Change Nobody Believes In

From The Wall Street Journal
Change Nobody Believes In
A bill so reckless that it has to be rammed through on a partisan vote on Christmas eve.

And tidings of comfort and joy from Harry Reid too. The Senate Majority Leader has decided that the last few days before Christmas are the opportune moment for a narrow majority of Democrats to stuff ObamaCare through the Senate to meet an arbitrary White House deadline. Barring some extraordinary reversal, it now seems as if they have the 60 votes they need to jump off this cliff, with one-seventh of the economy in tow.

Mr. Obama promised a new era of transparent good government, yet on Saturday morning Mr. Reid threw out the 2,100-page bill that the world's greatest deliberative body spent just 17 days debating and replaced it with a new "manager's amendment" that was stapled together in covert partisan negotiations. Democrats are barely even bothering to pretend to care what's in it, not that any Senator had the chance to digest it in the 38 hours before the first cloture vote at 1 a.m. this morning. After procedural motions that allow for no amendments, the final vote could come at 9 p.m. on December 24.

Even in World War I there was a Christmas truce.

The rushed, secretive way that a bill this destructive and unpopular is being forced on the country shows that "reform" has devolved into the raw exercise of political power for the single purpose of permanently expanding the American entitlement state. An increasing roll of leaders in health care and business are looking on aghast at a bill that is so large and convoluted that no one can truly understand it, as Finance Chairman Max Baucus admitted on the floor last week. The only goal is to ram it into law while the political window is still open, and clean up the mess later.

• Health costs. From the outset, the White House's core claim was that reform would reduce health costs for individuals and businesses, and they're sticking to that story. "Anyone who says otherwise simply hasn't read the bills," Mr. Obama said over the weekend. This is so utterly disingenuous that we doubt the President really believes it.

The best and most rigorous cost analysis was recently released by the insurer WellPoint, which mined its actuarial data in various regional markets to model the Senate bill. WellPoint found that a healthy 25-year-old in Milwaukee buying coverage on the individual market will see his costs rise by 178%. A small business based in Richmond with eight employees in average health will see a 23% increase. Insurance costs for a 40-year-old family with two kids living in Indianapolis will pay 106% more. And on and on.

These increases are solely the result of ObamaCare—above and far beyond the status quo—because its strict restrictions on underwriting and risk-pooling would distort insurance markets. All but a handful of states have rejected regulations like "community rating" because they encourage younger and healthier buyers to wait until they need expensive care, increasing costs for everyone. Benefits and pricing will now be determined by politics.

As for the White House's line about cutting costs by eliminating supposed "waste," even Victor Fuchs, an eminent economist generally supportive of ObamaCare, warned last week that these political theories are overly simplistic. "The oft-heard promise 'we will find out what works and what does not' scarcely does justice to the complexity of medical practice," the Stanford professor wrote.

• Steep declines in choice and quality. This is all of a piece with the hubris of an Administration that thinks it can substitute government planning for market forces in determining where the $33 trillion the U.S. will spend on medicine over the next decade should go.

This centralized system means above all fewer choices; what works for the political class must work for everyone. With formerly private insurers converted into public utilities, for instance, they'll inevitably be banned from selling products like health savings accounts that encourage more cost-conscious decisions.

Unnoticed by the press corps, the Congressional Budget Office argued recently that the Senate bill would so "substantially reduce flexibility in terms of the types, prices, and number of private sellers of health insurance" that companies like WellPoint might need to "be considered part of the federal budget."

With so large a chunk of the economy and medical practice itself in Washington's hands, quality will decline. Ultimately, "our capacity to innovate and develop new therapies would suffer most of all," as Harvard Medical School Dean Jeffrey Flier recently wrote in our pages. Take the $2 billion annual tax—rising to $3 billion in 2018—that will be leveled against medical device makers, among the most innovative U.S. industries. Democrats believe that more advanced health technologies like MRI machines and drug-coated stents are driving costs too high, though patients and their physicians might disagree.

"The Senate isn't hearing those of us who are closest to the patient and work in the system every day," Brent Eastman, the chairman of the American College of Surgeons, said in a statement for his organization and 18 other speciality societies opposing ObamaCare. For no other reason than ideological animus, doctor-owned hospitals will face harsh new limits on their growth and who they're allowed to treat. Physician Hospitals of America says that ObamaCare will "destroy over 200 of America's best and safest hospitals."

• Blowing up the federal fisc. Even though Medicare's unfunded liabilities are already about 2.6 times larger than the entire U.S. economy in 2008, Democrats are crowing that ObamaCare will cost "only" $871 billion over the next decade while fantastically reducing the deficit by $132 billion, according to CBO.

Yet some 98% of the total cost comes after 2014—remind us why there must absolutely be a vote this week—and most of the taxes start in 2010. That includes the payroll tax increase for individuals earning more than $200,000 that rose to 0.9 from 0.5 percentage points in Mr. Reid's final machinations. Job creation, here we come.

Other deceptions include a new entitlement for long-term care that starts collecting premiums tomorrow but doesn't start paying benefits until late in the decade. But the worst is not accounting for a formula that automatically slashes Medicare payments to doctors by 21.5% next year and deeper after that. Everyone knows the payment cuts won't happen but they remain in the bill to make the cost look lower. The American Medical Association's priority was eliminating this "sustainable growth rate" but all they got in return for their year of ObamaCare cheerleading was a two-month patch snuck into the defense bill that passed over the weekend.

The truth is that no one really knows how much ObamaCare will cost because its assumptions on paper are so unrealistic. To hide the cost increases created by other parts of the bill and transfer them onto the federal balance sheet, the Senate sets up government-run "exchanges" that will subsidize insurance for those earning up to 400% of the poverty level, or $96,000 for a family of four in 2016. Supposedly they would only be offered to those whose employers don't provide insurance or work for small businesses.

As Eugene Steuerle of the left-leaning Urban Institute points out, this system would treat two workers with the same total compensation—whatever the mix of cash wages and benefits—very differently. Under the Senate bill, someone who earned $42,000 would get $5,749 from the current tax exclusion for employer-sponsored coverage but $12,750 in the exchange. A worker making $60,000 would get $8,310 in the exchanges but only $3,758 in the current system.

For this reason Mr. Steuerle concludes that the Senate bill is not just a new health system but also "a new welfare and tax system" that will warp the labor market. Given the incentives of these two-tier subsidies, employers with large numbers of lower-wage workers like Wal-Mart may well convert them into "contractors" or do more outsourcing. As more and more people flood into "free" health care, taxpayer costs will explode.

• Political intimidation. The experts who have pointed out such complications have been ignored or dismissed as "ideologues" by the White House. Those parts of the health-care industry that couldn't be bribed outright, like Big Pharma, were coerced into acceding to this agenda. The White House was able to, er, persuade the likes of the AMA and the hospital lobbies because the federal government will control 55% of total U.S. health spending under ObamaCare, according to the Administration's own Medicare actuaries.

Others got hush money, namely Nebraska's Ben Nelson. Even liberal Governors have been howling for months about ObamaCare's unfunded spending mandates: Other budget priorities like education will be crowded out when about 21% of the U.S. population is on Medicaid, the joint state-federal program intended for the poor. Nebraska Governor Dave Heineman calculates that ObamaCare will result in $2.5 billion in new costs for his state that "will be passed on to citizens through direct or indirect taxes and fees," as he put it in a letter to his state's junior Senator.

So in addition to abortion restrictions, Mr. Nelson won the concession that Congress will pay for 100% of Nebraska Medicaid expansions into perpetuity. His capitulation ought to cost him his political career, but more to the point, what about the other states that don't have a Senator who's the 60th vote for ObamaCare?

"After a nearly century-long struggle we are on the cusp of making health-care reform a reality in the United States of America," Mr. Obama said on Saturday. He's forced to claim the mandate of "history" because he can't claim the mandate of voters. Some 51% of the public is now opposed, according to National Journal's composite of all health polling. The more people know about ObamaCare, the more unpopular it becomes.

The tragedy is that Mr. Obama inherited a consensus that the health-care status quo needs serious reform, and a popular President might have crafted a durable compromise that blended the best ideas from both parties. A more honest and more thoughtful approach might have even done some good. But as Mr. Obama suggested, the Democratic old guard sees this plan as the culmination of 20th-century liberalism.

So instead we have this vast expansion of federal control. Never in our memory has so unpopular a bill been on the verge of passing Congress, never has social and economic legislation of this magnitude been forced through on a purely partisan vote, and never has a party exhibited more sheer political willfulness that is reckless even for Washington or had more warning about the consequences of its actions.

These 60 Democrats are creating a future of epic increases in spending, taxes and command-and-control regulation, in which bureaucracy trumps innovation and transfer payments are more important than private investment and individual decisions. In short, the Obama Democrats have chosen change nobody believes in—outside of themselves—and when it passes America will be paying for it for decades to come.

FINALLY! A Candidate Worth Supporting

Dave Harmer is running for the U.S. House of Representatives from California’s 10th congressional district in a special election (Congresswoman Ellen Tauscher is accepting an appointment as Under Secretary of State for Arms Control and International Security). I've known his wife Elayne for over a decade, and the Harmers are wonderful people. Please take a moment to scan his website and consider getting involved in sending an experienced leader with integrity to Congress!

Can You Imagine...

...if Bush had said America invented the automobile? (Ref. Obama's speech to congress last night: "And I believe the nation that invented the automobile cannot walk away from it.") Ser-i-ous-ly.

New Kid on the Block

The moment should have spoken for itself. The image of a black man at the podium was the most poignant and moving statement that could've been made.

The media, of course, ruined it. Obama might as well be the New Kids on the Block. (I reluctantly link to them because at least one of you was in diapers during their reign. Sigh.) Better yet, Sanjaya. The media (and the millions of Kool-Aid drinkers) are the crying, braces-clad tween. Ser-i-ous-ly.

I was reminded yet again yesterday why I don't watch cable news. The episode went something like this: CNN reporter on the Mall: "People here are so full of hope and goodwill. They are willing to answer probing questions like, 'Why are you here?'"

Groundbreaking.

It's ironic. Almost every media entity so desperately and selfishly wanted to help make/be a part of history, they left their objectiveness at the door of his skin color. This is racial progress? Wasn't that the very thing to overcome? Let's "hope" people grow weary of yet another pop culture obsession and stop refusing to see when the emperor isn't wearing any clothes--even when the media is screaming and kicking that he is. Too many of his supporters, I believe, have fallen prey to this and this.

Juan Williams has a good article in the Wall Street Journal today: "Judge Obama on Performance Alone--Let's not celebrate more ordinary speeches." Juan Williams, by the way, is black.

I was struck by this article not because of what it said (Well, a little. CNN thought the speech should be chiseled in granite.) or because of the skin color of the writer. I was struck because the most moving moment for me yesterday was when Juan Williams broke down on the air about the significance of it all. (See video below)

We all would've been a lot better off had the moment spoken for itself, and we moved on. The way to stop making a big deal about race is to stop making a big deal about race.

'Atlas Shrugged': From Fiction to Fact in 52 Years

Do you see a train wreck coming?

My hubby made the exact same comparison tonight at dinner (Shout out!). Read this book people (and the article)!

Bingo!

Senator Tom Coburn, (R) Oklahoma, today:

"In 2007, GM sold 9.37 million cars worldwide. Toyota, that same year, sold 9.37 million cars worldwide. GM lost $38.7 billion. Toyota made $17.7 billion. Therein lies the problem."

Obama's Great Recession

Other countries had a depression. America's was the only "Great" one. Why? The New Deal.

Sigh. Here we go again. When will liberals learn?

Obama's jobs lowball
By George Will

Three days after the president-elect announced in a radio address that he had directed his "economic team" to devise a plan "that will mean 2.5 million more jobs by January of 2011," he said at a news conference that he favored measures "that will help save or create 2.5 million jobs." To the extent that his ambition is clear, it is notably modest.
It is, however, unclear. How will anyone calculate the number of jobs "saved"? In what sense saved? Saved from what? Saved by what? By government action, such as agriculture subsidies or other corporate welfare? What about jobs lost because of those irrational uses of finite economic resources? Should jobs "saved" by, say, protectionist policies that interfere with free trade be balanced against jobs lost when export markets are lost to retaliatory protectionism?
In recent years, in normal conditions, the economy has "lost" tens of millions of jobs through capitalism's "creative destruction" (Joseph Schumpeter's phrase). It also has created a few million more than that, which is why the destruction is creative. Investor's Business Daily reports:
"Since Eisenhower's first term, the economy has created an average of 1.5 million new jobs each year. Since Reagan's first term, the average has been about 2.5 million a year. And Reagan, who inherited an economy as bad if not worse than the current one, saw 6.3 million new jobs created four years after he entered the White House."
Because the economy's job-creation is not quite as predictable as a solar eclipse, Obama, by promising 2.5 million jobs by 2011, is a bit more audacious than was Mark Twain's Connecticut Yankee, who astonished King Arthur's court by commanding an eclipse that he knew was due. Still, because scores of millions of today's jobs will exist two years from now, who will be able to dispute a presidential claim that administration policies "saved" some portion of them?
If you must forecast tomorrow's weather, you will be tolerably accurate more often than not if you say it will be sort of like today's. In normal times, the rule for forecasting next year's economy is similar. The problem is that economic forecasts matter most in abnormal times, such as these. The question is: How abnormal are these times?
A snapshot of a moving target is of limited use, but: Sales the day after Thanksgiving were 3 percent higher than last year. Over the weekend, 172 million people, shopping in stores and online, spent an average of $372.57, a 7.2 percent increase over a year ago, when 147 million shoppers spent $347.55 per person. Is this evidence that the recent deleveraging of indebted households has breathed fresh life into personal consumption, which normally is 70 percent of economic activity? Is it evidence of underestimated strength of an economy in which more than 93 percent of those who want to work are employed, and more than 93 percent of mortgages are being paid on time? Is it evidence that Washington's jaw-dropping interventions with hundreds of billions of dollars are having their intended psychotherapeutic effects? How much is it evidence of the decline of the price of a gallon of regular gasoline from $4.10 in July to $1.81 today? Over a year, every 1 cent decline is a $1.5 billion saving to consumers.
Whatever else historians will say about Washington's response to today's crisis, they are not apt to say the government did too little. It certainly has not suffered the fate of Buridan's ass, the animal in a philosophic puzzle who, placed equidistant from two piles of hay, starved to death from indecision. Some Washingtonians can remember when the federal government first had a budget of $100 billion (1962); this year's decisiveness might contribute to a deficit next year of $1 trillion.
In his wise book "Capitalism, Democracy & Ralph's Pretty Good Grocery," John Mueller, an Ohio State political scientist, notes that John Maynard Keynes's central theme, according to his biographer Robert Skidelsky, was that "the state is wise and the market is stupid." Mueller continues: "Working from that sort of perspective, India's top economists for a generation supported policies of regulation and central control that failed abysmally — leading one of them to lament recently, 'India's misfortune was to have brilliant economists.' " Many of them were educated in Britain, by Keynes's followers. In America today, everyone agrees that the president-elect's economic team is composed of brilliant economists.

Same Old New Deal?
By George Will

Early in what became the Great Depression, John Maynard Keynes was asked if anything similar had ever happened. "Yes," he replied, "it was called the Dark Ages, and it lasted 400 years." It did take 25 years, until November 1954, for the Dow to return to the peak it reached in September 1929. So caution is sensible concerning calls for a new New Deal.
The assumption is that the New Deal vanquished the Depression. Intelligent, informed people differ about why the Depression lasted so long. But people whose recipe for recovery today is another New Deal should remember that America's biggest industrial collapse occurred in 1937, eight years after the 1929 stock market crash and nearly five years into the New Deal. In 1939, after a decade of frantic federal spending — President Herbert Hoover increased it more than 50 percent between 1929 and the inauguration of Franklin Roosevelt — unemployment was 17.2 percent.
"I say after eight years of this administration we have just as much unemployment as when we started," lamented Henry Morgenthau, FDR's Treasury secretary. Unemployment declined when America began selling materials to nations engaged in a war America would soon join.
In "The Forgotten Man: A New History of the Great Depression," Amity Shlaes of the Council on Foreign Relations and Bloomberg News argues that government policies, beyond the Federal Reserve's tight money, deepened and prolonged the Depression. The policies included encouraging strong unions and higher wages than lagging productivity justified, on the theory that workers' spending would be stimulative. Instead, corporate profits — prerequisites for job-creating investments — were excessively drained into labor expenses that left many workers priced out of the market.
In a 2004 paper, Harold L. Cole of the University of California at Los Angeles and Lee E. Ohanian of UCLA and the Federal Reserve Bank of Minneapolis argued that the Depression would have ended in 1936, rather than in 1943, were it not for policies that magnified the power of labor and encouraged the cartelization of industries. These policies expressed the New Deal premise that the Depression was caused by excessive competition that first reduced prices and wages and then reduced employment and consumer demand. In a forthcoming paper, Ohanian argues that "much of the depth of the Depression" is explained by Hoover's policy — a precursor of the New Deal mentality — of pressuring businesses to keep nominal wages fixed.
Furthermore, Hoover's 1932 increase in the top income tax rate, from 25 percent to 63 percent, was unhelpful. And FDR's hyperkinetic New Deal created uncertainties that paralyzed private-sector decision making. Which sounds familiar.
Bear Stearns? Broker a merger. Lehman Brothers? Death sentence. The $700 billion is for cleaning up toxic assets? Maybe not. Writes Russell Roberts of George Mason University:
"By acting without rhyme or reason, politicians have destroyed the rules of the game. There is no reason to invest, no reason to take risk, no reason to be prudent, no reason to look for buyers if your firm is failing. Everything is up in the air and as a result, the only prudent policy is to wait and see what the government will do next. The frenetic efforts of FDR had the same impact: Net investment was negative through much of the 1930s."
Barack Obama says that the next stimulus should deliver a "jolt." His adviser Austan Goolsbee says that it must be big enough to "startle the thing into submission." Their theory is that the crisis is largely psychological, requiring shock treatment. But shocks from government have been plentiful.
Unfortunately, one thing government can do quickly and efficiently — distribute checks — could fail to stimulate because Americans might do with the money what they have been rightly criticized for not doing nearly enough: Save it. Because individual consumption is 70 percent of economic activity, St. Augustine's prayer ("Give me chastity and continence, but not yet") is echoed today: Make Americans thrifty but not now.
Obama's "rescue plan for the middle class" includes a tax credit for businesses "for each new employee they hire" in America over the next two years. The assumption is that businesses will create jobs that would not have been created without the subsidy. If so, the subsidy will suffuse the economy with inefficiencies — labor costs not justified by value added.
Here we go again? A new New Deal would vindicate pessimists who say that history is not one damn thing after another, it is the same damn thing over and over.

Happy Thanksgiving

Thanksgiving was originally intended to be about giving thanks to God rather than the kind and helpful Indians (who obviously deserve thanks, I know). We've lost sight of what Washington knew: God was the inspiration behind a government and financial system that promotes life, liberty and the pursuit of happiness.

William Bradford, Governor of Plymouth Colony in Massachusetts, writes of the experience in his journal Of Plymouth Plantation. The original text can be found here (and below). It's a bit harder to read, so here is a modern English version. They had tried socialism in the beginning--everyone owned everything. Make what you can, take what you need. Then (this is key) human nature reared its head. And these were very devout, religious people!

"The experience that we had in this common course and condition, tried sundry years...that by taking away property, and bringing community into a common wealth, would make them happy and flourishing–as if they were wiser than God....For this community [so far as it was] was found to breed much confusion and discontent, and retard much employment that would have been to their benefit and comfort. For young men that were most able and fit for labor and service did repine that they should spend their time and strength to work for other men's wives and children without any recompense...that was thought injustice."

Bradford writes, "Seeing all men have this corruption in them, God in his wisdom saw another course fiter for them." There was a better way. Every family was then assigned its own plot of land to work and permitted to market its own crops and products.

Bradford writes, "This had very good success for it made all hands industrious, so as much more corn was planted than otherwise would have been."

They began to have more than enough, so they set up trading posts and exchanged goods with the Indians. The profits allowed them to pay off their debts to the merchants in London. And the success and prosperity of the Plymouth settlement attracted more Europeans and began what came to be known as the "Great Puritan Migration."

All this whille no supply was heard of, neither knew they when they might expecte any. So they begane to thinke how they might raise as much torne as they could, and obtaine a beter crope then they had done, that they might not still thus languish in miserie. At length, after much debate of things, the Govr (with the advise of the cheefest amongest them) gave way that they should set corve every man for his owne perticuler, and in that regard trust to them selves; in all other things to goe on in the generall way as before. And so assigned to every family a parcell of land, according to the proportion of their number for that end, only for present use (but made no devission for inheritance), and ranged all boys and youth under some familie. This had very good success; for it made all hands very industrious, so as much more torne was planted then other waise would have bene by any means the Govr or any other could use, and saved him a great deall of trouble, and gave farr better contente. The women now wente willingly into the feild, and tooke their litle-ons with them to set torne, which before would aledg weaknes, and inabilitie; whom to have compelled would have bene thought great tiranie and oppression. The experience that was had in this commone course and condition, tried sundrie years, and that amongst godly and sober men, may well evince the vanitie of that conceite of Platos and other.ancients, applauded by some of aater times; -that the taking away of propertie, and bringing in communitie into a comone wealth, would make them happy and $orishing; as if they were wiser then God. For this comunitie (so farr as it was) was found to breed much confusion and discontent, and retard much imployment that would have been to their benefite and comforte. For the yong-men that were most able and fitte for labour and servise did repine that they should spend their time and streingth to worke for other mens wives and children, with out any recompence. The strong, or man of parts, had no more in devission of victails and cloaths, then he that was weake and not able to doe a quarter the other could; this was thought injuestice. The aged and graver men to be ranked and equalised in labours, and victails, cloaths, etc., with the meaner and yonger sorte, thought it some indignite and disrespect unto them. And for mens wives to be commanded to doe servise for other men, as dresing their meate, washing their cloaths, etc., they deemd it a kind of slaverie, neither could many husbands well brooke it. Upon the poynte all being to have alike, and all to doe alike, they thought them selves in the like condition, and ove as good as another; and so, if it did not cut of those relations that God hath set amongest men, yet it did at least much diminish and take of the mutuall respects that should be preserved amongst them. And would have bene worse if they had been men of another condition. Let pone objecte this is mens corruption, and nothing to the course it selfe. I answer, seeing all men have this corruption in them, God in his wisdome saw another course fiter for them.

Change?

President-elect promised change, picking insiders

2012

(Chanting to self): "Carter to Reagan, Carter to Reagan, Carter to Reagan...."

I can't believe they're saying this in America

Capitalism doesn't work in the long run?!?!?!?

Jim Moran (D), Virginia!

Happy Halloween!

Boo (Hoo)!

Joe Biden doesn't get softball questions from a local TV anchor, so the Obama campaign whines and cuts-off the TV station's access: "This cancellation is non-negotiable, and further opportunities for your station to interview with this campaign are unlikely, at best for the duration of the remaining days until the election."

(The video had trouble uploading, but you can find the link here.)

"CHANGE" Is Not Always a Good Thing

I really am not trying to hate-monger or mount a personal attack; I just found some of these things very troubling.

"A cult of personality or personality cult arises when a country's leader uses mass media to create a heroic public image through unquestioning flattery and praise. Cults of personality are often found in dictatorships but can be found in some democracies. A cult of personality is similar to general hero worship except that it is created specifically for political leaders. Often, a single leader becomes associated with this revolutionary transformation, and comes to be treated as a benevolent 'guide' for the nation, without whom the transformation to a better future cannot occur."

Obama's Missouri "Truth Squad"

Children Singing for Obama

(Aside: a supposed "grassroots" neighborhood sing-a-long actually produced by NBC president Jeff Zucker and industry choreographers, camera operators and editors.)

Where Have I Seen That Before?

This Is Just Whacked

(Kansas City charter school Urban Community Leadership Academy. The video was made on school grounds after class at a teacher sanctioned event. The school suspended the teacher in charge of the after school activity for insubordination.)

Facts Are Stubborn Things

2004 House of Representatives Regulatory Hearings on Fannie/Freddie

(The Office of Federal Housing Enterprise Oversight--OFHEO--is the regulatory agency that is under attack by House Democrats.)

Franklin Raines (Obama's Economic Advisor)

On December 21, 2004 Raines accepted what he called "early retirement" from his position as CEO while U.S. Securities and Exchange Commission investigators continued to investigate alleged accounting irregularities. He is accused by The Office of Federal Housing Enterprise Oversight (OFHEO), the regulating body of Fannie Mae, of abetting widespread accounting errors, which included the shifting of losses so senior executives, such as himself, could earn large bonuses.

In 2006, the OFHEO announced a suit against Raines in order to recover some or all of the $50 million in payments made to Raines based on the overstated earnings initially estimated to be $9 billion but have been announced as 6.3 billion.

Civil charges were filed against Raines and two other former executives by the OFHEO in which the OFHEO sought $110 million in penalties and $115 million in returned bonuses from the three accused. On April 18, 2008, the government announced a settlement with Raines together with J. Timothy Howard, Fannie's former chief financial officer, and Leanne G. Spencer, Fannie's former controller. The three executives agreed to pay fines totaling about $3 million, which will be paid by Fannie's insurance policies. Raines also agreed to donate the proceeds from the sale of $1.8 million of his Fannie stock and to give up stock options. The stock options however have no value. Raines also gave up an estimated $5.3 million of "other benefits" said to be related to his pension and forgone bonuses.

An editorial in The Wall Street Journal called it a "paltry settlement" which allowed Raines and the other two executives to "keep the bulk of their riches." In 2003 alone, Raines's compensation was over $20 million.

Dodging a Bullet

Great articles:

Harvard Economist: Bankruptcy, not bailout, is the right answer

Bailout marks Karl Marx's comeback

*****

“Today Congress took a stand for the American taxpayer and free markets. The American people rejected this corporate bailout and today the People's House did likewise."

-- Rep. Mike Pence, Republican

"We are now in the golden age of thieves. And where I come from we put thieves in jail, we don't bail them out."

— Rep. Pete Visclosky, Democrat

Give Credit Where Credit is Due

Alternative post titles:

• Make those responsible accountable on November 4th
• Milton Friedman is rolling in his grave

*****

A really great article from Bloomberg: "But we now know that many of the senators who protected Fannie and Freddie, including Barack Obama, Hillary Clinton and Christopher Dodd, have received mind-boggling levels of financial support from them over the years."

*****

President Bush publicly called for government-sponsored enterprise (GSE) reform 17 times in 2008 alone before Congress acted.

2001 April: The Administration's FY02 budget declares that the size of Fannie Mae and Freddie Mac is "a potential problem," because "financial trouble of a large GSE could cause strong repercussions in financial markets, affecting Federally insured entities and economic activity."

2002 May: The President calls for the disclosure and corporate governance principles contained in his 10-point plan for corporate responsibility to apply to Fannie Mae and Freddie Mac. (OMB Prompt Letter to OFHEO, 5/29/02)

2003 January: Freddie Mac announces it has to restate financial results for the previous three years.

February: The Office of Federal Housing Enterprise Oversight (OFHEO) releases a report explaining that "although investors perceive an implicit Federal guarantee of [GSE] obligations," "the government has provided no explicit legal backing for them." As a consequence, unexpected problems at a GSE could immediately spread into financial sectors beyond the housing market. ("Systemic Risk: Fannie Mae, Freddie Mac and the Role of OFHEO," OFHEO Report, 2/4/03)

September: Fannie Mae discloses SEC investigation and acknowledges OFHEO's review found earnings manipulations.

September: Treasury Secretary John Snow testifies before the House Financial Services Committee to recommend that Congress enact "legislation to create a new Federal agency to regulate and supervise the financial activities of our housing-related government sponsored enterprises" and set prudent and appropriate minimum capital adequacy requirements.

October: Fannie Mae discloses $1.2 billion accounting error.

November: Council of the Economic Advisers (CEA) Chairman Greg Mankiw explains that any "legislation to reform GSE regulation should empower the new regulator with sufficient strength and credibility to reduce systemic risk." To reduce the potential for systemic instability, the regulator would have "broad authority to set both risk-based and minimum capital standards" and "receivership powers necessary to wind down the affairs of a troubled GSE." (N. Gregory Mankiw, Remarks At The Conference Of State Bank Supervisors State Banking Summit And Leadership, 11/6/03)

2004 February: The President's FY05 Budget again highlights the risk posed by the explosive growth of the GSEs and their low levels of required capital, and called for creation of a new, world-class regulator: "The Administration has determined that the safety and soundness regulators of the housing GSEs lack sufficient power and stature to meet their responsibilities, and therefore…should be replaced with a new strengthened regulator." (2005 Budget Analytic Perspectives, pg. 83)

February: CEA Chairman Mankiw cautions Congress to "not take [the financial market's] strength for granted." Again, the call from the Administration was to reduce this risk by "ensuring that the housing GSEs are overseen by an effective regulator." (N. Gregory Mankiw, Op-Ed, "Keeping Fannie And Freddie's House In Order," Financial Times, 2/24/04)

June: Deputy Secretary of Treasury Samuel Bodman spotlights the risk posed by the GSEs and called for reform, saying "We do not have a world-class system of supervision of the housing government sponsored enterprises (GSEs), even though the importance of the housing financial system that the GSEs serve demands the best in supervision to ensure the long-term vitality of that system. Therefore, the Administration has called for a new, first class, regulatory supervisor for the three housing GSEs: Fannie Mae, Freddie Mac, and the Federal Home Loan Banking System." (Samuel Bodman, House Financial Services Subcommittee on Oversight and Investigations Testimony, 6/16/04)

2005 April: Treasury Secretary John Snow repeats his call for GSE reform, saying "Events that have transpired since I testified before this Committee in 2003 reinforce concerns over the systemic risks posed by the GSEs and further highlight the need for real GSE reform to ensure that our housing finance system remains a strong and vibrant source of funding for expanding homeownership opportunities in America… Half-measures will only exacerbate the risks to our financial system." (Secretary John W. Snow, "Testimony Before The U.S. House Financial Services Committee," 4/13/05)

2007 July: Two Bear Stearns hedge funds invested in mortgage securities collapse. August: President Bush emphatically calls on Congress to pass a reform package for Fannie Mae and Freddie Mac, saying "first things first when it comes to those two institutions. Congress needs to get them reformed, get them streamlined, get them focused, and then I will consider other options." (President George W. Bush, Press Conference, The White House, 8/9/07)

September: RealtyTrac announces foreclosure filings up 243,000 in August – up 115 percent from the year before.

September: Single-family existing home sales decreases 7.5 percent from the previous month – the lowest level in nine years. Median sale price of existing homes fell six percent from the year before.

December: President Bush again warns Congress of the need to pass legislation reforming GSEs, saying "These institutions provide liquidity in the mortgage market that benefits millions of homeowners, and it is vital they operate safely and operate soundly. So I've called on Congress to pass legislation that strengthens independent regulation of the GSEs – and ensures they focus on their important housing mission. The GSE reform bill passed by the House earlier this year is a good start. But the Senate has not acted. And the United States Senate needs to pass this legislation soon." (President George W. Bush, Discusses Housing, The White House, 12/6/07)

2008 January: Bank of America announces it will buy Countrywide.

January: Citigroup announces mortgage portfolio lost $18.1 billion in value.

February: Assistant Secretary David Nason reiterates the urgency of reforms, says "A new regulatory structure for the housing GSEs is essential if these entities are to continue to perform their public mission successfully." (David Nason, Testimony On Reforming GSE Regulation, Senate Committee On Banking, Housing And Urban Affairs, 2/7/08)

March: Bear Stearns announces it will sell itself to JPMorgan Chase.

March: President Bush calls on Congress to take action and "move forward with reforms on Fannie Mae and Freddie Mac. They need to continue to modernize the FHA, as well as allow State housing agencies to issue tax-free bonds to homeowners to refinance their mortgages." (President George W. Bush, Remarks To The Economic Club Of New York, New York, NY, 3/14/08)

April: President Bush urges Congress to pass the much needed legislation and "modernize Fannie Mae and Freddie Mac. [There are] constructive things Congress can do that will encourage the housing market to correct quickly by … helping people stay in their homes." (President George W. Bush, Meeting With Cabinet, the White House, 4/14/08)

May: President Bush issues several pleas to Congress to pass legislation reforming Fannie Mae and Freddie Mac before the situation deteriorates further. "Americans are concerned about making their mortgage payments and keeping their homes. Yet Congress has failed to pass legislation I have repeatedly requested to modernize the Federal Housing Administration that will help more families stay in their homes, reform Fannie Mae and Freddie Mac to ensure they focus on their housing mission, and allow State housing agencies to issue tax-free bonds to refinance sub-prime loans." (President George W. Bush, Radio Address, 5/3/08) "[T]he government ought to be helping creditworthy people stay in their homes. And one way we can do that – and Congress is making progress on this – is the reform of Fannie Mae and Freddie Mac. That reform will come with a strong, independent regulator." (President George W. Bush, Meeting With The Secretary Of The Treasury, the White House, 5/19/08)"Congress needs to pass legislation to modernize the Federal Housing Administration, reform Fannie Mae and Freddie Mac to ensure they focus on their housing mission, and allow State housing agencies to issue tax-free bonds to refinance subprime loans." (President George W. Bush, Radio Address, 5/31/08)

June: As foreclosure rates continued to rise in the first quarter, the President once again asks Congress to take the necessary measures to address this challenge, saying "we need to pass legislation to reform Fannie Mae and Freddie Mac." (President George W. Bush, Remarks At Swearing In Ceremony For Secretary Of Housing And Urban Development, Washington, D.C., 6/6/08)

July: Congress heeds the President's call for action and passes reform of Fannie Mae and Freddie Mac as it becomes clear that the institutions are failing. (Source: The White House)

*****

In 2005, Senator John McCain partnered with three other Senate Republicans to reform the government’s involvement in lending with the Federal Housing Enterprise Regulatory Reform Act of 2005. Democrats (again) blocked this reform. (Excerpt from US Senate Record below.)

"Mr. President, this week Fannie Mae’s regulator reported that the company’s quarterly reports of profit growth over the past few years were “illusions deliberately and systematically created” by the company’s senior management, which resulted in a $10.6 billion accounting scandal.
The Office of Federal Housing Enterprise Oversight’s report goes on to say that Fannie Mae employees deliberately and intentionally manipulated financial reports to hit earnings targets in order to trigger bonuses for senior executives. In the case of Franklin Raines, Fannie Mae’s former chief executive officer, OFHEO’s report shows that over half of Mr. Raines’ compensation for the 6 years through 2003 was directly tied to meeting earnings targets. The report of financial misconduct at Fannie Mae echoes the deeply troubling $5 billion profit restatement at Freddie Mac.

The OFHEO report also states that Fannie Mae used its political power to lobby Congress in an effort to interfere with the regulator’s examination of the company’s accounting problems. This report comes some weeks after Freddie Mac paid a record $3.8 million fine in a settlement with the Federal Election Commission and restated lobbying disclosure reports from 2004 to 2005. These are entities that have demonstrated over and over again that they are deeply in need of reform.

For years I have been concerned about the regulatory structure that governs Fannie Mae and Freddie Mac–known as Government-sponsored entities or GSEs–and the sheer magnitude of these companies and the role they play in the housing market. OFHEO’s report this week does nothing to ease these concerns. In fact, the report does quite the contrary. OFHEO’s report solidifies my view that the GSEs need to be reformed without delay.

I join as a cosponsor of the Federal Housing Enterprise Regulatory Reform Act of 2005, S. 190, to underscore my support for quick passage of GSE regulatory reform legislation. If Congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system, and the economy as a whole.

I urge my colleagues to support swift action on this GSE reform legislation."

What happened to the bill? It never made it out of committee. Chris Dodd, then the ranking member of the Banking Committee and now its chair, was in the middle of receiving preferential loan treatment from Countrywide Mortgage, one of the companies gaming the system in the credit crisis.

*****

Barack Obama took hundreds of thousands of dollars from the lobbyists McCain mentions in this speech, making him the #2 recipient of Fannie/Freddie money --Dodd is #1. Not only did democrats not act on these warnings but Barack Obama put one of the major subprime players on his campaign as finance chairperson. (See below)

"Barack Obama has slammed the banking industry for its predatory use of sub-prime mortgages, which are pushing millions of American homeowners toward foreclosure.

But his campaign's Finance Chair, Penny Pritzker, owned a failed Chicago thrift that helped pioneer sub-prime financial instruments and faced accusations of abuse.

Superior Bank of Chicago went belly up in 2001 with over $1 billion in insured and uninsured deposits. This collapse came amid harsh criticism of how Superior's owners promoted sub-prime home mortgages. As part of a settlement, the owners paid $100 million and agreed to pay another $335 million over 15 years at no interest...

But this seven-year-old bank failure has relevance in another way today, since the chair of Superior’s board for five years was Penny Pritzker, a member of one of America’s richest families and the current Finance Chair for the presidential campaign of Barack Obama, the same candidate who has lashed out against predatory lending.

Though Superior Bank collapsed years before the current sub-prime turmoil that is rocking the world’s financial markets – and pushing those millions of homeowners toward foreclosure – some banking experts say the Pritzkers and Superior hold a special place in the history of the sub-prime fiasco.

“The [sub-prime] financial engineering that created the Wall Street meltdown was developed by the Pritzkers and Ernst and Young, working with Merrill Lynch to sell bonds securitized by sub-prime mortgages,” Timothy J. Anderson, a whistleblower on financial and bank fraud, told me in an interview.

“The sub-prime mortgages,” Anderson said, “were provided to Merrill Lynch, by a nation-wide Pritzker origination system, using Superior as the cash cow, with many millions in FDIC insured deposits.

Superior’s owners were to sub-prime lending, what Michael Milken was to junk bonds.”In other words, if you traced today’s sub-prime crisis back to its origins, you would come upon the role of the Pritzkers and Superior Bank of Chicago."

Articles to read: Wall Street Journal, Investor's Business Daily

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Love Peggy Noonan. A great article. Read it.

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