Thursday, October 30, 2014

Making It Easy to Predict the Next Financial Crisis


By Alan Caruba

It is a cliché, but true, that history repeats itself. This is largely due to the failure of each new generation to learn anything from the past as well as the human tendency toward the bad habits of greed and power-seeking. Only the names and faces change.

That is why the next financial crisis is entirely predictable.

On October 23, The Wall Street Journal had an article, “Relaxed Mortgage-Lending Rules Clear Final Hurdle.”  The financial crisis in 2008 was the direct result of relaxed mortgage-lending rules. Indeed, it was the result of government pressure on banks to make “sub-prime” loans to people who any bank might sensibly conclude could not replay them. Those loans, in turn, were sold to Fannie Mae and Freddie Mac, two government-sponsored enterprises, who then bundled and sold them as mortgage-backed assets.

As Wikipedia notes, the Federal National Mortgage Association, commonly known as Fannie Mae, was founded in 1938 during the Great Depression to expand the secondary mortgage market by securitizing mortgages by issuing mortgage-backed securities, allowing lenders to reinvest their assets into more lending. In 1970 the Federal Home Loan Mortgage Corporation, whose nickname is Freddie Mac, was created for the same reason. Both are overseen by the Federal Housing Finance Authority. Neither issues mortgages. As noted, they buy them from banks, bundle them as securities, and resell them.

Getting the government involved in the housing market has been a supremely bad idea, much as getting the government involved in education and, as we are learning, involved in the nation’s healthcare insurance sector. There are only a few things the Constitution authorizes the government to do and none of these are mentioned. That has never stopped politicians.

The Wall Street Journal article reported that “Three U.S. agencies signed off on relaxed mortgage-lending rules, helping complete a long-stalled provision of the 2010 Dodd-Frank financial-overhaul law.” Two commissioners of the Securities and Exchange Commission “warned the rules would do little to prevent a return to the kind of lax mortgage underwriting that fueled the financial crisis.”

The Economist also took note, saying “When politicians bashed Wall Street for its reckless mortgage lending in the wake of the subprime crisis, bankers retorted that it was the politicians’ enthusiasm for expanding home ownership, even if it meant small deposits and low credit standards, that had really fomented the disaster.” Suffice to say there is plenty of blame to spread around, but the banks had to play by the rules the government had put in place.

In the wake of the financial crisis “many banks have stopped lending to riskier borrowers” but the new rules simply recreate the conditions that led to it, although “the rules only affect the tiny market for securities issued without federal backing, less than 2% of the $1.58 trillion in mortgage securities issue in 2013…”

The rule changes are being hailed as an example of the how great the “reform” implemented after the financial crisis was in the form of the Financial Stability Oversight Council and Orderly Liquidation Authority, otherwise known as the Dodd-Frank Act.

Suffice to say it is a regulatory nightmare of several thousand pages of rules, often quite vague, that are still being interpreted. That said, its purpose, to prevent predatory mortgage lending, improve the clarity of mortgage paperwork for consumers, and reduce incentives for mortgage brokers to push home buyers into more expensive loans was needed. It also changed the way credit card companies and other consumer lenders had to disclose their terms to consumers.

As The Economist noted, the agreement regarding mortgage-lending rules “would permit banks to securitize and sell mortgages without retaining a 5% stake—leaving them little incentive to maintain high lending standards.” That needs repeating: little incentive to maintain high lending standards, the very reason we had a financial crisis in 2008.

All this is largely due to the progressive notion that everyone, no matter how little they earn, should be able to purchase a home. In reality, those at the low end of the economic ladder should not be encouraged or seduced into taking on such debt. When they do and the economy goes south, leaving them unemployed, they just walk away from the debt.

Why should the rest of us—taxpayers—bail out the mortgage sector as we did in 2008 with huge loans to the banks and insurance companies that had purchased mortgage-based securities? The government had to step in with the complete government takeover of Freddie Mac and Fannie Mae. We got stuck with the bill.

It also drove up our national debt, leading to the first reduction in the nation’s credit rating in its history.

There is already talk on Capitol Hill that, should Republicans take control of the Senate and retain it in the House, they are likely, as Reuters reported, “to target the Consumer Financial Protection Bureau and capital requirements on insurance companies.” To put it another way, the Republicans are the adults in Congress while the Democrats, liberal to the core, will never admit we are being set up for another financial crisis.

© Alan Caruba, 2014

Wednesday, October 29, 2014

Obama's Amnesty Travesty


By Alan Caruba

People really need to read the U.S. Constitution. It says, “All legislative Powers herein granted shall be vested in a Congress of the United States.”

The Constitution makes no reference whatever to executive orders (EO). George Washington started the practice mostly because he had to. Traditionally executive orders have been treated by Congress as having the legal status of legislation, but only insofar as they apply to the management of how the government operates.

The Constitution makes it quite clear that the President has no power to enact laws, but as long as an EO does not unilaterally alter or negate existing legislation or run counter to the Constitution Congress usually accords it legitimacy. Those that do not honor the separation of powers have been struck down by the courts or by legislation that opposed them.

As is widely rumored and reported, if President Obama does attempt to issue amnesty to illegal aliens he would be over-riding or altering existing immigration law. He does not have the power to do that.

Such an executive order would be immediately challenged in the courts and if power in the Senate passes to the Republicans in the midterm elections, Congress would oppose it. With an eye on the 2016 elections, incumbent Democrats might not be willing to go along with an Obama amnesty EO.

Recent polls all demonstrate opposition to amnesty. In a September Investors Business Daily/TIPP poll 73% of the public said that Obama should work with Congress on immigration reform. After the invasion of an estimated 150,000 young people and others from Guatemala and San Salvador earlier this year, comprehensive immigration reform went from 54% approval last year to 48%.

When word leaked that the U.S. Citizenship and Immigration Services agency had requested bids on a minimum of four million blank work permits and green cards a year for the next five years, there was an outcry in political and immigration policy circles. “There aren’t enough federal employees from here to Pluto to do adequate background checks on 34 million,” said Bob Dane, spokesman for the Federation for American Immigration Reform.

In September, the Census Bureau released new data on the U.S. population finding that the nation’s immigrant population (legal and illegal) hit a record 41.3 million in July 2013, an increase of 1.4 million since July 2010. Since 2000, the immigrant population is up 10.2 million and double the number in 1990, nearly triple the number in 1980, and guadruple that in 1970, which it stood at 9.6 million.

It’s no secret President Obama has wanted to get as many immigrants as possible, especially those from south of the border, into America. He has winked at the laws that determine immigration and citizenship. In 2011 many believed he had “enacted” the Dream Act by EO, but he had not. His administration instead adopted a policy regarding the deportation of illegal immigrants brought to the U.S. as children, granting them the option of applying for two-year work permits. Even conservatives could find some merit in this, allowing them to gain legal status and apply for citizenship.

The amnesty issue would play havoc prior to the November 4 midterm elections, so Obama will wait until after them to announce his intentions. I doubt he thinks an executive order will go unchallenged, but at that point it will not matter to him since he will not be running for reelection in 2016. His indifference to constitutional restraints on his power as President is well known.

On October 22 Iowa Rep. Steve King, a Republican, predicted Obama will “violate the Constitution, break the law and grant executive amnesty.”

“If the President takes this action,” said Rep. King, “ (that) he’s threatened to take we will have abandoned every pretext of the Constitution of the United States and if the American people take that setting down or lying down, then our constitutional republic has been destroyed.”

Rep. King is right, but the Obama EO will be challenged in the courts and in Congress. If that effort is opposed by Democrats in Congress, their midterm losses will barely rival what the 2016 election will hold for them.

© Alan Caruba, 2014

Tuesday, October 28, 2014

Is America in Decline?


By Alan Caruba

In case you have had the feeling that America is in decline and will make way for a new superpower, you may be right. At least you’re right if you agree with James MacDonald, the author of “When Globalization Fails: The Rise and Fall of Pax Americana” (due in January 2015, Farrar, Straus and Giroux). Given his review of the rise and fall of previous powerful nations, history, and a current analysis, they come together to say our days of global influence are over.

In a way, the election of Barack Obama is the perfect example of failed leadership, both as President and as a nation that others used to rely upon to maintain world peace, protect the sea lanes necessary for trade, and intervene when rogue players threaten their neighbors and the world.

For the first time in most people’s memory, our former allies and those nations looking toward America to see what action it will take or not no longer have any confidence in our willingness to take any action. More specifically, what action President Obama will or will not take. The rise of the Islamic State is a response to Obama’s abandonment of the Middle East.

Obama arrived in office with the belief that America was the problem and has proceeded to diminish Pax Americana (Latin for ensuring peace) in every way possible. He began by apologizing for America for having been too aggressive in the past and not having much good to say about it except in the most perfunctory and obligatory way.

MacDonald’s book is a historical review of previous world powers like Pax Britannia and the rivalries of colonial powers like Spain, Portugal, France and Germany. Bit by bit nations began to regard world trade as a brake on potential wars—they were wrong as in the case of the last century—and as a way to lift all nations toward greater prosperity. International organizations like the League of Nations and the United Nations have demonstrated no ability to ward off combat or the threats posed by rogue nations like North Korea or Iran.

“If the world’s great and rising powers are going to avoid conflict, it will require a determined effort to avoid the pitfalls of history,” says MacDonald.

MacDonald offers eight elements that produced the era of peace that began in post-war 1945 when the U.S. emerged with a thriving, growing economy while those in Europe and Asia were devastated. My generation looks back on those years knowing they were likely the best America will enjoy and hoping our economy will not be devastated by a national debt of $18 trillion and unfunded liabilities of $127 trillion!

It takes a historian to remind us that “One of the main lessons of history is that history lessons are eventually forgotten.” One need only look around the world for proof of that. The U.S. is not the only nation spending itself into a black hole. MacDonald reminds us, too, that it was the Cold War between the U.S. and then-Soviet Union that helped maintain “an unquiet peace” because neither nation would ever use its nuclear weapons. MacDonald fears “an equally intense Sino-American hostility” as China flexes its muscles. Don’t be surprised to see Japan acquire a nuclear shield or other Asian nations in China’s sphere of influence.

MacDonald has little faith in the United Nations which “can be effective only on the basis of consensus among the major powers, and it is not clear that any such consensus would prevail in a multi-polar world.”

As for Pax Americana, the rise of China is a major challenge. “Now that capitalism (euphemistically described as ‘socialism with Chinese characteristics’), has been adopted by a rising power that rejects the idea of Pax Americana entirely, its future is uncertain.” China, “the new hegemon has so far shown itself to be far from benign, displaying a tendency to bully its potential clients over such things as offshore oil resources, water supplies, and access to rare earths.”

“If states are not to return to self-destructive competition for resources, free trade remains a sine qua non of peace,” says MacDonald. “Compared to the nineteenth century, free trade has the advantage of being embedded in international organizations and agreements, in particular the World Trade Organization.”

The future, as always, is clouded and there remains the threat of financial meltdowns. The U.S. had one in 2008 that required massive amounts of federal bailouts to avoid a worse outcome. We have been in the Great Recession ever since.

MacDonald notes that decolonization played a major role in the period following World War I and II. “The breakup of the European empires, even though it has often created its own sources of conflict, has contributed to the postwar peace among the Great Powers by breaking up economic blocs and reducing the causes of friction and envy that helped spur wars.” The lessons of U.S. intervention in Afghanistan and Iraq demonstrate that what was easier in the past is no longer.

At the moment when the Obama administration is desperately trying to arrive at an agreement with Iran that will not permit it to make its own nuclear weapons, MacDonald believes that the threat of nuclear weapons may be the chief means to enforce any peace worldwide. The flaw in this is whether a fanatical Islamic power would resist their use.

MacDonald concludes that “The United States will, in all likelihood, remain center stage in world affairs” for some time to come.

Ridding the nation of its current, unpopular President and unlocking the hold that the Democratic Party has imposed on Congress, will be a major step in the right direction for the nation. Finding a leader who will encourage economic growth and resist our enemies will play a major role in restoring the power and influence we have had.

© Alan Caruba

Monday, October 27, 2014

Passionate About Conservatism

By Alan Caruba

We conservatives tend to be rather low key when it comes to expressing our commitment to conservative values. We are all about the Constitution, small government, a strong military, and fiscal prudence, but these are not things that are easy to talk about in a passionate way, no matter how strongly we feel about them.

As a longtime—try fifty-plus years—book reviewer, I get lots of them and recently “Right for a Reason: Life, Liberty, and a Crapload of Common Sense” by “the Chicks on the Right”, Miriam Waver and Amy Jo Clark arrived ($26.95, Penguin Group).

The “Chicks” started a website in 2009 that quickly gained a large audience of people who love their approach to conservatism and their interpretation of the events of the day, issues, and personalities. Need it be said it also attracted all manner of rude, nasty responses from liberals?

“If you’re reading this right now”, they say in the introduction, “chances are you’re a frustrated conservative. And you’ve got good reason to be frustrated. If you’re like us, you’re practically dizzy from how often you’ve shaken your head at the stupidity of low-information voters who couldn’t pick Nancy Pelosi out of a photo lineup, but can rattle off the names of every single member of the Kardashion clan.”

“Maybe you’re frustrated that conservatives haven’t been able to effectively communicate their ideas in a way that resonates with the public. Maybe you’re frustrated that the mainstream media has been complicit in glamorizing the liberal narrative.”  Well, yes, I have felt this way, but I am also aware that the Internet has provided those with the nation’s political life with scads of information on many excellent websites.

Then, too, Rush Limbaugh has been a major voice on radio with a huge audience as is Sean Hannity, Michael Savage and others. By far the most popular shows devoted to the issues are conservative while liberals attract so few listeners and viewers you wonder why there are still so many liberals. One need only compare the Fox News Channel with MSNBC to know the appeal of conservatism and, yes, a conservative interpretation of the news--accurate facts!

In the lead up to the November 4 midterm elections, something remarkable is happening. There are stories noting that Obama has lost the support of a significant number of women and among black Americans. Even the mainstream press has taken note of this and it suggests that, despite our frustrations, maybe our message is having an impact. Or, maybe, these two groups, after six years of Mr. Hope and Change, have decided independently that his policies have not helped them in any way other than turn them into people dependent on the government instead of being able to support themselves and their families.

As the “Chicks” point out, “Despite what the mainstream media wants you to believe, there are thousands and thousands of people out there who are just like us.” Yes! That is the answer. I recall when Ronald Reagan so encouraged and inspired them that a large segment became known as Reagan Democrats. But that was then and this is now.

“Right for a Reason” will, I believe, appeal a tad more to women readers, though men will enjoy their straight-forward analysis and the humor with which they infuse a book that is passionate about conservatism.

I think, too, that this book will appeal to younger readers, the Millennials, because it addresses the fundamental differences between liberals and conservatives. “While liberals cling like tree sloths to promise of everything being provided to them by the government, conservatives cling to the notion of self-sufficiency.” And conservatives don’t think you’re greedy if you want to make a good living and more money than someone who is not willing to work as hard as you.

That’s why conservatives were so annoyed when President Obama said, regarding anyone who is successful, “If you’ve got a business—you didn’t build that. Somebody else made that happen.”  There isn’t a single man or woman who has put hours into their business that did not instantly take offense, but Obama was also revealing his deeply socialistic point of view that it is the “collective” that gets things done, not individuals.  Wrong! In the earliest days of the nation, roads, bridges, and canals were built to facilitate business. A huge railroad system was built both to make money and to make it easier for people to travel to the west coast to create businesses or sell to those who were already there, and vice versa.

America is all about capitalism and that explains why it became the world’s superpower in the wake of World War II. In the process it saved Europe from communism and entered into 46 years of a Cold War with the then-Soviet Union. Even so, Europe has long since embraced socialism.

To a great degree, so has America with is vast plethora of “entitlement” programs that were introduced as “a safety net”, but are now so integrated into the life of the nation that millions use them to avoid work because one can often receive more from the government than a job would provide! As the “Chicks” put it, “There is a time and a place for welfare. We believe in safety nets. We believe in helping people. We believe that the weakest among us and the people down on their luck should get assistance."

It’s refreshing to read a book that is passionate about conservatism. We all need to be.

© Alan Caruba, 2014

Sunday, October 26, 2014

Obama's War on U.S. Energy

 
By Alan Caruba

September 19th was an anniversary you did not read or hear about in the nation’s news media. It marked six years—2008—since the first permit application for the construction of the Keystone XL pipeline was submitted to the federal government. Can you imagine how many jobs its construction would have created during a period of recovery from the 2008 financial crisis? President Obama is universally credited with delaying it.

Thomas Pyle, the president of the American Energy Alliance, pointed out that World War II, the construction of the Hoover Dam, and the Lewis and Clark Expedition all took place in less time. In a September Forbes article, he noted that “Earlier this year a Washington Post/ABC News poll found that 65 percent of Americans support building the pipeline, while only 22 percent oppose it. In Washington three-to-one margins are usually referred to as mandates.”

In contrast, in March 2013 the then-Interior Secretary of the Interior, Ken Salazar, boasted “In just over four years, we have advanced 17 wind, solar, and geothermal projects on our public lands.”  It is not these projects that Americans depend upon for energy. The opposite is a stark explanation why coal, oil, natural gas and nuclear energy remain the heart blood of the economy.

The Daily Caller reported in July that the “U.S. Bureau of Land Management is currently sitting on a backlog of 3,500 applications that need approval to move forward on drilling for oil and natural gas on federal land,” just part of Obama’s war on U.S. energy.

According to the U.S. Energy Information Administration, fossil fuels met 82% of U.S. energy demand in 2013.

Petroleum, primarily used for transportation, supplied 36% of the energy demand in 2013. Natural gas represented 27%. Coal represented 20% and generated almost 40% of all electricity. In the six years since Obama took office that is a loss of 10%!

The much ballyhooed “renewable sources” of energy, justified by the false claim that carbon dioxide emissions are causing global warming or climate change, are a very small part of the nation’s power providers. Wind power represented 1.6% and solar power represented three-tenths of 1%! Hydropower supplied 2.6% making it the largest source of so-called renewable energy.

Politically, it has been Democrats advocating renewable sources and siding with the President’s delay of the oil pipeline and the Environmental Protection Agency’s assault on coal-fired plants to produce electricity. By contrast, the Republican-controlled House of Representatives has been busy putting forth legislation to fix aspects of our energy problems and needs.

Some of the bills that were introduced included H.R. 2728: The Protecting State’s Rights to Promote American Energy Security Act; H.R. 3: The Northern Route Approval Act (regarding the keystone XL Pipeline; H.R. 1900: The Natural Gas Pipeline Permitting Reform Act; H.R. 2201: The North American Energy Infrastructure Act; and H.R. 6: The Domestic Prosperity and Global Freedom Act, intended to expedite the export of liquefied natural gas to our allies around the world. The global market is growing at a colossal pace.

These bills will likely all die in the U.S. Senate, controlled by the Democratic Party. The Nov 4 midterm elections can change that if enough Republicans are elected to gain control.

It’s not just natural gas that is helping the economy improve. The Financial Times reported in late September that “The U.S. is overtaking Saudi Arabia to become the world’s largest producer of liquid petroleum, in a sign of how its booming oil production has reshaped the energy sector.” Why? “The U.S. industry has been transformed by the shale revolution, with advances in the techniques of hydraulic fracturing and horizontal drilling enabling the exploitation of oilfields, particularly in Texas and North Dakota.”

The only places you won’t find oil drilling are on federally controlled lands. The same holds for coal and natural gas.

This is in keeping with a virtual war on U.S. energy waged from the White House. Consider what we have witnessed:

# Obama has refused to let the Keystone XL pipeline be built.

# Billions wasted on loans to renewable energy companies, many of which like Solyndra and Solar Trust of America went bankrupt.

# Obama made electric cars like the Chevy Volt part of his energy policy, providing subsidies but their high cost and low mileage capacity has resulted in few sales.

# Obama and the EPA advocated a cap-and-trade tax on greenhouse gas emissions when there has been no global warming for 19 years and carbon dioxide plays no role whatever in the Earth’s climate.

# The Obama administration terminating the construction of a nuclear waste repository at Yucca Mountain in Nevada despite nearly $15 billion already spent on this necessary repository.

These are just a few examples, but in the meantime, the U.S. still requires that a valuable food commodity, corn, be turned into ethanol, an automotive fuel additive, that (a) reduces the millage in every gallon and (b) increases its cost at the pump. As Seldon B. Graham, Jr., a longtime energy industry consultant and observer, notes that “Ethanol production peaked in 2011 at 6% of total oil demand.” Favoring replacing imported foreign oil with American oil, Graham says “Americans would have saved $64.7 billion on the oil price since 2009.”

Americans are afflicted by a President and his administration that for political and environmental reasons are costing them trillions in needless, senseless energy costs, loans and subsidies, and efforts to impose laws that have no basis whatever in science.

© Alan Caruba, 2014

Friday, October 24, 2014

Cartoon Round Up

 

 

 


Ebola! Ebola! Yawn

By Alan Caruba

How is Ebola spread? Two ways; one, by letting anyone exposed to it in West Africa into America when they fly here and, two, by assuming that medical professionals and others who have been exposed to it would quarantine themselves from contact with others once they are here.

The latest case is Dr. Craig Spencer, an American to whom the travel ban would not apply, identified as potentially having Ebola after treating victims in Africa and who totally ignored the potential of spreading it to others as he made his way around New York on subways, went bowling, and likely had dinner at a restaurant.

Earlier a NBC news crew that had been exposed to Ebola was issued a mandatory quarantine by the New Jersey Health Department, but its chief medical editor and correspondent, Dr. Nancy Snyderman, while symptom-free, decided to break the quarantine. One of the crew, Ashoko Mokpo, did fall ill and is being treated at the Nebraska Medical Center.

What does it tell you when two medical professional behave in this manner? It tells you that even those who know they can infect others were indifferent to the risk. It tells you that airport staff armed with thermometers are no defense against anyone coming in from the Ebola hot zone in Africa.

It tells you that the failure to impose a ban on all flights from West Africa should have been imposed weeks ago.

It tells you that sending three thousand active duty soldiers and another thousand reservists into the Ebola hot zone is a senseless act that exposes them to the disease and countless others on their return unless they are all held in quarantine until no signs of the disease are detected. The risk still remains even after the twenty-one days that the Center for Disease Control cites as the time in which victims would show signs of the disease.

The two Dallas nurses who acquired the disease have been treated and one has been released. As of October 23, there were eighteen cases of Ebola in Europe and the U.S. Unlike Africa, Western nations have responded quite well to the threat.

In New York, the Mayor, Bill de Blasio, was joined by the Governor Andrew Cuomo to hold a

press conference that seemed to this observer intended to exonerate them of any charge they were not taking Dr. Spencer’s foolishness lightly and to avoid public panic among a public that is clearly not panicking.

Given the continued news coverage of Ebola, it is amazing that Americans have absorbed the fundamental message that the disease has not affected those outside the healthcare community with the exception of the NBC crew and that steps have been put in place to identify and isolate those who had it. Moreover, while a deadly virus in Africa, it has been treated and cured here in America.

So far, so good.

The real challenge will be the flu season when lots of people will show up at hospitals with flu symptoms that resemble Ebola symptoms. If you haven’t been vaccinated, get one! How hospitals deal with this is going to be a real test of their judgment and skills.

I am hopeful we may be spared more press conferences that don’t tell us anything more than what we already know. I surely don’t want to hear President Obama tell me that everything is fine and there is nothing to worry about.

© Alan Caruba, 2014