money back. The Chicago based inventor of this tactic, ACORN executive Madeline Talbott, calls it “affirmative action” for loans. I’d call it predatory thuggery perpetrated on both borrower and lender.

All this is well known. So is it fair to connect any of this to Barack Obama? If you think the company a man keeps over decades, for whom he expresses great fondness and to whom he substantially contributes money is a connection, then the answer must be “Yes.”

I’m not saying Obama directly participated in ACORN’s protection rackets or voter fraud. I am saying he knows about it (how could he not?), and therefore tolerates it. I’m saying he shares ACORN’s radical socialist philosophy. I’m pointing out that he worked for ACORN and funded ACORN. I’m contending the attempt to use the bailout bill to funnel money to ACORN was no coincidence, nor was a similar provision in the $300 billion mortgage bailout bill passed in July.

I’m giving the evidence that Obama’s campaign paid $800,000 to Citizens Services Inc., an ACORN captive corporation, between Feb and May 2008 – and grossly misrepresented the purpose of the payments in the FEC filing. I’m saying Obama wanted to hide the ACORN connection.

Since Obama has argued that his executive experience is proven by the fact that he runs the campaign, an $800K decision can’t be blamed on staff.

FEC reports show that from February-May 2008, Obama paid $832,598.29 to CSI.

The payments were for:

$310,441.20 25-FEB-08 STAGING, SOUND, LIGHTING
$160,689.40 27-FEB-08 STAGING, SOUND, LIGHTING
$98,451.20 29-FEB-08 TRAVEL/LODGING
$18,417.00 28-MAR-08 POLLING
$63,000.00 29-APR-08 ADVANCE WORK
$105.84 02-MAY-08 LICENSE FEES
$105.84 02-MAY-08 LICENSE FEES
$75,000.00 17-MAY-08 ADVANCE WORK
$13,176.20 17-MAY-08 PER DIEM

Interesting services and payments for a nonprofit that supposedly does simple canvassing work on behalf of low-income people. And now, the Obama campaign is going to wave its magic wand and change those services to get-out-the-vote work? What the…?

For your information: The New Orleans building that houses CSI also houses multiple chapters of ACORN and the SEIU– as well as the 527 group Communities Voting Together.

And for your information: A tipster points to shady business by CSI -detected by Maryland Democrat Al Wynn, of all people. His team, which filed an FEC complaint over the matter, linked several suspicious outfits used by his primary opponent to one address: 1024 Elysian Fields in New Orleans. That’s the address of CSI and ACORN.

…There is at least one other example of suspiciously large payments to Citizens Services, Inc. that call into question what kind of work this non-partisan, non-profit is doing.

See here, where liberal group Ohio Citizen Action notes a $907,808 payment to Citizens Services for canvassing and $590,526.10 for “campaign consulting.”

I’m saying Obama knows about this:

Another pre-2007 ACORN document instructs its staff:

Undocumented income is a feature that allows ACORN Housing counselors to capture the applicant(s) total household income. Primarily observed in minority and immigrant communities, this type of income is not reported to the IRS and is also known as under-the-table.

… and is OK with it.

I’m saying that the presence among his advisers of Franklin Raines and Jim Johnson, both disgraced CEO’s of Fannie Mae, who both got multi-million dollar golden parachutes, is at least bad judgment and very likely continued political collusion. Fannie was a prime conduit between people who took loans they couldn’t pay and the likes of Bear-Stearns. Fannie worked hand in glove with ACORN. Obama still works hand in glove with Fannie’s detritus. Jim Johnson was head of his VP search committee until the Fannie connection surfaced.

If someone will argue that a politician raised up by the hard-left Chicago machine, of which ACORN is an integral part, is not aware of these connections; that person might also have to grant that the politician couldn’t possibly be considered for any higher office than Drain Commissioner.

Documentation and more info at the sites below.


I’ve been fighting alongside ACORN on issues you care about my entire career. Even before I was an elected official, when I ran Project Vote voter registration drive in Illinois, ACORN was smack dab in the middle of it, and we appreciate your work. — Barack Obama, Speech to ACORN, November 2007

NY Post

ACORN’s political arm endorsed Obama in February and has ramped up efforts to register voters across the country. Meanwhile, completely ignored by the mainstream commentariat and clean-election crusaders, the Obama campaign has admitted failing to report $800,000 in campaign payments to ACORN. They were disguised as payments to a front group called “Citizen Services, Inc.” for “advance work.”

Jim Terry, an official of the Consumer Rights League, a watchdog group that monitors ACORN, noted: “ACORN has a long and sordid history of employing convoluted Enron-style accounting to illegally use taxpayer funds for their own political gain. Now it looks like ACORN is using the same type of convoluted accounting scheme for Obama’s political gain.”

NY Post

… Obama spent many years cultivating ties with, working with – and even funding – the very folks who pushed for the risky lending that underlies the current mess.

That is, “community organizer” groups like ACORN.

ACORN is especially noteworthy, not only because of its prominence in the drive to relax mortgage requirements, but also because of its shady tactics.

And its links to Obama.

Various ACORN chapters across the country, led by folks like Chicago’s Madeline Talbott, staged in-your-face protests in bank lobbies and filed complaints meant to hold up mergers sought by targeted banking firms.

Unless the banks agreed to ACORN’s terms – which many (understandably) did.

Talbott & Co. generally wanted them to ease down-payment requirements and ignore weak credit histories. And their intimidating tactics often necessitated police action, as at a ’97 protest at Pulaski Bank & Trust in Arkansas, where activists blocked drive-through lanes.

The movement’s biggest victory, of course, came when Fannie Mae and Freddie Mac began buying up the riskier loans – providing fresh incentive for banks to make even more of them.

No need to recount where all that led.

Meanwhile, Obama was right there by ACORN’s side all along.

“I’ve been fighting alongside ACORN on issues you care about my entire career,” he told the group last November.

Indeed, in the early ’90s, Obama was recruited by Talbott herself to run training sessions for ACORN activists.

ACORN also got funding from two charities, the Woods Fund and the Joyce Foundation, when Obama served on their boards, and from the Chicago Annenberg Challenge – the radical “education reform” outfit Obama ran from ’95 to ’99.

Ironically, the group stood to be a key beneficiary of the goodies Democrats were loading into Treasury Secretary Hank Paulson’s rescue plan – including one demand that 20 percent of any profits the feds make from reselling mortgage securities go to fund groups like ACORN.

No Quarter USA

Obama claimed he has no ties to “a group he did some legal work for” back in 1995. Let’s look into that claim.

* In 1995, Illinois Gov. Jim Edgar balked at implementing the federal motor voter law out of concern that letting people register via postcard and blocking the state from pruning voter rolls might invite vote fraud. A young lawyer named Barak Obama, a community organizer himself, sued on behalf of ACORN and won. ACORN later invited Obama to train its staff on voter registration drives.

* In 1996 Obama ran for Illinois State Senate and ACORN became his precinct organization, identifying and turning out the vote.

* When Obama served on the board of the Woods Fund for Chicago, the Fund frequently gave ACORN grants to fund its agenda and voter registration activities.

* In 2004 ACORN operates as Obama’s precinct organization in his run for the U.S. Senate.

* In 2007 ACORN’s national political arm endorsed Obama for president, and its “nonpartisan” voter registration affiliate starts registering hundreds of thousands of voters for Obama.

* Obama claims he has no ties to “a group he once did some legal work for.”

* In July 2008 the Pittsburgh Tribune Review, along with NoQuarter researchers, exposes the lie by uncovering $832,598.29 that the Obama campaign funneled through a front company called Citizens Services, Inc.

* ACORN, which receives partial taxpayer funding, used those funds to conduct solicitations for contributions to and raised over $800,000 for Obama in Philadelphia alone.

And some new evidence of fraud just in from North Carolina:

RNC rips group registering voters
Ray Gronberg
Durham Herald-Sun – Sep 20, 2008
requires registration

Durham County Board of Elections Director Mike Ashe wants state officials to check about 80 voter registration forms for possible fraud.

The forms came from a group called the Association of Community Organizations for Reform Now. The group is more commonly known by its acronym, ACORN.

…Ashe’s move this week came after elections officials discovered that ACORN workers had registered a 14-year-old, claiming the youth was born in 1989. The minimum voting age is 18.

They also knew of “less than half a dozen” people who, after receiving a formal notice from the board telling them they’d registered, got in touch with officials to say they’d never filled out a registration form, Ashe said.

In addition, election workers also noticed that ACORN-submitted registration forms so far have included up to 125 duplicate names. It appeared that ACORN registrars — who are paid and subject to a per-shift quota — were using the same names repeatedly, Ashe said.

…Ashe said the group has ignored his advice against hoarding registration forms and using highlighters to mark them. It’s given election workers up to 1,200 forms in one stack and by using highlighters has caused the elections staff “a lot of extra work.”

The more things stay the same, the more things don’t represent “change.”

See also:
Consumers Rights League
Check out James Terry’s testimony.

Check out the fraud map.

The Real ACORN
Check out The Ghost of Rathke lingers
ACORN is suing itself and Wade Rathke is still involved with ACORN.

Update: 6:23PM 1-Oct-08Stryker, Rockfeller, Detroit Schools funding story linked to ACORN consulting firm
What this portends, I do not know. But it isn’t anything positive.