BeyondStageOnePolitics.com
“Our practical choice is not between a tax-cut deficit and budgetary surplus. It is between two kinds of deficits: a chronic deficit of inertia, as the unwanted result of inadequate revenues and a restricted economy; or a temporary deficit of transition, resulting from a tax cut designed to boost the economy, increase tax revenues, and achieve . . . a budget surplus.” John F. Kennedy

Voice-over

My recent political voice-over demo. See Contact for manager's information.

Audio clip: Adobe Flash Player (version 9 or above) is required to play this audio clip. Download the latest version here. You also need to have JavaScript enabled in your browser.

Jun 23 2012

Principles or People

C.M. Phippen

I happened to notice the other day someone blaming President Reagan for the recent recession. Back in 2009, this was a somewhat common liberal refrain, and Paul Krugman repeatedly exclaimed that Reagan was responsible for the economic crisis because he was behind legislation (co-sponsored and passed by many Democrats as well as Republicans) that allowed for home purchases without large down-payments and that freed up the consumer credit market.

Here is no better example as to why we must discuss and focus on principles rather than people. I’ve never met a Democrat who didn’t support affordable housing policies or legislation that would make credit more available for those whose behavior doesn’t merit it. Funny how when the other guy agrees with you and things go wrong, it’s the other guy who was wrong.

Here is a list of statements or actions of individuals from both sides of the aisle regarding housing policies prior to the bubble bursting; see if you can figure out who said or did what.

1.”The White House doesn’t think those who can afford the monthly payment but have been unable to save for a down payment should be deprived from owning a home.”

2. “Fannie Mae has expanded home ownership for millions of families in the 1990s by reducing down payment requirements. Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.”

3. “In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders . . . Fannie Mae . . . has been under increasing pressure from the X Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.”

4. There exists deep concern “about increased mortgage market fragility, which, combined with growing bank portfolios in high-risk products, pose serious potential problems that could occur with dramatic suddenness.” And failure to adjust bank underwriting, reserves and capital to account for this growing risk “means that downturns from credit and/or interest rate events – let alone shocks – will be far more severe than” if precautions are taken. What is “disturbing to us is the fact that recent trends could lead to sudden increases in foreclosures.”

5. “Fannie Mae and Freddie Mac have played a very useful role in helping make housing more affordable.” Critics “exaggerate a threat of safety” and “conjure up the possibility of serious financial losses to the Treasury, which I do not see.”

6. Congress should, “enact legislation to create a new Federal agency to regulate and supervise” Fannie and Freddie because of the risks they were taking. “The concern is, if something unravels, it could cause systemic risk to the whole financial system.”

7. If Congress doesn’t reign in Fannie and Freddie, “there will be a massive default with huge losses to the taxpayers and systemic effects on the economy.”

8. “Where once more-marginal applicants would simply have been denied credit, lenders are now able to quite efficiently judge the risk posed by individual applicants and to price that risk appropriately.”

9. “President X issued America’s Homeownership Challenge to the real estate and mortgage finance industries to encourage them to join the effort to close the gap that exists between the homeownership rates of minorities and non-minorities. The President also announced the goal of increasing the number of minority homeowners by at least 5.5 million families before the end of the decade.”

10. “Back in 2005 and 2006, I argued as forcefully as I could . . . that the mortgage market would melt down in the second half of 2007, causing substantial damage to the economy.”

11. “[W]e do not have a crisis at Freddie Mac, and in particular at Fannie Mae . . . What we need to do today is to focus on the regulator, and this must be done in a manner so as not to impede their affordable housing mission, a mission that has seen innovation flourish from desktop underwriting to 100 percent loans. . . . These GSEs have more than adequate capital for the business they are in: providing affordable housing. . . . we should not be making radical or fundamental change.”

While conservatives and liberals were both supporting the expansion of affordable housing programs which not only made housing less affordable but put those least able to afford homes into them, the voices of warning were mainly coming from those outside of government. Private businesses that knew the bursting of the housing bubble could destroy them or who could profit from it, were able to see and acknowledge the downside of decades of feel-good government giveaways. Those in government were possibly too invested in the sham to see its risks, or too inexperienced in economics to understand.

Will the next bubble look any different and will the blame game remain the same? Let’s not wait to have this discussion in another decade, after the bursting of the student loan bubble, driven by the astronomical rise in college tuition due to government intervention and subsidies. Are we listening to those trying to warn us this time?

1. John Weicher, Federal Housing Commissioner (2004)
2. Franklin D. Raines, Fannie Mae chairman and CEO, Bill Clinton supporter
3. The New York Times (1999) talking about the Clinton administration
4. Suzanne Hutchinson, executive at Mortgage Insurance Companies of America (2005); http://www.foxbusiness.com/markets/2010/02/02/housing-red-flags-ignored/#ixzz1yb1vJQiv
5. Congressman Barney Frank (2003)
6. US Secretary of the Treasury John W. Snow (2003 & 2005)
7. Peter J. Wallison, scholar at American Enterprise Institute, (2005)
8. Federal Reserve Chairman Alan Greenspan (2005); http://www.nytimes.com/2010/04/04/opinion/04burry.html?pagewanted=all
9. Bush administration (2002); http://www.dailykos.com/story/2008/09/23/607383/-George-Bush-proud-parent-of-the-mortgage-crisis
10. Michael J. Burry, investment advisor at Scion Capital (2010); http://www.nytimes.com/2010/04/04/opinion/04burry.html?pagewanted=all
11. Maxine Waters, Congressional Representative from CA (2003); http://www.discoverthenetworks.org/Articles/The%20Secondary%20Mortgage%20Market.html

Quotes without a weblink were taken from the Thomas Sowell book, The Housing Boom and Bust, New York: Basic Books, 2009.


May 26 2012

What Is It that Our President Actually Does Know?

C.M. Phippen

The greatest economy the world has ever seen, the one responsible for the majority of the medical and technological innovation of the past century and for leading the way in eradicating 80 percent of the world’s worst poverty in the past 40 years, is being run by a man who claims himself a victim at every turn.

With each succeeding policy failure, President Obama can’t help but claim he just didn’t understand or for some reason he just had no power to overcome the obstacles in his way.

While holding the most powerful office in the world, he is paralyzed by events outside of his control. He blames Pres. Bush, natural disasters, Pres. Bush, Arab Spring, Pres. Bush, bad luck, Pres. Bush. In one of his most astounding excuses yet, he blamed a lack of job creation on greater efficiency (“structural issues”) in the economy.

The difficulties faced by our president are simply a part of the realities of life. Does Obama truly believe that no man before him has ever dealt with a financial crisis, a predecessor whose policies he didn’t agree with, bad luck, a shifting labor market or natural disasters? What if every man before him chose to make the same excuses or to walk away from the real solutions because they weren’t a part of his political strategy?

In every past recession over the previous 100 years, entrepreneurship has led us out and placed us back on the path to greater prosperity. For the first time ever, this is not occurring. Does President Obama even stop to ask why?

Over 4,000 new federal regulations are in the pipeline and “pending major regulations – those costing the economy $100 million or more – have increased 60 percent since 2005.” Recently, “20 percent of small-business owners said ‘government regulations and red tape’ was the single most important problem facing their business,” ranking ahead of anything else, including poor sales.

According to President Obama, because of these structural changes, “. . . what we have to do now . . . is identify[ing] where the jobs for the future are going to be; how do we make sure that there’s a match between what people are getting trained for and the jobs that exist; how do we make sure that capital is flowing into those places with the greatest opportunity.”

Entrepreneurs just figure those things out on their own. They don’t need a government program so that a bureaucrat who’s never run a company, met a payroll or put his life’s savings on the line to start a company can make decisions as to the proper allocation of resources within the economy; let alone rely on that individual to determine where those resources will be most needed at some point in the future. In a dynamic economy, where growth is encouraged, someone will always step up and take a risk as long as that risk has the potential for a commensurate reward in the end.

When has a centrally planned economy, or any variation of it, actually worked?

Here’s a guy who’s admitted that when he entered office his administration had no idea how bad this downturn was, despite the fact that he claimed it was the worst economic crisis since the Great Depression and called it a crisis of historic proportions. Yet he wants us to trust that he and his administration have the expertise to know how to allocate the various resources administered through the federal government in order to adequately train the unemployed to be prepared for the jobs of the future? He doesn’t even understand what the jobs and businesses of the future are.

This is the guy who told us that Solyndra was a model for economic growth, one of those companies of the future. As I wrote in an earlier post, while Obama was touting the “ingenuity and dynamism” of Solyndra, T.J. Rodgers, founder of Cypress Semiconductor, former Chairman of Sunpower and a man who apparently knows what real ingenuity and job creation look like, had a very different take. He has said that on the day of President Obama’s visit to Solyndra in 2010 a secretary asked him what it meant that the President was there, visiting their competitor. His response apparently was, “Set your watch. That company will be out of business in one year.” So much for Obama’s ability to judge the future.

This is the same guy who told us that if his massive stimulus of nearly $1 trillion were passed, we wouldn’t see unemployment rise above 8 percent. What we haven’t seen is it actually come down below 8 percent at any point since.

This is the man who told us that recovery summer was two years ago. Most of us are still waiting, as are the many businesses that are choosing to sit on the sidelines with record amounts of cash and not hire new workers in such an uncertain environment. Those threats to tax the rich and blame corporations may actually have a downside.

This is the same guy who said that the healthcare bill “will help reduce our deficit by as much as $1.3 trillion in the coming decades, making it the largest deficit-reduction plan in over a decade.” Updated CBO estimates now project cost increases over 10 years from $938 billion to $1.76 trillion, and that’s before we’ve had to actually start paying. If history is any indication, the cost is likely to be many times greater than even the new estimates.

Yes, still the same guy, the one who said that with his new healthcare bill, “Families will save on their premiums.” Unfortunately, though the CBO initially projected per family premium savings of over $2,500, more recent studies show increases of over $1,500 above what premiums would have been without the legislation.

Exactly what is it this guy actually does know? Maybe this, “We can’t doom another generation of Americans to soaring costs . . . and exploding deficits.” Yep, same guy.