The Financial Crisis–Part I

There are those who advocate there weren’t enough regulations (read Barney Frank) to prevent the financial meltdown in 2008.   My contention is that the crisis began with numerous government regulations that encouraged home ownership for people who couldn’t afford homes. The regulators decided encouraging wasn’t a strong enough approach and began demanding that lenders make loans to people who couldn’t afford to repay them.  Greedy speculators noticed opportunities for profits by creating packages of  “subprime” (read “risky”) loans and selling them to other speculators.  The real estate bubble grew because of the artificial increase in demand. The collapse probably began when the first home couldn’t sell for the original purchase price.

The march to the crisis began when the Community Reinvestment Act (CRA) was signed by President Carter in 1977.  That Act was the beginning of numerous actions by the government to encourage, or force, home loan agencies to make loans to borrowers in low income neighborhoods.  The intent was to open up the American Dream of home ownership to people who couldn’t previously convince their bankers they could repay the loans.  The Act was reinforced during the Clinton era by imposing penalties on loan agencies that didn’t meet requirements for loans in inner cities.  The CATO Institute warned in 1993 that the changes would be costly to the economy, and the warning was studiously ignored.

The push to make home ownership available to everyone continued into 2000.  The Government Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac were directed to devote a significant percentage of their lending to support “affordable housing.” Fannie Mae announced in 2001 it had a goal to finance $500 billion in CRA loans by 2010.  The Federal Reserve joined the party by lowering interest rates, which encouraged new borrowers to initiate loans and others to refinance their loans and use the proceeds to buy new luxury items.

There have been charges that racism is involved in deciding who is given home loans.  A Princeton study confirms the validity of that charge.  African-Americans were more likely to be offered subprime loans compared to whites who had similar financial backgrounds.

Global Warming Reporting

This will be the third posting about the issue of global warming. The first point I will make is that the advocates for the idea that man’s activities are causing damage to the climate are moving to change “global warming” to “climate change.” They were wrong in the 1970s when they warned that a new ice age was a certainty, and they might be wrong that the temperatures are rising.  One of them was quoted as saying the fact that temperatures haven’t continued to rise the last few years with increasing levels of carbon dioxide as predicted by the computer models was “a travesty.”  (How dare nature to not comply with the computer models!) However, if they can complete the transition of the mantra to be “climate change,” they are assured of being right. The climate has always changed, and it would be quite safe to predict it will continue to change.

A majority of American people have been convinced that a climactic disaster is looming based on what they have heard about the certainty of coast lines being flooded, increasingly ferocious hurricane seasons, and famines.  I will admit that the level of the oceans has increased.  There was once a land bridge between Russia and the United States. In fact sea levels have increased by about 7 inches in the past 100 years. Of course that isn’t sufficiently dramatic to make a point in a movie, so you should show a depiction of most of Florida and other coastal areas being swallowed by water. The predictions of horrific hurricane seasons have not materialized, and some years have been exceptionally mild. That apparently wasn’t as news worthy as the warnings. And we should stop converting corn into ethanol if we are actually worried about food shortages.

Would you predict that there has been a continuation of the shrinkage of the Arctic sea ice based on recent reports?  Check out the National Snow and Ice Data Center and look at the charts.  The amount of ice coverage is well below the 1979 to 2000 average, but the line is bouncing along near the 2006-2007 level.  I previously printed their charts for 2005 to 2009.  Ice coverage decreased from 2005 to 2007, but there was a significant increase from 2007 to 2008 and 2009. Reading through the explanations of their data you will find that “this month had the sixth-largest snow cover extent since the record started in 1966.”  There is another statement that “Reduced sea ice extent and extensive snow cover are not contradictory…”  I admit I didn’t understand their explanation.

I want to close this by referring to an entertaining lecture given by Michael Crichton titled “Aliens Cause Global Warming.” I recommend reading the entire lecture, but I will mention a couple of points.  He dismisses the idea that there is “consensus.”  His discussion of that is brilliant. Later in the paper he discusses the United Nations International Panel on Climate Change (IPCC).  The draft of their 1995 report concluded, “No study to date has positively attributed all or part of observed climate changes to anthropogenic causes.”  That statement was removed and replaced in the final report with “The balance of evidence suggests a discernible human influence on climate.” Reread both statements and contemplate them.  The first draft said their studies hadn’t connected man’s activities to global warming.  The final report “suggests” a “discernible human influence…”

I want to emphasize that I am strongly in favor of showing good stewardship to the planet.  I favor conservation of resources and research into how to make us more energy efficient and less dependent on countries that don’t like us very much for most of the oil we burn.  I’ll stop doing blogs criticizing how the story is being reported when I believe the reporting is being done honestly.

Where are New Jobs Created from “Green” Energy Investments?

I recall speeches by politicians describing how investments in “green” energy technology would create jobs. I was mistaken when I thought the jobs would be created in the United States. A company named Evergreen Solar had received $43million from Massachusetts to begin its business, and had grown to become the third-largest maker of solar panels in the United States. The New York Times reports the company is now, “…closing its main American factory, laying off the 800 workers by the end of March and shifting production to a joint venture with a Chinese company in central China.” Solar power experts “say that after many years of relying on…the Middle East for oil, the United States now looks likely to rely on China to tap energy from the sun.”

If that story doesn’t outrage you, try this one. The Associated Press  reported, “General Motors is investing $540 million to build fuel efficient engines at its plant in central Mexico. Labor Secretary Javier Lozano says the plant in the city of Toluca …will provide 500 new jobs.” The United States bailed out GM with many billions of dollars, and I thought that was done to save jobs in this country.

What tax rates are fair, and who decides?

News reports are filled with politicians debating whether cuts in tax rates passed in the Bush era should be extended, or whether rates for people making the most money should have their rates increased.  Would you be surprised to hear that the share of the tax burden paid by the highest income earners increased after the Bush tax cuts were fully in effect, according to the data in the Tax Foundation report?  The top 0.1% of earners paid 15.68% of all taxes in 2003 and 18.47% of the total in 2008. The top 1% of earners paid 34.27 % of total taxes in 2003 and 38.02% in 2008.   On the other end of the spectrum, the bottom 50% of earners paid 3.46% of the total tax burden in 2003, and that percentage has dropped every year since to 2.70% in 2008.

What tax rate is fair? The Freeman Online has a quote that, “Under Roosevelt, the top rate was…raised—first to 79 percent and later to 90 percent. In 1941, in fact, Roosevelt proposed a 99.5 percent marginal rate on all incomes over $100,000. ‘Why not?’ he said when an adviser questioned him.”   I would hope most people wouldn’t think that to be either good policy or fair.  I believe we have a powerful economy and country in large part because there are incentives to succeed through energetic efforts and willingness to take risks.  Those who have their risks rewarded gain wealth for themselves and employ others.  Some politicians encourage us to resent those who have succeeded financially, and promise they will take more from the wealthy and dole out services to those deemed worthy by massive, inefficient bureaucracies.  Margaret Thatcher said, “The problem with Socialism is that you eventually run out of other people’s money” (The quote is included in Mike Rosen’s column on page 11B of the Denver Post, December 10, 2010.)

Money is no object, world of credit?

A portion of the RockyFlatsFacts.com website is dedicated to “Expressions” because I’m interested in the derivation of how we communicate. I believe the two expressions mentioned in this title can be used to develop a commentary about how our nation is being run today. We want our representatives to give us everything now, and we don’t want to worry about the impact for the future. What is the meaning of “money is no object?” The word “object” in this case is usually taken to mean money is no cause for attention or concern. What I’m inferring is that the expression instead means that we are behaving as if money is not real. We can print it at will to buy everything the government thinks we want right now. The other expression “a world of credit” is usually intended to mean that someone has performed admirably, and deserves credit from everyone. My interpretation is that expression has changed to mean that we are, in addition to printing money freely, borrowing from everyone in the world to fund our excesses.