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WARNING: THIS SITE FEATURES ORIGINAL THINKING...Jim Croce once sang Don't tug on Superman's cape..., which seems like reasonable advice should we not wish to anger the supreme powers. We do have this duality in our culture: the Superman that is the state collective, the leftist call to a politics of meaning managed by the state, the deification of "we're from the government and we'll take care of you" - versus the Superman that celebrates individual freedom, private property, freedom of conscience, free enterprise, and limited government. We humbly take on the latter's mantle and, eschewing the feeble tug, we dare to PULL, in hope of seeing freedom's rescue from the encroaching nanny state. We invite you, dear reader, to come and pull as well... Additionally, if you assume that means that we are unflinching, unquestioning GOP zombies, that would be incorrect. We reject statism in any form and call on individuals in our country to return to the original, classical liberalism of our founders. (We're also passionate about art, photography, cooking, technology, Judeo/Christian values, and satire as unique, individual pursuits of happiness to celebrate.)


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April 15, 2009
Issaquah, Washington Tea Party!
Filed in: Current Affairs, Politics, Tax Policy

Nearest burgh for me is a little town East of Bellevue, Washington: Issaquah. Tea Party at noon today. I was surprised at the size of the crowd - maybe 300 or so. Lots of signs. Very nice and orderly for a bunch of right wing extremists. Folks drove by and honked horns which elicited loud cheers and there were a few chants of "Lower taxes", and "No more bailouts!". Even here in the bastion of liberalism we're havin' a Tea Party!

Pics:

IssaquahTeaParty2

Right by a monument to freedom downtown...

IssaquahTeaParty3

These folks are just too rowdy!

IssaquahTeaParty4

"Give me liberty or give me debt!"

IssaquahTeaParty1

Previous protests of this size in sleepy Issaquah? 0 Number of reporters? 0

Think I'll go to Seattle for the big one tonight...

In the meantime, when I say "Taxes", you say "No".

Me: "Taxes"

You: "No"

Me: "Taxes"

You: "No"

Me: "When I say "Freedom" you say "Yes".

Me: "Freedom!"

You: "Yes!"

Me: "Freedom!"

You: "Yes!"

&c...

Michelle Malkin has a great round up of Tea Parties across the country.

UPDATE: Maybe no reporters - but perhaps surveillance?


Pulled by Emcee on April 15, 2009 at 04:40 PM
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April 14, 2009
If you can't send a real tea bag...
Filed in: Current Affairs, Religion, Tax Policy

Here's a virtual one:

https://teaparty.gop.com/Default.aspx

Yeah!


Pulled by Emcee on April 14, 2009 at 08:18 PM
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October 14, 2008
A FairTax Primer: Part 2
Filed in: Current Affairs, Politics, Tax Policy

Part 1

In the last 12 days since I started this, we have seen continued intervention by the government in the markets coupled with the largest market declines in history. And while I agree that correlation is not causality, it is instructive to take rhetorical consideration:

If, instead of injecting massive liquidity - the Fed and Treasury perhaps committing in the last few months as much as an entire year of federal tax revenues - had the Congress somehow become possessed with the imponderable temerity to act with correctness and passed the FairTax legislation - i.e. abolished the progressive income tax, payroll tax, capital gains tax, death tax - all federal taxes, and replaced them with a voluntary consumption tax, would the markets have behaved any differently?

Let's see, instead of encouraging a debtor nation - encourage a saving nation, instead of banishing tax haven capital, encourage the trillions and trillions of ex-pat offshore dollars to come home, instead of motivating businesses to export jobs out of the country with the backbreaking tax code, encouraging them to employ in country, and instead of making our products too costly for overseas consumption, making it possible to export competitively again - just to name a few benefits that would result.

Do you think the markets might find such news favorable?

Even if you take the point of view that enacting the FairTax legislation might not meet expectations, is it not reasonable to assume that any miscalculation about its implementation would pale in comparison to the various bailout, finger-in-the-dike, activities that we've observed recently?

Can it be more clear that economic stimulus, not intervention, is the direction to take? Will we shuffle along for years before we collectively realize it? Or will our markets crash in short order under the pall of interventionist action?

Let me move to the key issue for this post which I referred to obliquely in Part 1: Compliance.

(For backup and references to what I assert here - unless I confess that it's my own idea - please read the books).

Compliance with the federal tax code is a part of the embedded cost of the goods and services that we all consume. Economists that have attempted to analyze these costs have estimated that individuals and businesses spend somewhere between $300 billion and $500 billion annually to comply with the tax code. Yes, that's $300 billion to $500 billion.

Comprising some 67,000+ pages, and featuring some 16,000+ changes in the last twenty years, the tax code is so complicated that a recent study demonstrated that if you contact the IRS with a question, you are guaranteed to get a wrong answer about 60% of the time.

Candidates and pundits regularly throw around ideas about tax cuts and acts of stimulus for the economy. How many of them would result in a cost reduction to the economy of $3 trillion to $5 trillion over ten years? No? That's what removing compliance with the tax code would deliver.

What kind of stimulus would that kind of capital injection make in our economy?

It's pretty obvious: enacting the FairTax legislation is justifiable for this reason alone.

Let me offer some of my own ideas as well. I'm not a spokesperson for the FairTax organization - I'm just a citizen volunteer. I just happen to think the the FairTax legislation is the only currently available mechanism to reverse the financial decline that we find ourselves in.

So here's my opinion on this matter: I think that the estimate of compliance costs is wrong. I don't know how much wrong, but I think it may be huge. The estimates are far too low.

Why? A couple of reasons: 1) Sarbanes-Oxley, 2) Efficiency costs - the intangible cost of the tax code.

Sarbanes-Oxley was designed to prevent the sort of corporate corruption exemplified by the likes of Enron and Worldcomm - so preventing public entities from defrauding the public (which, of course, begs the question, How could Fannie and Freddie have happened in the age of SarbOx? It's something like, "if guns are banned only criminals will have guns" I suppose). The result has been that compliance costs for public companies has soared. But that's hardly the story. The real story of SarbOx as it relates to business is that it has trickled down to small business.

You might wonder how that is possible. Here's how: the entire accounting industry has been pressed into a kind of hostage situation - part of the SarbOx regulations have to do with holding the public accounting industry to public company reporting standards. The threat is, that if a public accountant puts signature to incorrect reporting - their license to practice can be revoked. The practical application of this, is that the public accounting industry has therefore applied public company standards across the board - including the small businesses for which they practice. In terms of their work product, there is very little difference today between a compiled financial statement (which most small businesses employ) and an audited one (which public companies are required to file). A compiled financial statement is the representation of the principals of the business - and since there are typically no securities involved there are really no shareholder issues of importance, and there's no legerdemain involved in demonstrating the financial activities of a small business with a single checking account. An audited financial statement is certified by the public accountant which means they have examined pretty much every aspect of the financial matters of a firm so that they can, with reasonable certainty, certify the state of a business firm. The sad result of SarbOx for small business is that the former method of producing a financial statement has now become pretty close to the latter - and that includes the cost.

I know these things first hand. My cost of compliance with the tax code and the trickle down of SarbOx on my small business - which has caused my accountant to spend increasing, fear based billing time to do a compiled statement for my firm - has increased by over 500% in the last ten years. You read that correctly.

The US Small Business Administration determined in 2004 that small employers (less than 20 employees) had an average compliance cost of more than $1,300 per employee. Small businesses pay significantly more in compliance costs on average than they pay in actual taxes. The 'average' business taxpayer pays about $500 less per employee than small business and fairly large corporations pay only a small fraction of their tax burden in compliance costs (because they pay significantly more taxes).

So tax compliance costs are another regressive tax - small businesses are hit far harder than larger businesses by the cost of complying with the tax code.

Finally, the efficiency impact - though somewhat intangible - I believe is much larger than the compliance costs of the tax code. What's this efficiency impact?  It is the fundamental distortion of business strategy and behavior because of the impact of the tax code. I've often joked over the years that after running my company for a decade I was no longer able to do much useful work because I spent most of my time with attorneys and accountants. Unfortunately, that is largely true. It is almost unimaginable how much time is spent - by small businesses and large businesses - contemplating the tax impact of choosing which things to consume and which things to invest in, how to recognize revenues, and prepare to defend such recognition, contemplate the hundreds of changes to the tax code that happen each year and make a determination how that might affect the behavior of the company. Modify operational activities in terms of time billing, expense management and reporting, etc., etc., etc.

In 2005, the Government Accountability Office (GAO) estimated that this business efficiency cost was somewhere between 2 and 5% of the GDP! That's somewhere between $250 billion to $700 billion in annual cost.

There are a number of critics of the FairTax - mostly they seem to attack the determination of what the embedded federal tax should be - and whether is should be quoted as embedded or not.

But, there is really no argument against the elimination of these compliance costs if we remove the tax system that is responsible for them. A reasonable case can be made that the annual cost of compliance is nearly half of the annual tax revenue.

Can we consider our society financially viable if we continue to live with such a dysfunctional system?

 


Pulled by Emcee on October 14, 2008 at 02:40 AM
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September 30, 2008
A FairTax Primer: Part 1
Filed in: Current Affairs, Politics, Tax Policy

I said I was going to become an activist. To me, there seems to be nothing more timely than this as we are at nexus on our entire economy.

A key question we must address is: Do we provide taxpayer funds to continue to do what has brought us to where we are in the first place? Or is there some other way to avert the crisis?

It appears that even the general public gets that the bailout proposal that has been under discussion - and voted down for that matter - has been a demand to continue the activities and behavior that have gotten us to where we are in the first place. Demanding more governmental power doesn't solve the crisis - it extends it.

And, in some grass roots efforts, it appears that the general public is getting that we must link stimulus with managing the crisis.

What we should all really face up to is that it is the back-breaking tax system that is just as much at fault in where we are economically - primarily because the tax code encourages a debtor society, secondarily because there is a severe lack of accountability built into the progressive income tax and payroll tax system (which thus contributes to the oversight problem that allowed Fannie and Freddie to happen) - and that the logical conclusion is that complete tax reform has the opportunity to maximize stimulus.

Eliminate the capital gains tax? Of course. But why not eliminate all current federal taxes?

Let's examine the FairTax proposition. The best thing to do is to read the books. While you're waiting for your books to come in (if you only get one book, get the second one), let's talk about the initial concept to grasp when contemplating this idea.

Here it is:

Everything you buy today (we're talking as a consumer) has the cost of the tax code - the income tax, the payroll tax, and the cost of tax compliance for the organization (and all of the individuals) that you are making the purchase from - as well as all of the taxes from the entire supply chain that the organization you are buying from does business with - embedded in the price of the goods or services your are buying.

I believe that this is the key initial concept to grasp before diving in to the details of the proposed FairTax legislation.

Let's take an example: loaf of bread.

You go to the grocery store and buy bread. You pay, let's say, $2.00 for that loaf of bread. The retailer charges you that price which includes the cost of the loaf of bread from their supplier as well as all of the tax costs - payroll, income, and profitability for that retailer. At the risk of a bit more detail: A bakery company manufactured that bread. For that bakery company to stay around, they have to charge enough for that loaf of bread to make a profit and pay the taxes on that profit. (Some of the left over profit over the long term has to go into new ovens, perhaps other bakery plants and other capital requirements.) Part of what you pay covers the payroll taxes - both employee and employer contributed for the people that work at the bakery company. Part of what you pay covers the income taxes for the people that work at the bakery company. Part of what you pay covers the cost of tax compliance that the bakery company has to spend to meet the regulations - tens of thousands of pages of tax code that has been changed tens of thousands of times in the last twenty years - that cover the company's tax obligations. Additionally, the bakery purchases flour as a key component of the loaf of bread. The bakery bears the costs of the same embedded taxes in the price it pays for flour to the mill, which pays the cost of the embedded taxes in the prices that it pays for the grain to the grower. Additionally raw materials like oil, baking equipment, cleaning chemicals, etc, etc all have the same characteristic tax burden built in to the price paid along the supply chain.

Brilliant economists have studied all of this and conclude that when you buy a loaf of bread for $2.00 right now you are paying about $0.50 in embedded federal taxes. If you find yourself not grasping this or disbelieving this, please go back and read the above over again.

In as simple terms as I can put it, the FairTax legislation proposes this: Eliminate the IRS, repeal the progressive income tax, the payroll tax, the capital gains tax, the death tax - all federal taxes and replace them with a consumption tax that's embedded into the price you pay at retail (managed by existing mechanisms that exist for the collection of sales taxes) with a federal tax revenue neutral result. In addition, include a socially conscious aspect that fairly excludes the purchase of staples to the poverty level so that anyone of any political disposition can support the legislation.

But before we proceed to discuss what the ultimate results are for adopting such a plan - and in our collective current economic state perhaps offer the only real opportunity to shrug off the current malaise - make sure that you completely understand the facts about the facts of the embedded costs that you are already paying - i.e. see above.

Most any confusion that you will experience in contemplating the FairTax legislation that is before the House and Senate will be a result of not keeping at the forefront of your thinking the existing embedded tax that you already pay. (Have I stressed this enough?)


Pulled by Emcee on September 30, 2008 at 09:47 PM
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September 29, 2008
The MSM knows you know...
Filed in: Current Affairs, Politics, Tax Policy

You've seen all the headlines: Bailout agreement! Deal is done! Close! Since late last week and certainly through the weekend, the MSM has repeatedly told us that the goose was cooked.

With the historic House vote today - which actually represents the will of the people - we now know that they were WRONG.

<sarcasm>It's amazing all of the mea culpa's that the press has issued today in the wake of the rejection of the bailout bill by the House.</sarcasm>

There may be many things that we might take from this - certainly one of them is that the MSM cannot be trusted with predicting the outcome of most anything.

Just in case you were putting any stock in things like presidential election polling...


Pulled by Emcee on September 29, 2008 at 01:45 PM
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September 25, 2008
What Lies Beneath...
Filed in: Current Affairs, Politics, Tax Policy

Many other very bright contributors have demonstrated much about what has occurred to this point.

If you haven't already read these pieces, please read Kevin Hassett, Jeff Goldstein, and Michelle Malkin. They do far more justice to a number of key issues than I can construct.

It's clear that the precipitous events that have gotten us here are rooted in bad mortgage paper, supported de facto by the Government Sponsored Enterprise(s) (Doesn't that say enough?) - Fannie Mae and Freddie Mac - and propagated by their MBS (Mortgage Backed Securities) that they've sold throughout the entire financial market place.

It's also clear that there are a number of social political objectives that have influenced this process under the guise of 'affordable housing' and - as dear Mrs. Malkin points out - even motivations to provide mortgages to illegal aliens. This has created a crony capitalism that has partnered many people in the Congress and the Senate with the GSEs and Wall Street firms. The links above name the names so I won't do it again here.

It's also true that assumptions about the real estate market, and people that were dishonest or foolish in mortgage acquisition are part of the problem. As is often the case, there is plenty of blame to go around.

But, my friends, this is just the precipitous straw that holds us all above the abyss.

It is much, much worse than what it seems.

Because, what is underneath the mortgage paper noise is a bank liquidity problem and a troubled unregulated market that is many times larger than the entire US economy. And it is the threat to this monstrous house of cards that has Paulson and Bernanke calling for carte blanche fiat intervention by Treasury.

What's the bank liquidity problem? You may remember at the beginning of this year that some economists were alarmed at the sudden appearance of negative values in the Non-borrowed Reserves column of the Federal Reserve Statistical release. It was all just a false alarm you know. Looking back it is pretty clear that the explanation was troublesome:

Last December, the Fed concluded that open market operations weren’t providing relief to some quarters of the interbank funding market and introduced the TAF. Like open market operations, the TAF enabled the Fed to lend a predetermined amount of funds to the banking system, with the interest rate at which they were lent determined through an auction process. But like the discount window, the money was lent directly to banks rather than primary dealers, and against a wide range of collateral rather than just Treasurys and agency securities. The TAF didn’t add to the money supply because for each dollar lent through the TAF the Fed was careful to liquidate a dollar of its holdings of Treasury bills and bonds to keep its overall balance sheet unchanged. [Ed. Emphasis added.]

A bit of translation is warranted to get past this inscrutable prose: Some banks weren't willing to loan to each other because they couldn't tell how solvent the other parties were. Banks are required to keep reserves on hand - and because of extraordinary demand on their reserves they were in need. And because a bank showing up at the discount window gives the appearance of weakness the Fed decided to create another method of access to liquidity for the banks called the TAF (Term Auction Facility). We're told that it's just some creative accounting between the Fed directly with banks - but in hindsight it's apparent that the Fed has been accepting collateral that is suspect because in large part it's made up of mortgage tranches (of which there are more bad mortgages than were projected on property that is now diminishing in value) and credit default swaps (which we'll have to explain in a minute).

The false alarm back at the beginning of the year was based on the Non-Borrowed Reserves column going negative a few billion dollars. As is apparent from the latest publication of the Federal Reserve Statistical Release  this few billion has now grown to over 120 billion dollars. That's in nine months. Fundamentally, this means that banks don't have reserves and are putting up more and more of their 'assets' to obtain their reserve requirements from the Fed - and instead of the Fed seizing insolvent banks - it continues to loan them funds directly - against collateral that we now all know that no one knows what it is actually worth. For the Fed to keep their balance sheet unaffected at this scale has to have required some extraordinary creativity - a printing press perhaps.

But beyond this banking fiasco is the giant elephant in the room - the unregulated, over the counter derivatives market - what Warren Buffet called a time bomb. The simplest description of what has happened is that the GSEs, the investment firms, and the banks, in an attempt to reduce risk have sold each other insurance policies (in the form of a derivative instrument called a credit default swap in the context of the mortgage crisis) without having the actuarial requirements of an insurance company to underwrite the insurance. That's certainly an issue for liquidity - but the most significant issue is that the sheer size of this market is staggering - the notional value of these derivative instruments far exceed the value of the mortgages they are theoretically hedging - and are indeed massively larger than our entire economy - I've seen estimates between $60 trillion to 'several hundred' trillion. Who really knows since this entire market is not on an exchange, and therefore has no official measure.

And the problem is, of course, that these all can't be unwound quickly. And no one really knows whether those that are holding derivatives that are now responsible for supporting bad mortgages actually have the wherewithal to meet the claim.

Long term market participant and market analyst Karl Denninger runs a forum site that should you have read it a year ago, you might have been forgiven if you thought he and his minions were a bit paranoid. Now they seem prescient. From his letter yesterday to Treasury (can be found on this link):

Let me briefly chronicle the various regulatory restraint and market manipulations of the last year...

- Administrative removal of Rule 23A restrictions from certain “favored” banks" (Spring 2007)

- The (Selectively Leaked) Shock and Awe Discount Rate Cut on Options Expiration (August 2007)

- The Bank Super SIV (October 2007)

- The Fed Term Auction Facility (December 2007)

- Bear Stearns/JP Morgan bailout and subsidy (March 2008)

- 325 basis points of rate cuts in less than six months and unprecedented additions of liquidity to defend them (Fall 2007 - Spring 2008)

- Primary Dealer Credit Facility (March 2008)

- Reverse MBS Swaps (April 2008)

- Fannie Mae/Freddie Mac nationalization (September 2008)

- Equity investment and collateral (September 2008)

- Administrative Repeal of 23A (September 2008)

- AIG nationalization (September 2008)

- Expansion of the Fed Balance Sheet through unprecedented Treasury refinance without appropriation by Congress (September 2008)

- Central bank dollar liquidity draws (September 2008)

- Ban on short-selling 799 financial stocks (September 2008)

- The Mother-of-all-Bailouts/Taxpayer-funded Super SIV Redux (pending)

And his assessment of how we got here:

The root cause of this dislocation in the economy has been three-fold:

1. The SEC, OTS, OCC, and OFHEO permitted firms to "lever up" at close to unlimited degree. Fannie and Freddie were operating with an 80:1 leverage ratio on their entire book of business, while in 2004 the SEC removed the 12:1 leverage limit that formerly applied to broker/dealers. Five of the seven firms covered by these two examples have collapsed due to excess leverage.

2. Permitting firms, including both investment and commercial banks, to hold assets in "Level 2" buckets where this is no disclosure of exactly what those assets are or how their declared values are determined. Many have called this "mark to make-believe"; I call it by its more common name - fraud. As a consequence it has become impossible to determine whether any particular financial institution is in fact solvent, and, if so, what its true value is.

3. Unregulated, over-the-counter derivatives. There are scary numbers floated out there (in the hundreds of trillions of dollars or more) of "notional value" outstanding. The problem with these numbers is that they don't represent actual amount-at-risk, and in fact nobody seems to know what that figure actually is. The lack of a regulated exchange and central clearing means that there is no margin supervision of any sort; ergo, you have no way to know if your contract is in fact good (that is, the other guy has the money.) AIG, as an example, had $500 billion of exposure outstanding in these contracts, and while this sounds somewhat reasonable when one considers they have a $1 trillion balance sheet in fact it is not because most of AIG's balance sheet assets are committed to cover liabilities (e.g. insurance policies, annuities and the like.) The lack of margin and regulatory supervision is directly responsible for this. These derivatives have become nothing more than a fancy game of "pick pocket" where Broker "A" sells protection to Client "A" for $X, and then tries to find someone to buy that same protection from for "$X - something." While speculation in the marketplace is fine, speculation without being able to prove capital adequacy to back up your bets is not.

Denninger's prescription for what to do about this involves deleveraging the banks, requiring better asset declarations, and an orderly unwinding of the dervatives markets. While these directly target "on the ground" actions that will salve the house of cards, he doesn't directly propose stimulus to the economy.

The Club For Growth condemned the bailout on September 22nd and offered ideas for stimulus as well:

“The Treasury’s bailout proposal will likely cause more harm than good,” said Club for Growth President Pat Toomey. “Instead of launching the largest government bailout since the Great Depression, the government should be implementing policies to stimulate the economy. These include, at a minimum, cutting the tax on capital gains, cutting corporate taxes, reviewing and considering repeal of FAS 57 which requires banks to mark-to-market most securities, and emphasizing the need for a strong dollar.”

Solutions like these should be seriously evaluated - and it should be done before or at least simultaneously to writing checks on the taxpayers' account. It's certainly time for everyone to call their Congress person's and Senator's offices.

Treasury is likely going to put their fingers in the dike. But it's most important that American enterprise - specifically small business, the engine that creates jobs is unleashed as part of this process. It's why I think that it's now past time to adopt the FairTax legislation - do away with all Federal taxes and adopt a revenue neutral embedded consumption tax. As long as we are making bold moves - along with the unprecedented taxpayer burden being thrown into this fray - let's finally stimulate the economy so that the working citizenry can take this economy on its back and we will all have a chance to survive.


Pulled by Emcee on September 25, 2008 at 05:33 AM
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September 20, 2008
In which I become an activist in my old age...
Filed in: Current Affairs, Politics, Tax Policy

Secretary Paulson today:

The underlying weakness in our financial system today is the illiquid mortgage assets that have lost value as the housing correction has proceeded. These illiquid assets are choking off the flow of credit that is so vitally important to our economy. When the financial system works as it should, money and capital flow to and from households and businesses to pay for home loans, school loans and investments that create jobs. As illiquid mortgage assets block the system, the clogging of our financial markets has the potential to have significant effects on our financial system and our economy.

As we all know, lax lending practices earlier this decade led to irresponsible lending and irresponsible borrowing. This simply put too many families into mortgages they could not afford. We are seeing the impact on homeowners and neighborhoods, with 5 million homeowners now delinquent or in foreclosure. What began as a sub-prime lending problem has spread to other, less-risky mortgages, and contributed to excess home inventories that have pushed down home prices for responsible homeowners. [Ed: Emphasis mine]

Though it lacks specificity, Paulson correctly identifies the root of the problem. And how is it we got to lax lending practices, irresponsible lending, and irresponsible borrowing?

Neal Boortz, today as well, explains:

Twenty years ago the buzz-word in the media was "redlining." Newspapers across the country were filled with hard-hitting investigative reports about evil and racist mortgage lenders refusing to make real estate loans to various minorities and to applicants who lived in lower-income neighborhoods. There I was closing these loans in the afternoons, and in the mornings offering a counter-argument on the radio to these absurd "redlining" claims. Frankly, the claims that evil mortgage lenders were systematically denying loans to blacks and other minorities were a lot sexier on the radio than my claims that when credit histories, job stability, loan-to-value ratios and income levels were considered there was no evident racial discrimination.

Political correctness won the day. Washington made it clear to banks and other lending institutions that if they did not do something .. and fast .. to bring more minorities and low-income Americans into the world of home ownership there would be a heavy price to pay. Congress set up processes (Research the Community Redevelopment Act) whereby community activist groups and organizers could effectively stop a bank's efforts to grow if that bank didn't make loans to unqualified borrowers. Enter, stage left, the "subprime" mortgage. These lenders knew that a very high percentage of these loans would turn to garbage - but it was a price that had to be paid if the bank was to expand and grow. We should note that among the community groups browbeating banks into making these bad loans was an outfit called ACORN. There is one certain presidential candidate that did a lot of community organizing for ACORN. I won't mention his name so as to avoid politicizing this column.

These garbage loans to unqualified borrowers were then bundled up and sold. The expectation was that the loans would be eventually paid off when rising home values led some borrowers to access their equity through re-financing and others to sell and move on up the ladder. Oops.

Right now this crisis is being sold to the American public by the left as evidence the failure of the free market and capitalism. Not so. What we're seeing is the inevitable result of political interference in free market economics. Acme bank didn't want to loan money to Joe Homebuyer because Joe had a spotty job history, owed too much money on his credit cards, and wasn't all that good at making payments on time. The politicians told Acme Bank to figure out a way to make that loan, because, after all, Joe is a bona-fide minority-American, or forget about opening that new branch office on the Southside. The loan was made under politicial pressure; the loan, with millions like it, failed - and now we are left to enjoy today's headlines.[Ed. Emphasis mine]

But there's more to it than the home ownership for minorities angle. Just in July, Paul Gigot provided a good history of Fannie and Freddie (may require subscription), confirming what Neal elucidates today, and which, among being a primer for the personages involved, also shows just how craven and graft filled the process became:

Fan and Fred also couldn't prosper for as long as they have without the support of the political left, both in Congress and the intellectual class. This includes Mr. Frank and Sen. Chuck Schumer (D., N.Y.) on Capitol Hill, as well as Mr. Krugman and the Washington Post's Steven Pearlstein in the press. Their claim is that the companies are essential for homeownership.

Yet as studies have shown, about half of the implicit taxpayer subsidy for Fan and Fred is pocketed by shareholders and management. According to the Federal Reserve, the half that goes to homeowners adds up to a mere seven basis points on mortgages. In return for this, Fannie was able to pay no fewer than 21 of its executives more than $1 million in 2002, and in 2003 Mr. Raines pocketed more than $20 million. Fannie's left-wing defenders are underwriters of crony capitalism, not affordable housing.

...The abiding lesson here is what happens when you combine private profit with government power. You create political monsters that are protected both by journalists on the left and pseudo-capitalists on Wall Street, by liberal Democrats and country-club Republicans. Even now, after all of their dishonesty and failure, Fannie and Freddie could emerge from this taxpayer rescue more powerful than ever. [Ed. Emphasis mine]

Now, to counteract the poor lending and borrowing practices in the name of the welfare state and to clean up the craven graft directly related to government participation in the financial markets what is taking place?

...in the past two weeks, the U.S. government, keeper of the flame of free markets and private enterprise, has:

-- nationalized the two engines of the U.S. mortgage industry, Fannie Mae and Freddie Mac, and flooded the mortgage market with taxpayer funds to keep it going;

-- crafted a deal to seize the nation's largest insurer, American International Group Inc., fired its chief executive and moved to sell it off in pieces.

-- extended government insurance beyond bank deposits to $3.4 trillion in money-market mutual funds for a year;

-- banned, for 799 financial stocks, a practice at the heart of stock trading, the short-selling in which investors seek to profit from falling stock prices.

-- allowed or encouraged the collapse or sale of two of the four remaining, free-standing investment banks, Lehman Brothers and Merrill Lynch;

-- asked Congress by next week to agree to stick taxpayers with hundreds of billions of dollars of illiquid assets from financial institutions so those institutions can raise capital and resume lending.

But this isn't the end of it. John Hildenrath et al also in the WSJ today:

Few financial crises have been sorted out in modern times without massive government intervention. Increasingly, officials are coming to the conclusion that even more might be needed. A big problem: The Fed can and has provided short-term money to sound, but struggling, institutions that are out of favor. It can, and has, reduced the interest rates it influences to attempt to reduce borrowing costs through the economy and encourage investment and spending.

But it is ill-equipped to provide the capital that financial institutions now desperately need to shore up their finances and expand lending. [Ed. Emphasis mine]

This morning, Mr. Paulson said:

"I am convinced that this bold approach will cost American families far less than the alternative -- a continuing series of financial-institution failures and frozen credit markets unable to fund economic expansion," Mr. Paulson said at a morning press conference.

I have a few more bold approaches, with the reminder that American citizens should be mindful of the consent of the governed:

1. Get rid of everyone associated with this debacle. Anyone serving in the House and Senate that has been party to this (that includes Mr. Obama by the way) - throw them out! Participants in the government inspired meddling in the name of affordable housing - fired and banned from participation in the market place.

2. Let this be the final nail in the coffin of the welfare state. Haven't we finally come to the point - since the Great Society has not only utterly destroyed urban minority America - but now threatens every one of us - to eliminate the entitlement system that is literally breaking our backs?

3. To balance the extraordinary actions being taken by the Fed and the Congress, which places all taxpayers collectively at risk, make the bold approach of voting HR 25 and S 1025 (Collectively the FairTax legislation) into law so that we have some possibility of saving our country from financial ruin. I'm completely serious. Where's the capital going to come from ultimately to facilitate institutional strength? Hint: It's not government printing presses. Ultimately it has to be on the back of the saving public. To transform our economy from a consumer debt economy to a savings economy remove the stifling federal tax system and replace it with this revenue neutral consumption plan and encourage savings. Remove the mind boggling costs of tax compliance and inject trillions of dollars into the economy over the next decade as a result. Achieve additional revenues by capturing consumption from the huge underground economy, stimulate the economy by making American goods more competitive overseas, and attract the trillions of 'ex-pat' dollars that are offshore back into the market place.

Please read up on the FairTax initiative. Ask questions. Call your Congressperson. Remind them that they serve at your pleasure. Remind them that there is a financial meteor that has already impacted NYC and that our only hope is to free America from the back breaking tax system and replace it with an economy stimulating consumption model.

Our very lives, our sacred honor depend on it.


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