Black Shards Press – Electronic Gumbo is Our Specialty

Obama’s Foreclosure Plan Another Abomination

30.03.2010 (5:41 am) – Filed under: Finance,Politics ::

The ink barely dry on President Obama’s health care bill – and so-called victory over the American people – the president has a new set of victims to help: those unable to pay their home mortgages. His plan is a particularly abominable one straight from the playbook of Karl Marx. If President Obama has his way, lending institutions will be compelled to reduce mortgage payments to no more than 31% of their debtors’ income.

The problem of "underwater" borrowers has bedeviled earlier administration efforts to address the mortgage crisis as home prices plunged.

Officials said the new initiatives will take effect over the next six months and be funded out of $50 billion previously allocated for foreclosure relief in the emergency bailout program for the financial system. No new taxpayer funds will be needed, the officials said.

I’ve been upbraided by several people who say that it’s not this president’s fault that he has to take these sorts of steps, that it’s actually Ronald Reagan’s fault, or Bill Clinton’s, or, inevitably, George W. Bush’s failings as a president that lead to this moment in history.

There’s a grain of truth at the center of this argument but there’s no pearl of wisdom forming around it. Yes, President Obama inherited a difficult situation when he took office. But the fact that he’s done virtually everything wrong since taking the reigns can neither be excused without comment nor blamed on anyone else.

Only a few short months ago Democrats were railing against banks for failing to loan money. Now the president’s latest financial debacle is certain to hamper banks’ ability to offer new loans, keep capital locked up in vaults instead of flowing through the economy, and lengthen the economic valley we find ourselves in as a result.

It’s all well and good to try to help people, but I have to wonder if Democrats even bother to consider the consequences of their actions. In the aftermath of their policies they wring their hands and wonder why businesses fail to respond as they’d hoped. The answer is simple: The fear and uncertainty liberal politics creates is one of the major causes of corporate reticence to invest while they are in office. And now this.

Can you now blame banks for not wanting to lend money when the terms of the contracts they wrote no longer have any meaning?

Put People to Work by Lowering the Minimum Wage

06.03.2010 (8:17 am) – Filed under: Finance,Youth ::

It should be obvious to everyone that the minimum wage employers may legally pay workers is directly linked to the number of job openings companies will have at the unskilled end of the market. But evidently that bitter economic reality is lost on Democrats in Congress:

the recent act of Congress that has caused the most economic hardship goes to the May 2007 law raising the minimum wage in three stages to $7.25 an hour from $5.15. Rarely has a law hurt more vulnerable people more quickly.

A higher minimum wage has the biggest impact on those with the least experience or the fewest skills. That means in particular those looking for entry-level jobs, especially teenagers. And sure enough, as nearly all economic models predict, the higher minimum has wreaked havoc with teenage job seekers

Boo hoo, some might say. Teens don’t need to work, at least during the school year, and those who do simply compete with unskilled adult workers. There’s some truth to that argument; however, it’s not only teens who are displaced from jobs: Unskilled workers of all ages are less in demand now than they were a year ago in large part because of the higher minimum wage.

I worked at McDonalds, among other low-paying jobs, as a teenager and at the time their labor costs ran about 15% of sales, if memory recalls. If sales are $3M at a store, the owner has $450K to pay in salaries, period, if he’s going to stay in the business. If he’s forced to pay a higher wage, only two things can happen and neither of them is pleasant.

First, the owner could fire or demote one or more of his salaried managers. Not a good decision, for someone has to run the store and it’s not going to be done effectively in the absence of a qualified – read “skilled” – supervisor.

The second possibility – and that one that actually occurs in the real world – is that the owner will tell the managers to reduce the number of hours worked by the low-end workers to the point at which he’s making satisfactory profits again.

Sure, those with jobs are making more money. But those without are 100% unemployed and most of these people have few, if any, of the skills needed to open their own businesses or otherwise create a job for themselves.

That’s the result of Democrats’ ludicrously misplaced compassion for the poor. And the cycle continues.

The Real State of the Union: Beyond Bankrupt

28.01.2010 (9:25 pm) – Filed under: Finance,Politics,Transportation ::

All the twitter about President Obama’s sneak attack on the Supreme Court and Justice Alito’s silent rejection of it masked the real news of the day: Our nation is beyond bankrupt and Democrats are committed to making matters worse by increasing the debt ceiling another 15% to $14T.  For those who have trouble visualizing the scope of the disaster Presidents Clinton, Bush 43, and Obama have created for our children, that’s $14,300,000,000,000.

“Where did the money go?” would be a pertinent question to ask at this juncture, as would “When will these so-called leaders stop mortgaging the nation’s future?”.  Sadly, neither of these seem to be on the minds of Congressmen/women these days.

Republicans criticized Democrats for passing a massive increase, arguing that a smaller increase would have been more responsible.

Coming from the “conservative” party, this criticism is as weak as ice tea left out in the sun on a hot July afternoon.  What’s happened to the ideas of reducing the deficit and balancing the budget?  Fiscal responsibility isn’t sexy and so lacks appeal to those more interested in keeping their cushy positions than in righting a ship that’s taking on water. 

Still, at least one Republican has a sense of humor about the joke Democrats have played on us all by pretending the measure is one of economic soundness:

"It’s like the drunken sailor asking to have the bar open all night," said Sen. Judd Gregg (R-N.H.).

President Obama didn’t take long to prove Gregg, who turned down a cabinet position last year, right by announcing an $8 billion dollar plan to create high-speed rail systems in several states, most of which are Democratic strongholds.  Texas, which has long eyed commuter rail links between its 4 major cities, was essentially ignored by the president’s plan, such as it is:

None of these cash amounts will actually be enough to build the lines, of course. And things get messier as you go further down the list. The Northeast Corridor, for instance — where the utility of trains is already well proven and a high-speed line from Washington to Boston would generate tremendous excitement — only gets $112 million, while the car-dominated state of Texas receives a mere $4 million.

How inspiring.  I’m old enough to remember the series of government handouts that kept Amtrak running long after economics dictated its failure.  There’s no reason to think that these projects, underfunded and doomed to cost billions more than the president dares ask for, will be any more successful.

Drunken sailor’s night out indeed.

U.S. Tax Policy Must Regress

30.07.2009 (7:57 pm) – Filed under: Finance,Taxation ::

image In a short, direct article Scott Hodge debunks one of the radical left’s essential talking points, namely that the American rich don’t pay enough taxes to support their poorer countrymen. On the contrary, the U.S. system is more liberal than any other country in the Organization for Economic Co-operation and Development (OECD):

Indeed, the IRS data shows that in 2007—the most recent data available—the top 1 percent of taxpayers paid 40.4 percent of the total income taxes collected by the federal government. This is the highest percentage in modern history. By contrast, the top 1 percent paid 24.8 percent of the income tax burden in 1987, the year following the 1986 tax reform act.

Remarkably, the share of the tax burden borne by the top 1 percent now exceeds the share paid by the bottom 95 percent of taxpayers combined.

Hodge’s conclusion needs no further comment:

We are definitely overdue for some honesty in the debate over the progressivity of the nation’s tax burden before lawmakers enact any new taxes to pay for expanded health care.

An honest debate would be great. But the truth is, there’s nothing else to say.

Consumer Financial Protection Agency Not Needed

09.07.2009 (6:34 am) – Filed under: Finance ::

imageTodd Zywicki gets it right when it comes to home mortgage and credit card debt:

Instead of a new consumer financial products safety commission, Washington should revise the disclosures it mandates for mortgages, its tax and other incentives that encourage overinvestment in housing, and the incentives for homeowners to walk away from their homes. Our current problems are caused by misaligned incentives and the rational response of consumers and lenders to those incentives. It’s not a crisis of consumer protection. A new agency premised on the erroneous belief what consumers need is to be protected from themselves is likely to do more harm than good.

It’s way past time that Americans recognize that repaying borrowed money is a profound obligation and a fundamental basis on which the western world rests.

Home ownership can be a wonderful thing. But if would-be buyers’ finances are not in order, they would be well-advised to continue to rent until they are. As we’ve seen, this is also in the country’s best interests as well.

Denying high-risk borrowers credit is not repressive, it is an acknowledgement of reality, one that should be made more often.  Home ownership and credit card accounts are not human rights, they are luxuries earned by good professional and financial behavior.

The AIG Meltdown and Who’s to Blame

08.07.2009 (7:16 am) – Filed under: Finance ::

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Michael Lewis’ article at Vanity Fair is a fascinating summary of the problems that led to the failure of AIG – a must-read.

The Man Who Crashed the World
Almost a year after A.I.G.’s collapse, despite a tidal wave of outrage, there still has been no clear explanation of what toppled the insurance giant. The author decides to ask the people involved—the silent, shell-shocked traders of the A.I.G. Financial Products unit—and finds that the story may have a villain, whose reign of terror over 400 employees brought the company, the U.S. economy, and the global financial system to their knees.

Read the rest, it’s a very interesting and plausible explanation of how the unthinkable happened at a company that was supposed to ensure the country’s financial stability and would up maiming it instead.  Still, as compelling as Lewis’ case is, I don’t buy it in its entirety.

Is the entire financial disaster of 2009 really the fault of one man? Not a chance. Lewis’ designated scapegoat seems to be a major player, right enough. But every one of the millions of people in America who took out a loan they couldn’t pay back or defaulted on their credit cards is responsible for part of this mess.  That fact Lewis completely ignores.

Is Debt Default Immoral?

23.05.2009 (7:49 am) – Filed under: Finance,Society ::

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Megan McArdle has wrestled with this question and came up with a wonderfully clear answer:

If people really acted as if the choice to default were morally neutral, we’d either lose most of our credit system, or the legal rules would have to be much more punitive.

That doesn’t answer the root question but it is a practical fact that many people seem to forget:  The ease with which one person can get a loan is inversely proportional to how faithfully other people repay their own.  Without a shared monetary morality, our financial life as we know it cannot continue to exist.

Perhaps moral is the wrong word to use here; ethical would be a better word choice in my opinion.  Proceeding from there, let me say that yes, there is an absolute ethical obligation that we take on when we borrow money from someone else – specifically to repay it in accordance with the agreement we made with the other party.

The fact that the other party may be a giant financial conglomerate makes no difference re the ethics of the situation.  If you borrow more than you can pay back or simply choose to default on your obligations, you are in fact acting unethically.

If one must look for scapegoats to hang for the current financial situation, those people who failed to meet their obligation to repay their debts must be first on the list of suspects.

Barack Obama, Spendthrift

14.05.2009 (9:18 pm) – Filed under: Finance,Politics ::

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While speaking at Arizona State University, Barack Obama called on students to exercise fiscal restraint and not over-leverage themselves.  Strangely, the Gateway Pundit says that’s exactly Obama did in his personal life by mortgaging his family’s home until they were well “under water”.  No surprise then that:

Obama’s budget more than doubles the national debt held by the public, and adds more to the debt than all previous presidents — from George Washington to George W. Bush — combined.

Pretty audacious then for Obama to call on twenty-somethings to scrimp and sacrifice while he allows their future to be spent on his pork-o-licious budget in the present. 

Obama also had this to say about living the Life of Reilly on unearned money:

“We can’t keep on just borrowing from China,” Obama said at a town-hall meeting in Rio Rancho, New Mexico, outside Albuquerque. “We have to pay interest on that debt, and that means we are mortgaging our children’s future with more and more debt.”

Do as I say, not as I do, obviously.  Now that’s true audacity – without even so much as a side of hope for future generations to gnaw on.

Reich Wrong on Social Security, Medicare

13.05.2009 (10:25 pm) – Filed under: Finance,Medicine,Politics ::

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Writing about the $13T in unfunded Social Security obligations, Robert Reich, the former Secretary of Labor, says “Social Security is a tiny problem” and “Medicare is entirely different. It’s a monster.”

Reich is right that Social Security is the lesser of two evils; however, he’s dead wrong about Social Security being a little problem.  To put matters in perspective, the Social Security debt alone is equal the entire federal government for 5 years if one assumes a rational spending plan or 3 years of the Obama administration.  It’s also nearly the entire annual gross domestic product of the United States.

Reich reckons that the GDP will grow at more than the feds’ estimated rate of 2.6% annually – this despite the devastating recession that’s swept over this country since Barack Obama was elected president.  This seems unlikely given several factors. 

Some of these fundamental problems include:

  • The effective nationalization of the banking and automotive industries that threatens to undermine confidence in the entire business community
  • The massive current and projected budget shortfalls that rob future generations of economic freedom in order to spend now
  • Our continued failure to pursue a comprehensive national energy strategy that puts our energy security – national security – at risk
  • A failing public education system that produces too few qualified workers and too many dropouts and know-nothings to make up for the fiscal mismanagement of current leadership

There are other issues such as global unrest and Islamicization, foreign competition, and a home-grown, country-wide sense of entitlement that further exacerbate the problem of financial folly that the American government has created over the last 40 years.

The Social Security problem – the little one, mind – dwarfs the current woes of the banking sector, problems caused in large part, it pays to remember, by government’s intervention in the market in the form of mandating loans to unqualified home buyers.  That crisis spurred Barack Obama into a full-speed gallop to the rescue, the Congressional coffers literally dripping billions of dollars as Democrats made haste to shoot the wad of their political windfall in the name of economic stimulation.  What then will the coming Social Security crisis entail when it hits a couple of decades down the road?

Will it even matter?  Probably not.  Perhaps the reason that Reich can be so cavalier about Social Security tanking is that the Medicare train wreck will happen first and so devastate our financial situation that Social Security will simply cease to exist.

Reich says that Medicare can be fixed by eliminating waste, forcing people into preventative care, and reducing medication.  The government health care program will be so much more efficient than our current system that we’ll save $50T by converting to it.  Not bloody likely.

Most people agree that the real solution to the health care cost crisis is reducing demand for health care.  While it’s fine to talk about preventative care – I’m certain that doing more in that area would save some money – the fact is that human bodies are born to die. 

Despite knowing this, we spend far too many of our resources keeping dying people alive as long as technology allows.  Until we face that unpleasant truth no real progress will be made in addressing the rising cost of health care, particularly in a government-run system that is bound to obey public opinion rather than economic reality.

Media Notices Obama’s Budget Disaster

30.04.2009 (5:28 am) – Filed under: Finance,Politics ::

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In a sharply worded article the AP has finally taken notice of the Obama budget deficit and called it what it is – an economic nightmare.  Moreover, Mr. Obama is identified as being part of the problem rather than the solution.  Good to see a dose of reality in the morning news, even if the news is bad.

“That wasn’t me,” President Barack Obama said on his 100th day in office, disclaiming responsibility for the huge budget deficit waiting for him on Day One. It actually was him — and the other Democrats controlling Congress the previous two years — who shaped a budget so out of balance.

And as a presidential candidate and president-elect, he backed the twilight Bush-era stimulus plan that made the deficit deeper, all before he took over and promoted spending plans that have made it much deeper still.

The article goes on to explode various of the Obama administration’s claims about the economy, its plans for the country and how it plans to pay for them, saying, among other things, that: “his proposed budget ‘will cut the deficit in half by the end of my first term’ is an eyeball-roller among many economists”.

Cutting to the chase:  The Obama administration and the Democratic Congress don’t plan to pay for any of their ill-advised spending – that’s a future generation’s problem. 

Good article from an unexpected source – read it.