Bailout Watch

Bloomberg News: “Boom-Era Property Speculators to Get Foreclosure Aid”

by Hans Bader on March 6, 2012 · 4 comments

in Bailout Watch, Economy

“The Obama administration will extend mortgage assistance . . . to investors who bought multiple homes before the market imploded, helping some speculators who drove up prices and inflated the housing bubble,” reports Bloomberg News. “Landlords can qualify for up to four federally-subsidized loan workouts starting around May, as long as they rent out each house or have plans to fill them, under the revamped Home Affordable Modification Program, also known as HAMP, according to Timothy Massad, the Treasury’s assistant secretary for financial stability. The program pays banks to reduce monthly payments by cutting interest rates, stretching terms, and forgiving principal.” “John Burns, an Irvine, California-based real estate consultant, said it’s ‘ridiculous’ for taxpayers to come to the aid of individuals who made bad bets. ‘What kind of precedent are you going to set?,’ Burns said. ‘Are you going to refund people who lost money on the stock market too?’” “The Obama administration announced last month that it would triple incentives to owners of mortgages . . . The extension will apply to all loans, including those held by Fannie Mae and Freddie Mac, the government-sponsored mortgage financiers. About 700,000 landlords will be eligible.”

The participation of Fannie Mae and Freddie Mac will drive up the cost to taxpayers of bailing out these government-sponsored mortgage giants, which have cost more than $170 billion to bail out, and have not repaid one penny of their bailout, unlike the private banks, which repaid their bailouts. The tab for bailing out Fannie and Freddie could go much higher. The Obama administration earlier lifted the $400 billion limit on bailouts for Fannie Mae and Freddie Mac, which helped spawn the mortgage crisis, so that they could continue to buy up junky mortgages at taxpayer expense, and showered their executives with $42 million in compensation. In May 2010, the administration and its congressional allies blocked efforts to reform Fannie and Freddie.

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A New Wall of Separation: End Corporate Welfare

by David Bier on March 1, 2012 · 3 comments

in Bailout Watch, Economy, Features, Stimulus to Nowhere

In his famous letter to the Danbury Baptists, Thomas Jefferson declared the Constitution erected a “wall of separation between church and state.” The Father of the Constitution James Madison agreed. “Religion and government will both exist with greater purity, the less they are mixed together,” he wrote in an 1822 letter. “It is impossible to deny,” he continued, “that Religion prevails with more zeal, and a more exemplary priesthood than it ever did when established and patronised by Public authority.”

Two centuries later, a new wall of separation must be built, this time between government and business. It is becoming clearer everyday to all parts of the political spectrum that business and government will, as Madison wrote of religion, “both exist with greater purity, the less they are mixed.” The animating cry of the Tea Party — that government has become too meddlesome and intrusive, not to mention unfair and unequal, in its dealings with business — is now echoed by Occupy Wall Street.

Yesterday, Occupy Portland called for “a national day of action” to challenge corporate power in America. “Corporations,” they write, “place profit over people, self-interest over justice, and domination over equality.” But to profit, private corporations must place themselves under people — they must serve them and cater to their needs. Far from domination, even self-interested CEOs must appeal to their customers’ interests or face bankruptcy.

But unfortunately, the relationship between business and consumers is changing. In the last four years, government’s involvement in the private sector has escalated to unprecedented levels. Bailouts have sunk billions of taxpayer dollars into failed banks, corporations, and other private organizations since the financial crisis began in late 2008. At the same time, corporate subsidies have increased dramatically as policymakers have attempted to stimulate the economy.

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$26 Billion Mortgage Settlement Rips Off Investors to Trim Banks’ Massive Costs of Bailing Out Deadbeat Borrowers

by Hans Bader on February 10, 2012

in Bailout Watch, Economy, Legal, Politics as Usual, Property Rights, Zeitgeist

The $26 billion mortgage settlement announced yesterday is bad news for “bond investors including pension funds, according to Pacific Investment Management Co.’s Scott Simon,” notes Bloomberg News.  He says that the settlement rips off innocent investors and pension funds in order to reduce the banks’ costs of bailing out delinquent mortgage borrowers and others.  (As we noted earlier, the Justice Department, state attorneys general, and the biggest banks reached an agreement to provide $26 billion to delinquent mortgage borrowers and others, such as left-wing housing counseling similar to ACORN — in what the New York Post calls a “deadbeat bailout”).  As Simon notes,

“They’re using other people’s money to pay for a ton of this. Pension funds, 401(k)s and mutual funds are going to pick up a lot of the load.”

Asset managers are frustrated with the deal because, in addition to the debt the banks own, it gives credit to the lenders for changes to loans they hold no interest in and oversee for investors. That “treats people’s 401(k)s and pensions,” which hold mortgage securities, “like perpetrators as opposed to victims,” Simon said. The deal comes after all 50 states announced a probe into foreclosures in 2010 . . . costing bondholders as liquidations of bad debt were delayed.

“Think about this, you tell your kid, ‘You did something bad, I’m going to fine you $10, but if you can steal $22 from your mom, you can pay me with that,’ ” Simon said yesterday. . .

Laurie Goodman . . . who has advocated for mortgage forgiveness in testimony to Congress, joined him in criticizing the agreement yesterday. . .“There is a difference between principal reductions and giving banks credit for spending others’ people money.”

As we noted earlier, by ripping off mortgage investors, this deal will make investing in mortgages more risky, which will in turn drive up interest rates that homebuyers have to pay in the future.  This deal only covers borrowers at certain banks, not those borrowers who mortgages are held by the government-sponsored mortgage giants Fannie Mae and Freddie Mac, which (unlike the private banks) have never repaid their bailout, and are currently still being bailed out at an ever-increasing tab of $170 billion.

This deal is not the only way that federal and state officials are messing up the housing market.  The Obama administration is forcing banks to make risky loans (in the name of “fair lending”), thus planting the seeds of a future financial crisis. The Justice Department is suing banks that refuse to do so, and forcing them both to award preferential loans based on race, and to cough up money in “settlements,” some of which goes to left-wing “community” groups.

The Obama administration recently launched a multibillion dollar bailout for speculators. Bloomberg News reported that the administration is vastly expanding aid for certain “delinquent homeowners,” paying banks up to 63 cents for every dollar in principal they write off for such homeowners.  Speculators will benefit, because bailout recipients don’t even have to live in a house to get its mortgage principal reduced at taxpayer expense.

Time to Pay Your Neighbor’s Mortgage, Again

by Hans Bader on February 9, 2012 · 1 comment

in Bailout Watch, Economy

The Justice Department, state attorneys general, and the biggest banks have reached an agreement to provide at least $26 billion to delinquent mortgage borrowers and others, such as left-wing housing counseling groups similar to ACORN. But if you were financially responsible, you very likely won’t benefit from this settlement, but may actually be harmed by it. It only benefits a small fraction of people who were foreclosed upon, as well as some underwater borrowers, most of them delinquent, whose mortgages were serviced by certain banks. You likely won’t get any money or principal reduction under this settlement if you paid your mortgage on time, especially if you were thrifty enough to make a large down payment (which usually prevents you from ending up underwater on your mortgage unless there is a huge decline in housing values). Instead, you may suffer, because the settlement may lead to mortgage interest rates rising in the future.  (Politicians’ desire for this settlement was based on voodoo economics).

One feature of the agreement is that some delinquent borrowers who are underwater will see their mortgage principal reduced. But the cost of these principal reductions may be borne heavily by innocent third parties, not just the banks: the banks only retained a fraction of the mortgages they originated, selling the rest to mortgage investors (including some pension funds). So the banks are going to write off mortgage principal that is not wholly theirs, but rather the property of third-party investors, raising serious contractual and property rights issues. The settlement contains provisions which reward the banks for cutting mortgage principal balances through a specified formula, creating a serious conflict of interest between the banks and the investors on whose behalf the banks service the loan.

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More Bailouts for Speculators and Delinquent Mortgage Borrowers from Obama Administration; More Taxpayer Money for Certain Banks

by Hans Bader on January 27, 2012

in Bailout Watch, Economy, Employment

In his State of the Union address, President Obama, a consistent supporter of bailouts and crony capitalism, hypocritically railed against them, proclaiming, “no bailouts, no handouts, and no cop-outs.” Just a couple days later, though, his administration is rolling out a massive multibillion dollar bailout that will enrich speculators. Bloomberg News reports that the Obama Administration is vastly expanding aid for certain “delinquent homeowners,” paying banks up to 63 cents for every dollar in principal they write off for such homeowners, a tripling of what banks can currently get under the HAMP bailout program. Speculators will benefit, too: they don’t even have to live in a house to get its mortgage principal reduced: “Investors who rent out their properties would be eligible to refinance under the new rules.” In the coming weeks, the Obama administration is expected to roll out an ill-conceived mass mortgage  refinancing program that could shrink your 401(k) and increase the cost of mortgage financing for future borrowers.

We previously wrote about the voodoo economics behind the Obama administration’s mortgage bailout ideas, which will cost taxpayers countless billions.

Obama’s State of the Union address also contained false claims about outsourcing and corporate taxes. The Obama administration has used green-jobs money from the stimulus package to enrich foreign green-energy firms and outsource American jobs to countries like China: “79 percent” of all green-jobs funding “went to companies based overseas,” and “the largest grant” it made “went to Babcock & Brown,” a “bankrupt Australian company,” noted the Investigative Reporting Workshop at American University. This just one of the ways the Obama administration used taxpayer money to outsource American jobs to foreign countries.

Enr1 Goes Belly Up; Yet Another Solyndra

by Hans Bader on January 27, 2012

in Bailout Watch, Economy, Employment, Energy, International, Stimulus to Nowhere

“After spending $55 million of a $118.5 million grant from” the U.S. “Department of Energy, Ener1, an Indianapolis-based maker of batteries,” has just “declared bankruptcy.”

The White House had enthusiastically touted the company, which gave rise to an embarrassing gaffe by Vice President Biden:

Vice President Biden visited Ener1 one year ago, January 26, 2011. . .On several occasions, Biden called the company “Enron one” during his visit, invoking a seemingly unintentional but ultimately prescient reference to the collapse of the energy giant Enron. The company was also ranked number 67 in the White House Report: 100 Recovery Projects that are Changing America.

To some, the bankrupt firm is a “candidate in the increasingly competitive race to become the Next Solyndra.” But in reality, several other recipients of green-jobs subsidies under the stimulus package have already gone broke. CBS News had earlier reported that there were 11 Solyndras — that is, financially-troubled recipients of green-jobs subsidies, five of which had already filed for bankruptcy. After the CBS News report, Evergreen Energy, another green-jobs recipient, filed for bankruptcy.

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Obama State of the Union Proposal Could Increase Mortgage Costs, Shrink America’s 401(K)s

by Hans Bader on January 26, 2012

in Bailout Watch, Economy

AEI’s James Pethokoukis says that the mass-refinancing plan proposed by President Obama in his State of the Union address would “result in higher financing costs going forward.”  It’s designed to create a short-term “boost for the economy going into the election.” The plan would also harm bank shareholders and people approaching retirement  (most mutual funds that people hold in their 401(k) plans have holdings in banks and thus would be harmed, reduced the size of people’s retirement plans, over the long run). Pethokoukis quotes a financial analyst at Guggenheim Washington Research Group who notes that “that a mass refinancing could permanently drive housing finance costs higher. This is a real threat as investors are likely to demand a premium if government policy materially accelerates prepayment rates.” Pethokoukis calls this mortgage bailout proposal Obama’s “January surprise.”

The Obama administration is also harming the housing market by pressuring banks to make risky loans to minorities with bad credit, using the threat of massive Justice Department lawsuits. The Assistant Attorney General for Civil Rights, Thomas Perez, has compared bankers to “Klansmen,” and extracted settlements from banks “setting aside prime-rate mortgages for low-income blacks and Hispanics with blemished credit,” and treating welfare “as valid income in mortgage applications,” noted Investor’s Business Daily.

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Obama’s False Claims about Outsourcing and Corporate Taxes in the State of the Union Address

by Hans Bader on January 25, 2012

in Bailout Watch, Economy, Employment, Features, International, Stimulus to Nowhere, Trade

Post image for Obama’s False Claims about Outsourcing and Corporate Taxes in the State of the Union Address

President Obama has spent billions of dollars in taxpayer money on subsidizing foreign firms through his failed “green energy” programs, so it was ironic and hypocritical when he attacked outsourcing in his State of the Union address. As former congressional economist Chris Edwards notes, Obama made many blatantly false claims about outsourcing and corporate taxation in his speech. Here are just a few:

Claim: “Right now, companies get tax breaks for moving jobs and profits overseas.”

False: There are no such breaks. Instead, we punish U.S. and foreign businesses for investing and creating jobs here.

Claim: “If you’re a business that wants to outsource jobs, you shouldn’t get a tax deduction for doing it.”

False: There is no such tax deduction. . .

Claim: “From now on, every multinational company should have to pay a basic minimum tax.”

False: We’ve already got a corporate “alternative minimum tax,” and it’s an idiotic waste of accounting resources that ought to be repealed.

Claim: “It is time to stop rewarding businesses that ship jobs overseas.”

False: We penalize them for locating jobs here. Besides, the overseas operations of U.S. companies generally complement domestic jobs by boosting U.S. exports.

Claim: “Companies that choose to stay in America get hit with one of the highest tax rates in the world.”

True: Our rate is 40 percent, which compares to the global average rate of just 23 percent.

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Eleven More Solyndras in Obama Clean-Energy Program

by Hans Bader on January 15, 2012

in Bailout Watch, Economy, Employment, Energy

There are 11 more Solyndras in the Obama administration’s clean-energy program, reports CBS News. These companies are in financial trouble — five have already gone bankrupt — after receiving billions in federal assistance despite warning signs that their projects were not viable. I discuss this and the Solyndra scandal in more detail at this link.

While costing taxpayers billions, the Obama administration’s green jobs programs have failed to create viable jobs. Instead, they have been used to outsource American jobs to countries like China. American University’s Investigative Reporting Workshop found that 79 percent of green-jobs funds went to foreign firms, like a bankrupt Australian company.

The Obama administration has also wiped out jobs through its policies on health care, financial regulation, and labor and employment law.

New York Times Documents the Case for Freedom

by David Bier on January 13, 2012

in Bailout Watch, Deregulate to Stimulate, Economy, Regulation

It’s not every day that the front page of The New York Times has two articles that highlight the importance of limited government, but today’s edition does exactly that. The first article describes how the Citizens United Supreme Court decision to allow corporations and unions to spend unlimited amounts on political causes has actually benefited free-speech and the political process.

Under the old political rules, Mitt Romney arrived in South Carolina this week the prohibitive Republican front-runner: flush with cash, awash in endorsements from a party establishment starting to coalesce behind him and buoyed by victories in Iowa and New Hampshire.

But as Mr. Romney is quickly learning, those rules no longer apply. Mr. Romney’s carefully tended network of Republican donors has been rendered functionally less important by “super PACs,” through which a handful of wealthy individuals are financing a multimillion-dollar advertising barrage to assail his record and prop up his opponents….

As a result, Mr. Romney’s remaining opponents have little incentive to drop out, knowing that their support from super PACs and Internet contributions from grass-roots supporters can keep them in the race long after they would have remained viable in earlier eras…

In other words, Republicans are actually getting more time to make a decision, more information about the candidates, and more debate about the issues as a result of the Citizens United decision. As John Samples shows in his book The Fallacy of Campaign Finance Reform, the motto “more money = more speech” does, in reality, hold true.

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