Friday, September 26, 2008

Pork in the bailout plan? Say it ain't so!

Bill Smith, fellow Samsphere blogger from ARRA News Service, has received a copy of the 'agreement in principle' for the $700 billion bailout which, if left to stand, could have some serious implications for taxpayers.

According to Bill:

In the "agreement in principle," there is the effect of a major "earmark" which commits money from future "profits" to be given to nonprofits organizations like ACORN, National Council of La Raza and potentially the National Urban League. This agreement clearly evidences that the Government expects to benefit in the future from the bailout when the values of property rises and mortgages or properties are then sold by the Federal government. The agreement --

"Directs a certain percentage of future profits to the Affordable Housing Fund and the Capital Magnet Fund to meet America's housing needs."

In the proposed bailout agreement, Sen. Christopher Dodd, the Senate Banking Committee and other Democrats desire to pre-direct that future funds (profits) not be returned to the taxpayers via the treasury but that they be used to underwrite potential questionable (maybe even illegal activities) of certain nonprofits which have had a hand in promoting and expanding access to "no money down" loans for minorities, illegal voter registrations and extensive lobbying activities.

I suppose I'm being overly optimistic to think that the current crisis would have taught these idiots a lesson, but I guess not.

The major reason we're in this mess isn't because of 'greed by Wall Street,' but because legislators like Dodd wrote laws to accomplish such social engineering like 'affordable housing,' threatening banks if they didn't increase the number of mortgage loans to minority and low-income individuals. They even went so far as to say that welfare and unemployment payments should be considered as 'earnings' for the purposes of qualifying for loans.

John Lott, a senior research scientist at the University of Maryland, cites a manual from the Federal Reserve Bank of Boston in the early '90s that warned mortgage lenders to no longer deny urban and lower-income minority applicants on such "outdated" criteria as credit history, down payment or employment income. Those "outdated" criteria:

Credit History: Lack of credit history should not be seen as a negative factor...

Sources of Income: In addition to primary employment income, Fannie Mae and Freddie Mac will accept the following as valid income sources: overtime and part–time work, second jobs (including seasonal work), retirement and Social Security income, alimony, child support, Veterans Administration (VA) benefits, welfare payments, and unemployment benefits.

The Fed warned the banks:

"Did You Know? Failure to comply with the Equal Credit Opportunity Act or Regulation B can subject a financial institution to civil liability for actual and punitive damages in individual or class actions. Liability for punitive damages can be as much as $10,000 in individual actions and the lesser of $500,000 or 1 percent of the creditor’s net worth in class actions."

Other members of Congress, specifically Rep. Barney Frank and Sen. Chuck Schumer, fought against reforms in Fannie Mae and Freddie Mac that would have addressed many of the issues before they became a crises.

In Congress, they made sure there was no additional oversight, no additional limit on executive behavior and compensation, and no further restraint on the growth of the companies' mortgage-backed-securities portfolios, among other changes.

Even after the 2003 Freddie Mac accounting scandal, Frank said, "I do not think we are facing any kind of a crisis."

The Wall Street Journal quoted Congressman Barney Frank in 2003 as criticizing Greg Mankiw, chairman of President Bush's Council of Economic Advisers, "because he is worried about the tiny little matter of safety and soundness rather than ‘concern about housing.'"

And now, they're at it again, attempting to take any profits the government might possibly get from all these 'illiquid' assets and direct them NOT back to the taxpayers whose money is being used, but right back into the very practice that got us into the mess in the first place.

I can only hope that some of the Republicans in Congress, like Rep. Mike Pence, can hold the line.

Warner Todd Huston has some interesting points on this as well.

Red State's commentary on the pork provision.

5 comments:

The A-Hole Lawyer said...

"The problem is not the fundamental well-being of our economic system. At midyear, the U.S. economy was still running at growth between 2-3 percent above 2007 levels, even discounting inflation. The national unemployment rate was 6.1 percent, not the 35 percent of the Depression era. The stock market remained higher than the levels of four years earlier.

No, the problem lies with the bursting of the residential housing bubble that developed an irrational price exuberance (except in Michigan) in the wake of the Federal Reserve's exceptionally easy monetary policies from 2003 to 2006. Economics students understand this axiom: "Loose money policies create tight credit conditions.""

Taken from The Detroit News today.

http://detnews.com/apps/pbcs.dll/article?AID=/20080924/OPINION01/809240304
The article also outlines four major steps taken by congress to land us here.

Rep. Boehner is supporting an alternative plan to have PRIVATE investors purchase this bad debt, while allowing them the PURCHASE insurance on the debt from the Treasury dept. Sounds better than a socialistic bailout and ownership by big government.

TAHL

Brian said...

Maggie:

Good post. I would add that this is really bigger than we really understand and few are actually reporting on global banking crisis manifested through the World Bank. Countries around the world are facing the same situation, and the troubling aspect is that each government is calling for the same solution, greater centralized control, nationalization, and less free markets.

Read this story from MarketWatch http://www.marketwatch.com/news/story/us-lose-financial-superpower-status/story.aspx?guid={AAD822C1-BC7E-4178-9BFE-F9A8C897D209}&dist=msr_8

“Steinbrueck [German Finance Minster] criticized the United States for failing to adequately regulate investment banks and said free-market policies embraced by the United States and Great Britain that emphasized a short-term "insane drive for higher and higher profits" were partly to blame for the crisis.”

We are faced with a huge decision in the wake of this crisis, do we embrace collectivism as described by the Democrats, some Republicans and the Europeans, or to we hold fast to limited government and free markets?

Folks have to read the foreign news services to get the full story. If we trust only the US MSM for our information about this crisis we will miss being cold cocked by Europe and turned toward collectivism in our stupor state.

Tim Higgins said...

There can be little surprise that there's a little pork in the negotiations going on over the last couple of days. Liberals in the Congress cannot help themselves from attempting to find new ways to do wealth redistribution (you know, Socialism).

The question is whether the Republicans will show enough backbone to prevent this agenda from being carried forward. It appears today that this is to be the case, but no one can take it for granted until the final terms of the deal are set in stone.

As for directing this earmark to Affordable housing, one has to ask: "Isn't this what caused the problem in the first place?"

Perhaps we should simply call this pork what it is, "Piggyback Funding".

Stephen said...

Mr. Higgins:

Why do you expect the Republicans to do something contrary to their normal and past actions? You decry the fact that they are padding this parody with pork, as does the author of this weblog; nevertheless the bigger issue is the nationalization of our banking industry, which is the real issue. So when you consider that fact, do you have any question in your mind as to the republican's motives? They after all got us to this juncture.

Tim Higgins said...

Stephen,

I have posted in my own blog about the lack of Constitutional authority on the present bail out: http://justblowingsmoke.blogspot.com/2008/09/won-battle-losing-war.html and I likewise strongly disagree your conclusion. I am reasonably sure that there is plenty of blame to go around on both sides of the aisle for the causes of this situation and for the lack of required government oversight as it got worst.

This however, does not excuse the Democratic Party for attempting to add to the nightmare this has become with additional programs of wealth redistribution. Neither does it excuse the Republicans if they end up acting like Democrats to pander to voters during an election year.

The best solution that a Conservative (as I am) can hope for is the least government intrusion we can get and the least government money spent. Plunging this country into additional debt will only add to the country's economic problems.

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