AMERICAN CONSERVATISM IN 2008 AND BEYOND

A MINORITY VIEW
BY WALTER E. WILLIAMS
WEDNESDAY, MARCH 25, 2009

States Rebellion Pending

Our Colonial ancestors petitioned and pleaded with King George III to get his boot off their necks. He ignored their pleas, and in 1776, they rightfully declared unilateral independence and went to war. Today it's the same story except Congress is the one usurping the rights of the people and the states, making King George's actions look mild in comparison. Our constitutional ignorance -- perhaps contempt, coupled with the fact that we've become a nation of wimps, sissies and supplicants -- has made us easy prey for Washington's tyrannical forces. But that might be changing a bit. There are rumblings of a long overdue re-emergence of Americans' characteristic spirit of rebellion.

Eight state legislatures have introduced resolutions declaring state sovereignty under the Ninth and 10th amendments to the U.S. Constitution; they include Arizona, Hawaii, Montana, Michigan, Missouri, New Hampshire, Oklahoma and Washington. There's speculation that they will be joined by Alaska, Alabama, Arkansas, California, Colorado, Georgia, Idaho, Indiana, Kansas, Nevada, Maine and Pennsylvania.

You might ask, "Isn't the 10th Amendment that no-good states' rights amendment that Dixie governors, such as George Wallace and Orval Faubus, used to thwart school desegregation and black civil rights?" That's the kind of constitutional disrespect and ignorance that big-government proponents, whether they're liberals or conservatives, want you to have. The reason is that they want Washington to have total control over our lives. The Founders tried to limit that power with the 10th Amendment, which reads: "The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people."

New Hampshire's 10th Amendment resolution typifies others and, in part, reads: "That the several States composing the United States of America, are not united on the principle of unlimited submission to their General (federal) Government; but that, by a compact under the style and title of a Constitution for the United States, and of amendments thereto, they constituted a General Government for special purposes, delegated to that government certain definite powers, reserving, each State to itself, the residuary mass of right to their own self-government; and that whensoever the General Government assumes undelegated powers, its acts are unauthoritative, void, and of no force." Put simply, these 10th Amendment resolutions insist that the states and their people are the masters and that Congress and the White House are the servants. Put yet another way, Washington is a creature of the states, not the other way around.

Congress and the White House will laugh off these state resolutions. State legislatures must take measures that put some teeth into their 10th Amendment resolutions. Congress will simply threaten a state, for example, with a cutoff of highway construction funds if it doesn't obey a congressional mandate, such as those that require seat belt laws or that lower the legal blood-alcohol level to .08 for drivers. States might take a lead explored by Colorado.

In 1994, the Colorado Legislature passed a 10th Amendment resolution and later introduced a bill titled "State Sovereignty Act." Had the State Sovereignty Act passed both houses of the legislature, it would have required all people liable for any federal tax that's a component of the highway users fund, such as a gasoline tax, to remit those taxes directly to the Colorado Department of Revenue. The money would have been deposited in an escrow account called the "Federal Tax Fund" and remitted monthly to the IRS, along with a list of payees and respective amounts paid. If Congress imposed sanctions on Colorado for failure to obey an unconstitutional mandate and penalized the state by withholding funds due, say $5 million for highway construction, the State Sovereignty Act would have prohibited the state treasurer from remitting any funds in the escrow account to the IRS. Instead, Colorado would have imposed a $5 million surcharge on the Federal Tax Fund account to continue the highway construction.

The eight state legislatures that have enacted 10th Amendment resolutions deserve our praise, but their next step is to give them teeth.

Walter E. Williams is a professor of economics at George Mason University.
http://www.gmu.edu/departments/economics/wew/articles/09/StatesRebellionPending.htm

Jewish World Review
March 24, 2009
Cheap Political Theater
By Thomas Sowell

Death threats to executives at AIG, because of the bonuses they received, are one more sign of the utter degeneration of politics in our time.

Congressman Barney Frank has threatened to summon these executives before his committee and force them to reveal their home addresses" which would of course put their wives and children at the mercy of whatever kooks might want to literally take a shot at them.

Whatever the political or economic issues involved, this is not the way such issues should be resolved in America. We are not yet a banana republic, though that is the direction in which some of our politicians are taking us" especially those politicians who make a lot of noise about "compassion" and "social justice."

What makes this all the more painfully ironic is that it is precisely those members of Congress who have had the most to do with creating the risks that led to the current economic crisis who are making the most noise against others, and summoning people before their committee to be browbeaten and humiliated on nationwide television.

No one pushed harder than Congressman Barney Frank to force banks and other financial institutions to reduce their mortgage lending standards, in order to meet government-set goals for more home ownership. Those lower mortgage lending standards are at the heart of the increased riskiness of the mortgage market and of the collapse of Wall Street securities based on those risky mortgages.

Every weekday NewsAndOpinion.com publishes what many in the media and Washington consider "must-reading". HUNDREDS of columnists and cartoonists regularly appear. Sign up for the daily update. It's free. Just click here.

Senator Christopher Dodd has played the same role in the Senate as Barney Frank played in the House of Representatives. Now both are summoning government employees and the officials of financial institutions before their committees to be lambasted in front of the media.

Dodd and Frank know that the best defense is a good offense. Both know how hard it would be to defend their own roles in the housing debacle, so they go on the offensive against others who are in no position to reply in kind, given the vindictive powers of Congress.

This political theater is in one sense cheap beyond words. In another sense, it is costly beyond words.

It is cheap because the politicians who are creating this distraction from their own role also voted for the very legislation that enabled contracted bonuses to be paid by companies like AIG that received government bailout money. If members of Congress can't be bothered to read the laws they pass, then they have no basis for whipping up lynch mob outrage against people who did read the law and acted within the law.

Just as everyone seemed to be a military expert a couple of years ago, when it was chic to say that the "surge" in Iraq would not work, so today everyone seems to be an expert on executive pay.

Whether the particular executives who received bonuses were the ones responsible for AIG's problems, or were among those who warned against those problems, is something that those of us on the outside don't know. That includes those in politics and the media who are making the loudest noise.

The politicians claim to be protecting the taxpayers' money. But having politicians trying to micro-manage any business is far more likely to make those businesses lose more money, including the taxpayers' money.

Securities based on risky mortgages are what toppled financial institutions but it was the government that made the mortgages risky in the first place, by making home-ownership statistics the holy grail, for which everything else was to be sacrificed, including commonsense standards for making home loans.

Politicians and bureaucrats micro-managing the mortgage sector of the economy is precisely how today's economic disaster began. Why anyone would think that their micro-managing the automobile industry, or executive pay across a wide sweep of other industries, is likely to make things better in the economy is a mystery.

The real point is to pander to envy and resentment against people who make a lot of money. Envy is always referred to by its political alias, "social justice." But to put the lives of the wives and children of executives at risk for the sake of Beltway grandstanding shows how low our political saviors have sunk.
http://www.jewishworldreview.com/cols/sowell032409.php3

Securities based on risky mortgages are what toppled financial institutions but it was the government that made the mortgages risky in the first place, by making home-ownership statistics the holy grail, for which everything else was to be sacrificed, including commonsense standards for making home loans.

Thomas Sowell has a PhD in economics, has taught economics in some very prestigious universities, and has written extensively on economics.

What gives you two credibility in challenging his point of view? Please provide some authoritative and credible link to support your disapproval of what he says.

Lending to poor didn't spur crisis -Fed's Kroszner

WASHINGTON, Dec 3 (Reuters) - A federal program designed to increase lending to poor communities did not contribute to the recent subprime mortgage crisis, a senior Federal Reserve official said on Wednesday.

An extensive study of the Community Reinvestment Act shows the program, which is meant to increase borrowing opportunities for the poor, did not exacerbate current housing finance woes in any meaningful way, said Fed Governor Randall Kroszner.

"The long-term evidence shows that the CRA has not pushed banks into extending loans that perform out of line with their traditional business," Kroszner told a conference on extending credit to the poor in Washington.

In the last two years, millions of homeowners have faced the threat of losing their homes as defaults have climbed and property values have sunk.

The Fed conducted its study in the light of some critics who laid much of the blame for the current mortgage crisis at the feet of lawmakers and policy-makers who supported CRA.

PROGRAM'S QUID PRO QUO

Under the CRA, banks win informal credit from their regulators when they offer financing to underserved communities. A bank that provides relatively wide credit offerings to the poor could be in a stronger position if it applies to merge with or acquire a competitor.

Kroszner said the system creates an "unusual set of incentives to promote interaction between lenders and community organizations."

Still, he said those interactions have proven to be mutually beneficial, with banks finding new and worthy customers and communities getting easier access to credit. Fed researchers found no indication that CRA diluted underwriting standards during the years of the recent housing boom -- particularly since most risky, subprime loans went to more affluent borrowers.

FDIC Chairman Sheila Bair on CRA: NOT Guilty

By Barry Ritholtz - December 5th, 2008, 10:15AM

“Let me ask you, where in the CRA does it say to make loans to people who can’t afford to repay? Nowhere.”
-FDIC Chairman Sheila Bair

This is old news to readers of the Big Picture, but I wanted to at least excerpt this:

“I want to give you my verdict on CRA: NOT guilty,” said FDIC Chairman Sheila Bair, according to a press release by the Federal Deposit Insurance Corporation. Before the Consumer Federation of America, Bair said Thursday she wanted to clear up the “myth” that the Community Reinvestment Act caused the financial crisis " and she set out to do so with vigor.

The Community Reinvestment Act " or CRA " is a federal law designed to encourage commercial banks and savings associations to meet the needs of borrowers in all segments of their communities, including low- and moderate-income neighborhoods. It has largely been criticized by conservative members of the GOP as promoting predatory lending practices.

“Point in fact,” she said, “only one in four higher-priced first mortgage loans were made by CRA-covered banks during the hey-day years of subprime mortgage lending. The rest were made by private independent mortgage companies and large bank affiliates not covered by CRA rules.”

And “Let me ask you,” she proceeded. “Where in the CRA does it say to make loans to people who can’t afford to repay? Nowhere.” The facts are simple, Bair said. The lending practices that are causing problems today were driven by a desire for more market share and revenue growth, not because the government encouraged certain lending practices.

I didn't mention being 'enamored' with anybody with or without a PhD. I asked for you to back up your criticism of him with something other than a snotty opinion.

Cyclops' response is too over the top to even comment--I didn't have to read past his first line that neither Sowell nor I have done any research on this to know that.

Your opinion is noted Cyclop. You'll probably not understand how silly it sounds to assume that a PhD economist did no research before writing down his opinion where all his peers can see it. Also how silly it is to draw conclusions about my lack of research after I have posted at least as much copy and paste stuff as you have. At least I can put into my own words an understanding of what I post. To date you have declined to do so when asked.

From time to time I have seen economists take on the leftist guru PhD economist Paul Krugman and his Keneysian economics and they provide specific rationale for why it is their opinion that Krugman is wrong. I don't believe I have ever seen anybody, including Krugman, who has presumed to criticize Sowell's take on the economy.

The reasons proposed for this crisis are varied and complex. The crisis can be attributed to a number of factors pervasive in both housing and credit markets, factors which emerged over a number of years. Causes proposed include the inability of homeowners to make their mortgage payments, due primarily to adjustable rate mortgages resetting, borrowers overextending, predatory lending, speculation and overbuilding during the boom period, risky mortgage products, high personal and corporate debt levels, financial products that distributed and perhaps concealed the risk of mortgage default, monetary policy, international trade imbalances, and government regulation (or the lack thereof).[30][31] Two important catalysts of the subprime crisis were the influx of moneys from the private sector and banks entering into the mortgage bond market and the predatory lending practices of mortgage brokers, specifically the adjustable rate mortgage, 2-28 loan.[32][33] Ultimately, though, specific to the bailout of Wall Street and the financial industry moral hazard lay at the core of many of the causes.[34]

In its "Declaration of the Summit on Financial Markets and the World Economy," dated 15 November 2008, leaders of the Group of 20 cited the following causes:

During a period of strong global growth, growing capital flows, and prolonged stability earlier this decade, market participants sought higher yields without an adequate appreciation of the risks and failed to exercise proper due diligence. At the same time, weak underwriting standards, unsound risk management practices, increasingly complex and opaque financial products, and consequent excessive leverage combined to create vulnerabilities in the system. Policy-makers, regulators and supervisors, in some advanced countries, did not adequately appreciate and address the risks building up in financial markets, keep pace with financial innovation, or take into account the systemic ramifications of domestic regulatory actions.[35]
http://en.wikipedia.org/wiki/Subprime_mortgage_crisis

In my understanding of what I have read, it was those weak underwriting standards pushed by none other than ACORN, Barney Frank, Chris Dodd, and others of their ilk that pushed all those risky mortgages

Quote:

In its "Declaration of the Summit on Financial Markets and the World Economy," dated 15 November 2008, leaders of the Group of 20 cited the following causes:

During a period of strong global growth, growing capital flows, and prolonged stability earlier this decade, market participants sought higher yields without an adequate appreciation of the risks and failed to exercise proper due diligence. At the same time, weak underwriting standards, unsound risk management practices, increasingly complex and opaque financial products, and consequent excessive leverage combined to create vulnerabilities in the system. Policy-makers, regulators and supervisors, in some advanced countries, did not adequately appreciate and address the risks building up in financial markets, keep pace with financial innovation, or take into account the systemic ramifications of domestic regulatory actions.[35]
http://en.wikipedia.org/wiki/Subprime_mortgage_crisis

In my understanding of what I have read, it was those weak underwriting standards pushed by none other than ACORN, Barney Frank, Chris Dodd, and others of their ilk that pushed all those risky mortgages and, because Fannie and Freddie were willing to underwrite them, the financial institutions threw caution to the wind and jumped on the gravy train--real estate was the most lucrative and dependable investment out there. The CRA was not the cause, but it was the excuse used to justify it. Without the housing bubble that all those risky mortgages pushed to the bursting point, the house of cards would never have been built to such lofty heights and the inevitable crash would have had a much softer landing.

Dispute that if you can.

Federal Reserve Board data show that:

* More than 84 percent of the subprime mortgages in 2006 were issued by private lending institutions.

* Private firms made nearly 83 percent of the subprime loans to low- and moderate-income borrowers that year.

* Only one of the top 25 subprime lenders in 2006 was directly subject to the housing law (CRA) that's being lambasted by conservative critics.

....
Between 2004 and 2006, when subprime lending was exploding, Fannie and Freddie went from holding a high of 48 percent of the subprime loans that were sold into the secondary market to holding about 24 percent, according to data from Inside Mortgage Finance, a specialty publication. One reason is that Fannie and Freddie were subject to tougher standards than many of the unregulated players in the private sector who weakened lending standards, most of whom have gone bankrupt or are now in deep trouble.