Subsidize Bad Behavior?

President Obama’s massive mortgage-bailout plan is nothing more than a thinly disguised entitlement program that redistributes income from the responsible 92 percent of home-owning mortgage-holders who pay their bills on time to the irresponsible defaulters who bought more than they could ever afford. This is Obama’s spread-the-wealth program in action.

Team Obama is rewarding bad behavior. It is enlarging moral hazard. It is expanding its welfarist approach to economic policy. And with a huge expansion of government-owned zombie lenders Fannie Mae and Freddie Mac, Team Obama is taking a giant step toward nationalizing the mortgage market.

Reporting from the Chicago commodity pits, my CNBC colleague Rick Santelli unleashed a torrent of criticism over this scheme. Santelli said: “Government is promoting bad behavior. … Do we really want to subsidize the losers’ mortgages? This is America! How many of you people want to pay for your neighbor’s mortgage? President Obama, are you listening? How about we all stop paying our mortgages! It’s a moral hazard.”

All this took place on the air to the cheers of traders. Santelli called for a new tea party in support of capitalism. He’s right.

Obama’s so-called mortgage-rescue plan amounts to $275 billion in new debt that will have little if any lasting impact on deeply corrected housing prices or the mortgage-default problem that stemmed from the insistence of government to throw home loans at lower-income people. A modest reduction in mortgage rates will have little impact on home prices, as Harvard professor Ed Glaser has shown. And by the way, re-default rates on modified mortgages have been running 50 percent to 60 percent. This is not going to change. So why should we throw more good money after bad?

Meanwhile, Wall Street is awakening to the disappointment that the securitized mortgages behind the toxic assets that have done so much damage to banks and the credit system are not being treated in the Obama program. The oversight is incredible. There are no safe-harbor provisions to protect mortgage servicers against lawsuits if agreements are broken. The ownership of these securitized mortgage pools is wide and far, spanning the globe. Breaking contracts is exceedingly difficult, especially without any legislated legal protection.

Of course, banks that have whole loans can choose to modify them if they want.

And in some cases it’s much better to modify than foreclose. But 70 percent of this bank-owned paper is performing. It’s the securitizations that have clogged up the world credit system.

Then there’s the bankruptcy-judge cram-down, which would allow the courts to renegotiate interest rates and loan principal. This would abrogate private contracts and throw out the rule of law. Do we think future investors will put up mortgage capital if they fear judges will overturn the terms of contracts? Home-loan supplies will fall and mortgage rates will rise.

Then there’s Fannie and Freddie, the big winners here. Only their products are eligible for mortgage relief. Jumbo mortgages are not. Neither are private-label mortgages created by various non-bank lenders. Fan and Fred already run 48 percent of the mortgage market. Obama’s proposal would greatly enlarge that and move the mortgage system toward government nationalization.

What’s even more incredible is Team Obama’s stubborn refusal to have any faith in the free market. In some of the hardest hit areas of the country, markets are already solving the housing problem. Writing on his Carpe Diem blog, University of Michigan professor Mark Perry notes that while California home prices dropped 41 percent in 2008, home sales in the state jumped 85 percent. It now looks like 2008 sales for single-family houses will exceed levels reached in 2007.

What’s more, the unsold-inventory index for existing single-family detached homes in December 2008 was 5.6 months, compared with 13.4 months for the year-ago period. And the median number of days it took to sell a single-family home dropped to 46.1 in December 2008, compared with 66.7 in December 2007. So inventories are dropping, the number of days to sell a home is falling, and sales are rising in the wake of lower prices.

If the government really wants to help, instead of bailing out irresponsible mortgage-holders, it should support new and younger families who want to buy starter homes and begin to climb the ladder of prosperity.

All this is free-market economics 101. And I say, let free-markets work. Let’s remember that most folks — even those with underwater mortgages, where the loan value is more than the home value — do not walk away from their obligations. They don’t want to wreck their credit — and their homes are their castles. That’s the American way.

But if we penalize the good guys and subsidize the bad ones, we are undermining the moral and economic fabric of this country.

To find out more about Lawrence Kudlow and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate web page at www.creators.com.

COPYRIGHT 2009 CREATORS SYNDICATE INC.

Car and Driver

Americans now know that the “change we can believe in,” which President Obama promised, means a taxes-optional administration. Treasury Secretary Timothy Geithner rode out the bad news about his failure to pay $34,000 in Social Security and Medicare taxes on income he earned while working for the International Monetary Fund, and still won confirmation. The man now in charge of the IRS says it was “an innocent mistake.”

Remember that line — in case you are audited.

Now come reports that Obama’s pick to be both his health policy czar and secretary for Health and Human Services — former Senate Democratic Leader Tom Daschle — had to amend his tax returns and pay $140,000. Among other errors, Daschle forgot to pay taxes on a car and driver supplied for three years by, as he put it in a letter to the Senate Finance Committee, “a close friend.”

Daschle wrote that he is “deeply embarrassed and disappointed by the errors that required me to amend my tax returns.” Also: “My mistakes were unintentional.”

Remember those words, too. There’s just one problem with both Geithner’s and Daschle’s stories: If they really did not know that they were evading taxes, then they’re stupid.

And if Daschle really thinks that media mogul Leo J. Hindery Jr. gave him a car and driver for three years out of friendship, and that “a gift from a good friend,” as he put it Monday, would be exempt from taxation, then Daschle is too stupid to be trusted with health care reform.

White House Press Secretary Robert Gibbs told reporters Monday, “The president believes that Sen. Daschle is the right person for the very important job of ensuring that we cut costs, reform our health care system, and finally give the American people in health care the outcomes that they deserve.”

I don’t think so.

According to the Wall Street Journal, Daschle told the Senate Finance Committee that he “had grown used to having a car and driver as majority leader and did not think to report the perk on his taxes.” Which tells you that you don’t want Daschle’s mitts anywhere near the federal Treasury.

Cutting costs? No. This is the guy you want when you’re looking for someone to pass the Grey Poupon.

It wasn’t that long ago that now-Vice President Joe Biden, when a senator, argued that it is “patriotic” for affluent Americans to pay higher taxes. Now that the Democrats are in power, they won’t demand that one of their own pay up. Senate Majority Leader Harry Reid described Daschle’s tax revelations as “a few little hiccups.”

No wonder Rep. Eric Cantor, R-Va., and GOP whip, quipped, “It is easy for the other side to advocate for higher taxes because — you know what? — they don’t pay them.”

On a serious note, it is not in America’s national interest to make it impossible for human beings, who err, to survive the ruthless Beltway gauntlet. But it also is not in the country’s interest to hand incompetent (or venal) people the keys to the kingdom. After all that campaign talk about keeping former lobbyists out of policy-making, Obama tapped a former politician who cashed in upon losing re-election — making $5 million over two years, including more than $200,000 speaking to the health care industry — to be his go-to guy on health care.

I sure hope Americans did not elect another president who values loyalty over competence. In 2006, D.C. Democrats told voters that they wanted to upturn the GOP Congress’ “culture of corruption.” That lasted maybe two years. Maybe. Now it’s business as usual. The Senate confirmed Geithner by a 60-34 vote. Ten Republicans supported him, while a mere three Democrats did not. “How can Mr. Geithner speak with any credibility or authority?” one of the three — Iowa’s Sen. Tom Harkin — rightly asked.

Daschle is expected to slide through the Senate confirmation as well. Obama said Monday that he “absolutely” supports Daschle. Democratic senators will support him, and some Republican senators will, too. They are, after all, members of the same club.

The careful vetting of would-be officials in Obamadom that you read about in November? Well, for the right people, it turns out to have had a rubber stamp at its bottom.

Found on Creators.com

Counterfeiting versus Monetary Policy

Congress is on a spending binge. With all the calls for bailouts, economic stimulus and other assorted handouts, there is a real risk of inflation in our future. If we do have a rapid inflation, it’s likely that Congress, as they did in the financial meltdown, will blame it on everybody except themselves. Before Congress begins to shirk their responsibility, let’s understand what an inflation is and is not.

Several prices rising are not inflation. Only when prices across the board rise is there inflation. But just as in the case of diseases, describing a symptom does not necessarily tell us the cause. That is the same with inflation; it is a symptom of something else. Nobel Laureate and noted monetary theorist Milton Friedman explained, “(I)nflation is always and everywhere a monetary phenomenon, in the sense that it cannot occur without a more rapid increase in the quantity of money than in output.” Put another way, inflation results from an increase in the supply of money relative to the demand for money.

That being the case, who is responsible for inflation? It’s not you or I because if we privately increased the supply of money to finance profligate spending, we would be charged with counterfeiting and go to prison. The Federal Reserve Bank, our central bank, is the only entity legally permitted to increase the supply of money, to finance Congress’ profligate spending. Continue reading . . .

The Scandal Is What’s Legal

“[Illinois Gov. Rod] Blagojevich allegedly assumed someone would be willing to pay dearly to be a U.S. senator. I’m sure he was right. But if government were less important in our lives, politicians would have fewer goodies to trade. In return, we’d have more money and more freedom. That’s one more reason to limit government power.” –ABC News’ “20/20″ Read the whole article by anchor John Stossel

Myths Of The Assembly Line

“The automakers’ contention that they pay workers $73 an hour takes into account the cost of pensions and health insurance for retirees. Still, no one disputes that Detroit’s unionized active workers cost a good $10 an hour more than the nonunionized work forces that build Toyotas, Hondas and BMW’s in the largely nonunionized South.” –columnist William Murchison

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A famous news photo from the late ’30s shows toughs employed by the Ford Motor Co. beating up Richard Frankensteen, a United AutoWorkers official, during the so-called Battle of the Overpass at Ford’s Rouge River plant in Dearborn. 

UAW chief Walter Reuther, walking with Frankensteen, got the same treatment. “Seven times they raised me off the concrete and slammed me down on it,” he later wrote. “… I was punched and kicked and dragged by my feet to the stairways, thrown the first flight of steps … and kicked down the second flight.”

The UAW, whose sit-down strikes had already overwhelmed General Motors’ and Chrysler’s resistance to unionization, wanted Henry Ford on the dotted line. Three years later they got him. The plight of the car companies wasn’t born at the precise moment Walter Reuther fell down the steps, but you could see the mythology shaping up.  Continue reading . . .