Saturday, May 1, 2010

The Answer to Thursday's Trivia Question

Here is the Answer to Thursday’s trivia question.

Who Said, “A government big enough to give you everything you want, is strong enough to take everything you have?”

Gerald Ford said it to a joint session of the Congress on August 12, 1974.

“(the people) know that a government big enough to give you everything you want is a government big enough to take from you everything you have.”

Source: Gerald R. Ford Presidential Library and Museum

There is an email floating around that uses the statement to build mistrust of government. There is also a bumper sticker using it on cars that might also sport a Palin or Tea Party sticker.

It is hard to believe that anyone would disagree with the statement, but some may object to the implications. The statement is used by conservatives to give reason to the small government concept.

But no matter who uses the statement, at least get the facts straight.

Friday, April 30, 2010

The CRA is not the reason for the mortgage meltdown

While the mortgage melt down is now a couple of years out, it is still producing zombies. In a couple of articles about Goldman Sach’s grilling in Washington, the CRA was brought up as if it was the reason for the meltdown.

People are just looking for easy targets to explain the problems.

One of the easy targets in the mortgage debacle is the Community Re-investment Act (CRA). The legislation requires banks to make mortgages available to people living in the communities they service, or the branch assessment area. But, the act made it clear that banks were not required to loan the money if it would place the institutions in jeopardy.

There were two reason for the CRA. First, it is an attempt to keep banks from taking deposits from low income areas and investing the money in mortgages in high income areas. It was also designed to get more people in homes they own. If people own a home in a community they will take a greater role in its developed.

It is suggested that since the people that received the CRA mortgages were not worthy of the credit extended to them, they began to default. It was this mass defaulting on these mortgages that made the mortgage backed securities sold to Wall Street firms nearly worthless. This, according to the zombie legend that won’t go away, created the mortgage crisis that nearly bankrupt the system.

The reality is something very different according to research released by Harvard University’s Joint Center for Housing Studies. Only a small percent of the subprime mortgages made to low income borrowers, about 9%, were made by the banks that fell under the CRA. The remaining 91% of the subprime mortgages to low income borrowers were made by independent mortgage companies or by banks from outside of the assessment area. The CRA did not have any effect on independent mortgage companies and did not direct banks to make loans outside of their assessment area.

Once the mortgage banks not under CRA control made all the mortgages they could by regulation, they sold securities back by their mortgages to Wall Street financial institutions. By clearing the inventory of mortgages they were then allowed to seek more.

Then, mortgages began to default. The CRA mortgages failed no worse than the national average, about ten percent. The mortgages that had the worse default rate were those not from banks under CRA control.

This was where the melt down began.

Providing mortgages in a bank’s assessment area, is a great way to get people invested in their communities. The CRA has been successful at that. But the Harvard Study illustrates that it wasn’t the CRA mortgages that created the crisis. Those mortgages were no worse than the average at defaulting. It was the mortgages from the other banks not under CRA control that defaulted at a high rate.

The CRA zombie lives on, despite the passage of time and research available. Let’s hope the Harvard Study is its death knell.

Thursday, April 29, 2010

Who Said, "A government big enough...

Thursday is poltical trivia day.

Who Said, “A government big enough to give you everything you want, is strong enough to take everything you have"?

Wednesday, April 28, 2010

Going Backwards Because of Immigration

In 1787 The United States Constitution was adopted. Before that, the country was operating under the Articles of Confederation. The reason the Articles of Confederation was replaced because it wasn’t working. States had all the power to create their own laws without regard to other states or the national interest.

Last year there was 222 laws and 148 resolutions passed by state legislatures governing immigration. This doesn’t include all the laws that were already in place. Many states are taking a hard look at immigration and devising their own plans in an attempt to address the problem. All of this because the elected officials of the national government have not been able to find consensus on the issue.

This is beginning to look like the Articles of Confederation again.

States do have the right and responsibility to enact legislation that will provide for their citizens. But state laws should deal with issues that are local or state wide in scope and not national issues. National issues are the responsibility of Washington. This is especially true for an issue like immigration that effects each and every citizen in some way in America.

With each state developing its own laws to deal with immigration there is going to be a very wide set of rules and regulations. This will create an incredible amount of confusion in the country. Legal workers and immigrants that move from state to state will be unsure of what documents they may need to prove their status. Employers that hire workers across many states will need to developed employment policies for each state. Virtually every private and public service agency; local, state and national; will need individual sets of procedures to just do their job.

Immigration is a national issue and states need to stay out of it. But, they are acting because the federal government is not. It is time for the federal government to act.

Tuesday, April 27, 2010

Let's Hear What Goldman has to Say Today

Lloyd Blankfein, left, will testify before congress today about why the investment bank didn’t raise the alarm about the mortgage meltdown.

Let’s all listen to what he has to say.

Monday, April 26, 2010

GM Repayment and Fuel Standards

It isn’t clear what Republican Senator Chuck Grassley from Iowa and Republican Representative Darrel Issa from California are really upset about.

After GM announced that it would pay back the $5.8 billion loan the government had provided the auto company, the two leveled complaints against the Obama administration. Grassley wants to know where the money is coming from to repay the loans. (1) He thinks there is hanky-panky going on with the TARP funds. Issa thinks that Obama and the gang “strong armed” GM into accepting tougher fuel standards. (1) By 2016 fuel standards must reach 35 mpg.

First, Grassley’s answer to the question about where the money is coming from: It is coming from the TARP funds. GM and the Obama administration have not hidden that fact, which was the original deal. GM received more than $16 billion dollars in cash during the bankruptcy. Any of that money left by June 30 had to go to pay off the loan to the corporation before it went into bankruptcy.

As for the answer to Issa’s question about the administration “strong arming” the auto makers into agreeing to higher fuel standards: So what? GM and Chrysler agreed to not fight higher fuel standards. Ford, which did not receive any funds from the government also agreed to the fuel standards, as did all the other manufactures in the country. With the higher standards cars will now go farther on less. It will keep the cost of driving down for the consumer. It will help save a natural resource with a limited supply (we are at “peak oil”). If indeed the Obama administration did strong arm the companies to accept the new standards, it will only help the country and the world.

It is clear that GM is not hiding anything and the increase in the fuel standards will help the country and consumer. When questions like these come up with no foundation there has to be an underlying reason.

Both strongly support free market economics which is just fine when kept in balance with the needs of the community. Free market thinking would have let the auto companies fail completely. This would have sent Michigan into a death spiral that would have taken a generation to pull out of. (This is, of course, from Senator Grassley that represents a farm state that has received agricultural subsidies from the US treasury for generations.) Even just looking at the economics of failure and not the individual lives of the many families that would have been effected by the companies going under, auto workers are now still employed paying taxes. This revenue would not have been there if they are unemployed. The cost of the unemployment insurance alone could have been billions.

If on close examination there is a problem, yes, take a closer look. But if the answers are right there in front of the questions, let it go.

1 Businessweek link for Grassley and Issa