We Surrender! "Bailout" plan is now law

Well, now we know.  Nothing makes a Democrat smile like the intoxicating combination of pork and power.

The House of Representatives passed an amended version of the "bailout" bill on Friday -- a bill that is now over 450 pages in length (as opposed to three pages when it was first presented by the Treasury Secretary) and includes a staggering $100 billion+ in targeted special-interest tax breaks and pork barrel spending.

As I said before, this bill is our 9% confidence Congress at its worst.  It gives Treasury Secretary Henry Paulson, whose monumental misjudgments in part kept us from addressing the problem sooner, an unprecedented amount of unchecked power.  There are compelling arguments why it could fail spectacularly, just like Hoover's depression-proofing plans did in 1930.  And really -- if we are on the brink of disaster, how in God's name can we afford all this new government spending?  My feeling, obviously, is that we are not at the brink of disaster, and that the current crisis was manufactured -- after years of Democrat stalling and opposing any measure that would reign in Fannie Mae and Freddie Mac -- solely to justify the biggest government power grab in my lifetime.

And again following what I wrote in an earlier blog post, the bill still completely fails to address the underlying cause of the problem -- the ever-increasing number of loans that banks were forced to make to un-creditworthy borrowers.  But in an effort to sugar-coat that critical defect, the "bailout" bill increased the FDIC insurance limit on bank deposits from $100,000 to $250,000, and was further amended to include a mandate requiring health insurance coverage "parity" between psychotherapy and treatment of mental disorders, and physical therapy and treatment of physical disorders.  Neither of these things are bad (they are both good, actually) but they do not make up for this fundamental shortcoming.

Mickey Kaus made an interesting observation about the bill:

Actually, the thinking behind the push for "parity" and the now-questionable decades-long push to extend mortgages to "underserved" groups seems eerily parallel: 1) Stodgy/greedy old bankers say they can't afford to lend to minorities who don't meet traditional mortgage criteria. But we have a noble social goal to fulfill and we know they're wrong! ... 2) Stodgy/greedy old health plan administrators say they can't afford to cover hard-to-diagnose mental problems (e.g., anxiety) and substance abuse to the same extent that they cover easy-to-diagnose physical problems. But we have a noble social goal and ....

The article, written by Steve Malanga, to which Kaus links with respect to the "noble social goal" of loans for low income and minority borrowers, is so good that I'm going to excerpt it at length:

In the early 1990s I attended a conference designed to teach journalists the tools of an emerging field known as computer-assisted investigative reporting. One of the hottest sessions of the conference explained how journalists could replicate stories that other papers had done locally using computer tools, including one especially popular project to determine if banks in your community were discriminating against minority borrowers in making mortgages. One newspaper, the Atlanta Journal-Constitution, had already won a Pulitzer Prize for its computer-assisted series on the subject, and others, including the Washington Post and the Detroit Free Press, had also weighed in with their own analysis based on government loan data. Everyone sounded keen to learn if their local banks were guilty, too.

Although academic researchers leveled substantial criticisms against these newspaper efforts (namely, that they relied on incomplete data and did not take into account lower savings rates, higher debt levels, and higher loan defaults rates for many minority borrowers), bank lending to minority borrowers still became an enormous issue—mostly because newspaper reporters and editors in this pre-talk radio, pre-blogging era were determined to make it so. Editorialists called for the government to force banks to end the alleged discrimination, and they castigated federal banking regulators who said they saw no proof of wrongdoing in the data.

... One economist for the Federal Deposit Insurance Corp. who looked more deeply into the data, for instance, found that the difference in denial rates on loans for whites and minorities could be accounted for by such factors as higher rates of delinquencies on prior loans for minorities, or the inability of lenders to verify information provided to them by some minority applicants.

Ignoring the import of such data, federal officials went on a campaign to encourage banks to lower their lending standards in order to make more minority loans. One result of this campaign is a remarkable document produced by the Federal Reserve Bank of Boston in 1998 titled “Closing the Gap: A Guide to Equal Opportunity Lending”. 

Quoting from a study which declared that “underwriting guidelines…may be unintentionally racially biased,” the Boston Fed then called for what amounted to undermining many of the lending criteria that banks had used for decades. It told banks they should consider junking the industry’s traditional debt-to-income ratio, which lenders used to determine whether an applicant’s income was sufficient to cover housing costs plus loan payments. It instructed banks that an applicant’s “lack of credit history should not be seen as a negative factor” in obtaining a mortgage, even though a mortgage is the biggest financial obligation most individuals will undertake in life. In cases where applicants had bad credit (as opposed to no credit), the Boston Fed told banks to “consider extenuating circumstances” that might still make the borrower creditworthy. When applicants didn’t have enough savings to make a down payment, the Boston Fed urged banks to allow loans from nonprofits or government assistance agencies to count toward a down payment, even though banks had traditionally disallowed such sources because applicants who have little of their own savings invested in a home are more likely to walk away from a loan when they have trouble paying. (emphasis added)

Of course, the new federal standards couldn’t just apply to minorities. If they could pay back loans under these terms, then so could the majority of loan applicants. Quickly, in other words, these became the new standards in the industry. [Perhaps this is where one could make the case for corporate greed among lending institutions and bond traders. -ed] In 1999, the New York Times reported that Fannie Mae and Freddie Mac were easing credit requirements for mortgages it purchased from lenders, and as the housing market boomed, banks embraced these new standards with a vengeance. Between 2004 and 2007, Fannie Mae and Freddie Mac became the biggest purchasers of subprime mortgages from all kinds of applicants, white and minority, and most of these loans were based on the lending standards promoted by the government.

Meanwhile, those who raced to make these mortgages were lionized. Harvard University’s Joint Center for Housing Studies even invited Angelo Mozilo, CEO of the lender which made more loans purchased by Fannie and Freddie than anyone else, Countrywide Financial, to give its prestigious 2003 Dunlop Lecture on the subject of "The American Dream of Homeownership: From Cliché to Mission.” A brief, innocuous description of the event still exists online here.

Of course Mozilo is now the disgraced former CEO of Countrywide, who resigned after it was discovered that he not only massaged his company's books in order to pay himself and his cronies undeserved bonuses, but he also gave sweetheart mortgage deals to influential members of Congress. 

The hero worship of Mozilo reminded me of the way that Franklin Raines, former OMB director under Bill Clinton and former CEO of Fannie Mae, was praised for his "outstanding leadership" by Rep. Maxine Waters in 2004.  The criterion for her lavish compliment?  "The GSE's have exceeded their housing goals."  Apparently it didn't matter one whit to Rep. Waters that Raines' accounting shenanigans caused Fannie Mae to eat nearly $10 billion, or that he received at least $50 million in undeserved bonuses -- none of which has he ever offered to pay back, or give to his precious struggling low-income mortgage-holders.

Unfortunately, such irresponsibility is often part of the whirlwind of populism that accompanies broad-based "we're helping the little guy and sticking it to the system and everyone knows we're doing the right thing" policy efforts.  And in the case of loans for minorities and low-income borrowers, a crusade against "racial discrimination" became the primary motivator.  And no one -- NO ONE -- dares to challenge a crusade against "racial discrimination" because any such challenge would be labeled a de facto case of racism.  Because if you want a career as a civic leader or politician, or if you want your business to be successful or have a non-adversarial relationship with the government, then you will avoid being smeared as a racist at all costs, even if it means the abdication of common sense.

So far, only one Democrat has admitted his party's failure to objectively study the problems at Fannie Mae and Freddie Mac.  And characteristically, the Democrat leadership has announced, in completely unambiguous terms, that they bear absolutely no responsibility for the current banking mess.  Their willingness to lie about this issue is surpassed perhaps only by the willingness of Republicans to say anything or sign anything in order to avoid being labeled as "racists." 

And guess who's left paying the bill?  That's right -- us.  The American taxpayer.  We will pay for it through outright taxation.  We will pay for it through higher mortgage fees, higher interest rates, and less available credit.  And really -- is anyone expecting this $700 billion to actually "fix" the problem?  Of course not.  This bill only sets a precedent for request after request after request for bailouts to come.  Joe Biden is already talking about giving courts the power to reset the principal amount for mortgage loans.  What kind of financial insanity will be next?

Elizabeth Scalia, "The Anchoress," is by far my favorite Christian blogger.  Over the past few weeks, she has been praying and fasting.  Really doing it.  Really.  She had this to say a few days ago:

My prayer is not for victory. It is for the very best outcome for the country, and for God’s will to be done. Our ways are not God’s way, nor our minds God’s mind. To us, the “best” outcome might seem obvious, but really, when you think about it, when does God ever do the “obvious” thing?

... I’m thinking we’re in the middle of a mystery, that this whole, odd, unpredictable and too-long election season has been run along one of those threads connecting things seen and unseen, and we are so disoriented today that we do not really know which outcome is the outcome pleasing to God, and meant - by Him - to draw us into Himself.

The Holy Spirit, of course, uses whatever He chooses, to bring things about. Who knows if we are meant to be shaken, soundly, in order to be roused from our complacency and the status quo?

The sense I have is that the status quo won’t do any longer. That we are stagnant, too deeply comfortable in too much of the muck and mud of materialism, and we’ve lost sight of what and who we are meant to cling to.

So, let us not worry. Let us not wring our hands. For the Christian, anyway, I believe we are in a moment where the rubber meets the road. How do you respond to that? With trust that no matter what things seem like, that “all things work for good and to the Glory of God” or with wringing hands, depression and doubt?

If you are doubting…if you are thinking that only electoral victory - as defined by the world - will be a validation of either the existence of God, or His Intent, then you need to hunker down into scripture and get out of your own head. Do you believe that Christ is the Son of God, or do you not? If you do, do you really think that this election is all there is, and that a loss here is somehow static, and works to nothing in God’s purpose?

To everything there is a season, a time for every purpose under the heaven.

You either believe that, or you don’t. 

“Sufficient unto the day is the evil thereof.”

You either believe it, or you don’t.

But if you’re calling yourself a Christian, and you’re not believing it, then question what you say you believe.

I'm going to close this post by saying that over the last few months, God has been steadily dealing with me over the subjects of materialism and money.  Without going into a lot of details, my immediate future contains a disturbing amount of uncertainty, and like all of us, my first reaction is to worry obsessively over how all the bills are going to get paid.  I don't solicit prayers for myself very often on this blog (perhaps I should do it more often!) but the events of the past week have made it abundantly clear to me that my previous faith in financial systems and markets and government was grievously misplaced.  Please don't misunderstand -- I'm not giving up on hard work or sound investing, or throwing everything I have to the wind and hoping for some far-out miracle.  But now I realize how much I should have been trusting God rather than relying on my own skill and luck.  Please pray for a spiritual transformation that gives me the strength to place everything in God's hands first.

Comments

[i.m. small]

THE GREAT BAILOUT

Obama is--we know--a reader,
And also--it may be--a leader;
But it is very hard to lead
A nation so consumed with greed.

It turns the Christ upon his head:
Meekness and poverty stay dead
Within an economic system
Bailing out theft, but never wisdom.

The "least of these" my brother is,
But no one wants to hear of this,
"Spreading the wealth" the Christian way
Becomes a sin; the poor the prey.

It was the age--O don´t you doubt--
To be known as the Great Bail-Out,
As Wealth bailed from the common good
But left the poor to drink the flood.

.

[te huur kust]

It is good to know that new government has taken responsibility to save the current economic crush by providing bailout option as a law now.I think this is not the end of our problem, however unless we has reformed and well structered economic model for the future we may actually fall to the level of no recovery zone with worst consequences latter.

[Packers jerseys]

however unless we has reformed and well structered economic model for the future we may actually fall to the level of no recovery zone with worst consequences latter.

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I firmly agree on its implementation.