Mortgage Bailout

131,000 Jobs Lost in July; Obama Aide Abandons Ship; Economists Criticize Obama; More Bailouts

by Hans Bader on August 6, 2010

in Bailout Watch, Deregulate to Stimulate, Economy, Employment, Labor, Politics as Usual, Regulation, Sanctimony, Stimulus to Nowhere, Trade, Zeitgeist

“Non-farm job losses hit 131,000 in July,” on top of a loss of 97,000 jobs in May and June.  Another Obama economic advisor is abandoning ship.

Nobel Prize-winning economists Gary Becker and Vernon Smith criticized the Obama administration’s economic policies, such as its massive deficit spending and politicization of the economy.  Last year, Obama advisor (and economist) Martin Feldstein warned that Obama’s policies would lead to “serious inflation and higher taxes down the road.”  Administration economists botched deficit projections by at least $2 trillion.

The House is expected to pass a $26.1 billion bailout of state and local government sought by public employee unions, which will aid bloated and mismanaged school districts.  There is talk that the Obama Administration will give away billions of dollars in new mortgage bailouts at taxpayer expense, as a way to buy votes.

The stimulus package is costing $75 billion more than predicted.  It also inadvertently wiped out thousands of jobs in America’s export sector.

Obama’s polices would add $9.7 trillion to the national debt, according to the Congressional Budget Office.

Mortgage Meltdown Was Caused by Government Mandates

by Hans Bader on October 21, 2009 · 2 comments

in Bailout Watch, Legal, Politics as Usual, Precaution & Risk, Sanctimony

The mortgage meltdown was caused partly by the government, which created an artificial market for bad mortgages.  The Washington Examiner cites a recent study by Peter Wallison, who had prophetically warned about risky financial practices for years, finding that two-thirds of all bad mortgages were either “bought by government agencies or required to be bought by private companies under government pressure.” Now, the Federal Housing Administration is ramping up its purchases of low-quality mortgage loans, threatening taxpayers with hundreds of billions of dollars in losses, and creating the risk of another housing bubble in the future.

As Michael Barone notes, Congress is now seeking to pass costly legislation that could reinflate the housing bubble, threatening future financial meltdowns.

The Obama administration is also busy promoting the junky, risky mortgages that fueled the housing bubble, showing that it has learned nothing from history.

Obama has sent to Congress his proposal to create a politically-correct entity called the Consumer Financial Protection Agency. “The agency would be in charge of enforcing the Community Reinvestment Act, a law that prods banks to make loans in low-income communities.”

Government pressure on banks to make low-income loans was a key reason for the mortgage meltdown and the financial crisis. Yet Obama’s disturbing proposal would empower the new agency to enforce the Community Reinvestment Act without regard for banks’ financial safety and soundness.  The Community Reinvestment Act was a key contributor to the financial crisis.

The mortgage crisis was also caused by the reckless government-sponsored mortgage giants (“GSEs”) Fannie Mae and Freddie Mac, and by federal affordable-housing mandates.

But Obama’s proposed financial rules overhaul does absolutely nothing about Fannie Mae and Freddie Mac, admits Obama’s Treasury Secretary, tax cheat Timothy Geithner, even though he admits that “Fannie and Freddie were a core part of what went wrong in our system.”

Worse, Obama’s plan is “largely the product of extensive conversations” with two lawmakers responsible for the corrupt status quo, Chris Dodd and Barney Frank, and it expands the reach of regulations that have been used by left-wing groups to extort pay-offs from banks.

More Government Waste, Corruption, and Corporate Welfare, Thanks to the Obama Administration

by Hans Bader on June 14, 2009

in Odds & Ends

Rapidly-rising Medicare spending already threatens “to crush the federal budget,” and much Medicare spending is wasteful, yet the Obama Administration claims it can somehow save money by creating Medicare-like programs to cover all Americans. In the New York Times, economics professor Tyler Cowan calls it “the new voodoo economics.” Washington Post columnist Robert Samuelson concludes that Obama’s health-care plan “is naive, hypocritical or simply dishonest. Probably all three.”

Obama is firing an inspector general who exposed wrongdoing by one of his supporters, and previously uncovered millions of dollars in waste and fraud in the troubled AmeriCorps program, whose budget is being dramatically increased by the Obama Administration. Inspector General Gerald Walpin was fired after he uncovered misuse of Americorps funds and sought to keep the wrongdoer from accessing federal “stimulus money.” The recently-passed stimulus package repealed welfare reform, and it subsidizes waste and corruption.

Congress is moving towards passing a “cash for clunkers” bill that would give people tax credits, but only if they own an old gas-guzzler that they are trading in for a new car. So if you bought a fuel-efficient car in the past, your tax dollars will be used for welfare for people who bought inefficient cars (cars with less than 18 MPG). The bill will increase the national debt (and thus future taxes) by billions of dollars. As Mike Budnick notes in the Wall Street Journal, “This type of legislation rewards people who have made poor decisions and penalizes only people who have already made good choices. Not the kind of incentive that we should propagate. Let the market work.”

Taxpayers are being ripped off to the tune of hundreds of billions of dollars to enrich wealthy buyers of so-called “toxic assets.” Meanwhile, the Obama Administration’s $787 billion stimulus package is actually killing jobs and shrinking the economy.

Congress passed an FDA tobacco regulation bill, but not without adding insidious provisions that will reduce competition in the tobacco industry, and actually make it harder to introduce products that reduce the harms and health risks of tobacco, notes the Wall Street Journal. We earlier described the bill’s pitfalls and counterproductive provisions. Obama has said he will sign the bill into law.

Billions of tax dollars are being spent on bailing out carmakers, but the primary beneficiaries of this corporate welfare are not the car companies themselves, which could have survived without federal bailouts by simply abrogating their collective bargaining agreements and dealer-contracts in a standard bankruptcy-court reorganization, but the United Auto Workers Union, which spent millions electing Obama and is now calling the shots. Taxpayers and pension funds are being ripped off to enrich the UAW, which enjoys wages much higher than the average American.

A similar government bailout of the auto industry actually backfired in England in the 1970s, destroying its carmakers by leaving them with excessive wages, inefficiency, and political meddling in car design.

Now, even liberal commentators are questioning whether the mushrooming auto bailouts pass constitutional muster, such as Charles Lane in today’s Washington Post. (Lane is so liberal and pro-government that in a front page article in 2003, he characterized the Supreme Court’s 2003 decisions as collectively being great for “civil liberties,” even though he admitted that the Supreme Court had rejected free speech claims in 7 out of its 8 First Amendment cases that term, largely because Lane approved of its decision upholding the University of Michigan Law School’s race-based affirmative action plan — even though legally permissible affirmative-action plans are a discretionary government function, not an individual right or civil-liberty).

Conservative columnist George Will also has a column today criticizing the auto bailouts. He points out that the Administration’s current claim that it can use TARP bank-bailout money for an auto bailout is at odds with the Treasury Department’s past admissions to the contrary: “Last September, Treasury Secretary Henry Paulson testified to the Senate that TARP money was necessary for ailing ‘financial institutions.’ Nowhere in the bill’s 169 pages was there any reference to government funding of ‘automobile’ or ‘manufacturing’ companies. In November, Paulson told a House committee: ‘I’ve said to you very clearly that I believe that the auto companies fall outside of [TARP's] purpose.’”

Earlier, commentators like the Heritage Foundation, Clinton Administration Labor Secretary Robert Reich, and liberal journalist Andrew Sullivan all agreed that the auto bailouts are illegal or unconstitutional.

Class Warfare Against the Financially Responsible

by Hans Bader on May 21, 2009

in Bailout Watch, Economy, Politics as Usual

Earlier, the Obama Administration pushed through $250 billion in mortgage bailouts, to bail out even some high-income borrowers with normal mortgage payments, and forced financial institutions it took over in the name of fiscal responsibility, like Freddie Mac, to run up billions in losses bailing out irresponsible borrowers.

Now, it’s applying the same destructive, redistributionist philosophy to credit cards.

Commercial lawyer John Hinderaker notes that with Obama’s support, “Congress has just enacted new credit card regulations intended to limit banks’ ability to collect money from distressed or incompetent customers. The New York Times explains the consequences:

‘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.’

The competent subsidizing the careless–that’s classic Democratic Party policy. Of course, the new rules will cause banks to lose interest in extending credit to the feckless:

The industry says that the proposals will force banks to issue fewer credit cards at greater cost to the current cardholders.

That’s the inevitable consequence, of course. But how long do you think it will be before Congressmen are demanding investigations into whether credit card companies are engaging in race discrimination because they won’t issue cards to all comers?”

(Liberal “journalist” and Obama booster Ezra Klein justifies Obama’s meddling with credit cards by falsely equating having bad credit with being underprivileged).

To make sure that trial lawyers are able to redistribute more wealth — a long time goal of Obama, who lamented that even the activist Warren Court didn’t engage in redistribution of wealth — the Administration has just promulgated new rules cutting back the reach of federal laws that shield commerce from state-court lawsuits.

Slandering the Tea Parties

by Hans Bader on April 16, 2009 · 5 comments

in Bailout Watch, Economy, Politics as Usual, Sanctimony, Stimulus to Nowhere

The “tea party” protests against out-of-control government spending have been very clear in identifying what wasteful spending they object to. One example is Obama’s $800 billion stimulus package, which was falsely sold to the public as needed to prevent “irreversible decline,” but which the Congressional Budget Office repeatedly pointed out would actually cut the size of the economy “in the long run.” Another example is the Obama Administration’s mortgage bailout, which would benefit even high-income people with modest mortgages (see the “I can’t afford your mortgage” sign).

But the protesters are frequently criticized by journalists like Andrew Sullivan for supposedly offering no solutions or constructive suggestions.

For having the temerity to protest Administration lies and out-of-control spending, the protesters have been called “despicable” by a liberal Congresswoman, and attacked in the left-wing blogosphere in the most vicious language as “redneck, racist Republicons” and as “a bunch of white old people and rednecks” who “got together and tried to start a revolution…to drive the Fascist/Communist n****r out of the White House and stop the fags from stealing their children.”

As a Harvard-educated, arugula-eating, urban dweller whose office hosted the end of the Washington tea party, I find these claims baffling. I am certainly not afraid of my Asian, black, and Hispanic relatives, my French-born wife, or the gay neighbor whose children play with my daughter.

Andrew Sullivan derides the tea parties as “opposition to the Obama administration’s spending plans, manned by people who made no serious objections to George W. Bush’s.”

I did too make “serious objections to George W. Bush’s” spending plans. I condemned his costly prescription-drug entitlement in the Washington Times, and repeatedly condemned the $160 billion Bush “stimulus rebates” in 2008. I publicly called his $700 billion Wall Street “bailout bill dangerous, inflationary, unnecessary, and unconstitutional.” And I condemned his multibillion dollar auto bailout.

And contrary to Sullivan’s claims, I do indeed have a “constructive and specific argument about how . . . to reduce spending and debt and borrowing” — cancel the wasteful $800 billion stimulus package, most of which has not been spent yet, and may cause inflation when it finally is.

A Bounty on Your 401(K)

by Hans Bader on April 6, 2009

in Bailout Watch, Economy, Legal, Personal Liberty, Politics as Usual, Regulation, Stimulus to Nowhere

The Obama Administration’s mortgage bailout for irresponsible borrowers (including wealthy borrowers with modest mortgage payments) provides a bounty for reckless sub-prime mortgage lenders like Countrywide to rip off your retirement plan. Countrywide sold its junky mortgages on Wall Street, where they ended up being owned by mutual funds that probably are in your 401(K). But it continued to service the mortgages and make money doing so.

Now, the Obama Administration is offering Countrywide $1000 to cut each of those mortgages — which it doesn’t even own — and $1000 a year for subsequent years in which it continues to service those reduced mortgages. So Countrywide is busy modifying thousands of mortgages it services, which aren’t even its property anymore — even though binding contracts say it can’t do that. When investor Bill Frey stood up to Countrywide earlier and sued it, he was demonized by Congressman Barney Frank, who spawned the mortgage crisis by blocking needed reforms and promoting risky loans in the name of “affordable housing.” Now, a bill pending in Congress would abrogate those binding contracts to enrich Countrywide at the expense of America’s savers. (The bill is being pushed by liberal Congressional leaders with the support of the left-wing groups ACORN and the National Community Reinvestment Coalition).

You may also have been ripped off if your mutual funds bought shares of the mortgage giant Freddie Mac, which the Obama Administration forced to incur $30 billion in losses to cut the principal and interest on the mortgages of delinquent and at-risk borrowers. My retirement plan contained shares of the mutual fund Legg Mason Value Trust, which owned a ton of shares in Freddie Mac.

Bailed-out mortgage borrowers are now defaulting by the thousand on their new, taxpayer-subsidized loans, which isn’t surprising, given that many of them ran up so much non-mortgage-related debt that they can’t afford even the small, reduced mortgages they received courtesy of the taxpayer.

Mortgage servicers have an incentive to modify mortgages at taxpayer expense to make them lower than necessary even if a responsible borrower could easily afford them. Why? because no borrower is going to refinance to get rid of a low mortgage. But many of them will refinance later on to pay off a high mortgage. So mortgage services will use taxpayer bailout money to cut interest and principal on mortgages that a responsible borrower could easily afford, in order to keep borrowers from paying off their mortgage.

The bill to allow mortgage servicers to abrogate the contractual rights of investors is backed by ACORN. ACORN, a beneficiary of the economy-shrinking $800 billion stimulus package, helped spawn the mortgage crisis by promoting “liar loans.” It has also engaged in extensive financial fraud and vote fraud. The Obama Administration has chosen ACORN to help conduct the 2010 census, which will be used to reallocate seats in Congress.

Obama’s $250 billion bailout for irresponsible borrowers is yet another breach of his campaign promise to enact a “net spending cut,” which seems to be just as forgotten as his broken promise not to raise taxes “in any form” on anyone making less than $250,000 a year.

Obama’s Policies Are “A Road to Hell,” European Leader Says

by Hans Bader on March 25, 2009 · 3 comments

in Bailout Watch, Deregulate to Stimulate, Economy, International, Regulation, Stimulus to Nowhere

“The president of the European Union on Wednesday slammed U.S. plans to spend its way out of recession as ‘a road to hell.’ Czech Prime Minister Mirek Topolanek, whose country currently holds the rotating EU presidency, told the European Parliament that President Barack Obama’s massive stimulus package and banking bailout ‘will undermine the liquidity of the global financial market.’”

There’s “one small problem with Geithner’s plan: It will bankrupt the banks,” says analyst Henry Blodgett, triggering a chain reaction of write-offs. Unless, that is, the Treasury Department deliberately and massively overpays for the toxic assets, fleecing the taxpayer, as other commentators predict. The reason is mark-to-market accounting rules, which require financial institutions to write down assets’ value when similar assets are sold by other institutions at fire-sale prices. Many commentators say these regulations should be repealed, including former FDIC Chairman William Isaac, Congressmen Ed Perlmutter (D-CO) and Paul Kanjorski (D-PA), the Wall Street Journal, John Berlau, Jeff Miller, Holman Jenkins, and Newt Gingrich.

Congress is now moving to enact a $6 billion “national service” boondoggle. Similar spending in the past has been used to hire young people to lobby for rent control and against anti-crime legislation, such as “three-strikes” laws and victims’ rights bills.

It’s hard to understand why the government is wasting money on such things, when it already will incur $4.8 trillion in additional debt from Obama’s proposed budget, and $8 trillion for bailouts (not counting another trillion dollars for the toxic-asset buy-up program) and $800 billion for the economy-shrinking “stimulus” package).

So much for Obama’s broken campaign promise of a “net spending cut.” Even his two trillion dollar “cap-and-trade” energy tax won’t begin to pay for all the new deficit spending.

Economists Give Obama Failing Grade; New Bailouts Demanded As Obama Breaks Promises

by Hans Bader on March 12, 2009 · 2 comments

in Bailout Watch, Economy, Employment, Labor, Politics as Usual, Precaution & Risk, Regulation, Sanctimony, Stimulus to Nowhere

Obama gets a failing grade from economists. “U.S. President Barack Obama and Treasury Secretary Timothy Geithner received failing grades for their efforts to revive the economy from participants in the latest Wall Street Journal forecasting survey.”

Not content with the $8 trillion the Obama Administration has already committed for bailouts, pork, and welfare, Treasury Secretary Geithner, who was confirmed by the Senate despite cheating on his taxes, wants to spend $100 billion on IMF loans to bail out struggling nations in Eastern Europe and elsewhere — even though many European “officials doubt the wisdom of falling deeply into debt to create jobs and halt the plunge in consumer demand, as the United States is doing.”

Wal-Mart’s stock rating has been downgraded due to the possible passage of card-check legislation supported by Obama, which could lead to “diminished workforce flexibility” and pay based on “seniority” rather than merit, as a result of compulsory arbitration provisions contained in the bill. (The bill could also lead to intimidation of workers). The stock market has also fallen this year as investors have become disenchanted with the Administration.

The Federal Government may face increasing calls to bail out state governments, which have run up trillions of dollars in unfunded, and incredibly generous, pension liabilities to state employees in contracts negotiated with their unions using deliberately-deceptive accounting.

Obama broke his campaign promise to curb earmarks by signing a bloated, $410 billion appropriations bill that contained 8,500 earmarks totaling $7.7 billion. It also broke his campaign promise of a “net spending cut.”

Obama broke seven campaign promises dealing with transparency and clean government in signing the economy-shrinking, $800 billion stimulus package, much of whose contents were secret until shortly before Congress voted on it, and whose 1400 pages went unread by most Congressmen who voted on it.

Earlier, Obama repeatedly broke his promises not to sign bills without first giving the public five days to comment. “Too often bills are rushed through Congress and to the president before the public has the opportunity to review them,” Obama’s campaign Web site stated. “As president, Obama will not sign any nonemergency bill without giving the American public an opportunity to review and comment on the White House Web site for five days.”

But Obama has repeatedly signed laws without providing such notice, such as the Ledbetter Fair Pay Act, his very first law, which he signed less than 2 days after it was passed by the House, with no opportunity for comment. Moreover, in signing the Ledbetter law, Obama made false claims about both the facts of the Supreme Court case that the Ledbetter law overturned, and what the Supreme Court actually held in that case.

The Washington Post‘s David Ignatius, finally losing patience with Obama, criticizes the Administration’s focus on anything but fixing the economy’s underlying ills, calling its economic policies a “phony war” characterized by economic “mismanagement.” “Economist David Smick had it right in The Post this week when he said the administration had a three-pronged strategy: delay, delay and delay. The administration announces a rescue package but doesn’t deliver details; it promises budget discipline but saves the hard decisions for later,” while stacking the Obama “administration with politicians and former government officials,” who lack “experience managing large organizations in crisis.”

Like us, Michael Barone says that the Treasury Department and Fed Chairman Ben Bernanke, through their arbitrary, “ad hoc” approach to the financial crisis (such as their unpredictable and inconsistent decisions about which companies to bail out), have exacerbated the current financial crisis by leaving “players in the financial markets full of uncertainty and fear.”

Bailing Out the Reckless Rich, Harming Our Economy

by Hans Bader on March 5, 2009 · 2 comments

in Bailout Watch, Politics as Usual, Stimulus to Nowhere

Well-to-do people will receive an unnecessary mortgage bailout, under a new federal program that will cut their payments to just 31 percent of their income — a ridiculously low level lower than many thrifty homeowners have made for years. Taxpayers and the economy will suffer in the long-run. And people with modest incomes will end up subsidizing the more fortunate.

Yesterday, the Obama Administration announced a “mortgage bailout to aid 1 in 9 U.S. Homeowners,” according to today’s Wall Street Journal. The cost is estimated by the Administration at $75 billion, and by independent experts at much more than that.

“Homeowners with loans as large as $729,750 could see their interest rates temporarily cut to as low as 2 percent under the program,” and perhaps have their mortgage balances reduced, according to today’s Washington Post. Thus, American taxpayers — including low-income renters — will pay to subsidize people with high incomes who bought big homes with values approaching a million dollars.

As the Washington Post notes, “Under the program, lenders are encouraged to lower homeowners’ payments to 31 percent of their income. That could come from lowering the interest rate to as little as 2 percent . . .Lenders could also lower the principal owed by the borrower.”

This is simply insane. Paying more than 31 percent of your income on a mortgage is not a hardship. I paid more than that when I first purchased my home. In wealthy, high-living cost areas like San Francisco, people have long paid more than that, well before the current financial crisis. And in densely-populated nations like Japan, people have often paid more than that. Many beneficiaries of this bailout would never have defaulted, and the program’s requirement that they submit an “affidavit of hardship” is virtually meaningless, given the program’s low threshold for “hardship.” Even if they did face foreclosure, they could still find a place to rent, as most people who have been foreclosed on do.

Why on Earth should someone with a huge $700,000 home be able to reduce their payments on that home to 31 percent of their income, at taxpayer expense, when they could, with a little “hardship” — say, giving up an automobile not needed for work, or no longer eating out at restaurants — afford their mortgage payments on the big house they live in?

Yesterday, I went to the Washington Post web site, and used its interactive function which tells you whether you qualify for a bailout. I entered my mortgage as a percent of my income at the time I purchased my home, and it told me that I “probably” qualified for a bailout. (Today, my income is too high, but not at the time I purchased the home). But I have never needed a bailout. By being thrifty over the years — like avoiding expensive cars and travel, eating cheap foods, and not eating out — I have always been able to afford to pay more than 31 percent of my income on housing.

Before I and my wife bought our small home, we were outbid for a bigger, better home by another couple who made virtually no downpayment and ended up with big mortgage payments. Unless their income has increased substantially since then, they will likely be eligible for a bailout by claiming “hardship” — even though their income is much higher than the average American household.

Only someone indifferent to what housing actually costs — like a policymaker with political rather than economic goals in mind (like buying votes in states with high housing costs) — could have designed this plan. (I have some clue about what housing costs, since I used to produce cost and wage data for the federal government, and since I have a degree in economics as well as in law.).

Bailouts and stimulus plans don’t increase the size of the economy in the long run. They actually shrink the economy in the long run, while exploding government debt, as Japan found to its chagrin in the 1990s. But politicians like them because they do slightly increase the economy’s size in the short run — like by the next election. Bailouts provide short-term gain but long-term pain.

Even the Congressional Budget Office, controlled by the very body that enacted the $800 billion stimulus package, admits that the $800 billion stimulus package signed by President Obama will slightly reduce the economy’s size in the long-run. How will it shrink the economy? By increasing the national debt, which drives up interest payments on the debt, which in turn crowds out private investment. This mortgage bailout plan will similarly reduce the size of the economy over the long-run, since it will be financed by government borrowing that increases the size of the national debt.

Stimulus Guts Welfare Reform, Is Deceptive

by Hans Bader on February 12, 2009 · 7 comments

in Bailout Watch, Economy, Politics as Usual, Stimulus to Nowhere

The stimulus package will gut welfare reform even more than previously feared. That’s the conclusion of Mickey Kaus, a moderate Democrat who now appears to regret voting for Obama. The stimulus package will reward states that promote welfare dependency, even more than federal subsidies did before the 1996 welfare reform law, and reduce economic growth.

Clayton Cramer notes that the stimulus package is being sold to the public under the false pretense that without it, we will go into another Great Depression, even though Congressional leaders know the economy will begin recovering soon even without any stimulus. He aptly compares the politics of the stimulus package to tribal leaders slaughtering cattle in order to make the sun rise, and then taking credit for the sun rising.

The Congressional Budget Office has admitted that within ten years, the economy will be smaller, not larger, because of the stimulus package, which will weigh down the economy under an enormous debt burden.

Many of the new, supposedly-temporary spending programs in the stimulus may wind up being made permanent, which could result in its true cost being above $3 trillion. Few rank-and-file members of Congress have actually read the 1,434-page stimulus bill, so it may be full of nasty surprises and hidden pork that we learn about only after it is signed into law.

Today, the Washington Examiner disclosed that the stimulus bill may end up funding the radical group ACORN. ACORN helped bring on the mortgage crisis by promoting “liar loans” and other high-risk loans to people with bad credit. It has a long history of financial fraud and vote fraud.

← Previous Entries