Choosing the Form of the Destructor

Barack Obama’s press corps groupies are all atwitter these days as they follow him breathlessly on his around-the-world journey to discover where Iraq is. On the Republican side, talk show hosts like Sean Hannity are working desperately to convince the voters (and themselves) that McCain really is a conservative deep down, where it matters, most of the time, pretty much, anyway. Although they back different horses, both camps agree that this is the most consequential presidential election of our time – or at least the most consequential election since the last one.

As I watch the current media frenzy, I can’t help but be reminded of the movie Ghostbusters. In the final battle, Gozer tells the team to “choose the form of the Destructor.” That is, to determine the form the Sumerian god Zuul will take as he destroys the planet. Terrified, Dan Aykroyd’s character visualizes the most harmless thing he can imagine, the Stay-Puft Marshmallow Man. Sure enough, Zuul appears on the streets of New York as a giant marshmallow, crushing cars and toppling buildings like a fluffy white Godzilla.

That seems to be the extent of our “choice” these days when it comes to Republicans and Democrats. Do we want the Destructor to take the form of Barack Obama or John McCain? Even if the voter believes McCain is a giant Slor and Obama is the soft and cuddly Stay-Puft Marshmallow Man (or vice-versa), the result will be the same – a further erosion of individual liberty and free enterprise in the United States.

Perhaps you think Obama is the better choice because he will get us out of Iraq sooner. That may be true, although what was previously touted as an immediate withdrawal under an Obama presidency morphed to “within sixteen months.” Then it became “as soon as possible.” At this rate, Obama may be the one saying we’ll be in Iraq for another fifty or one hundred years.

But aside from Obama’s ever-slipping timetable for withdrawal, what substantive foreign policy differences does he have with McCain? He has said that he would be more diplomatic and would work with our allies, of course. That will no doubt do wonders for our allies’ self-esteem, like that first Thanksgiving when you were promoted from the kiddie table to sit with the grownups, but it’s not exactly a top-to-bottom critical analysis of US foreign policy. And given the Democrats’ willingness to subjugate the American military to UN command, who’s to say that he wouldn’t march the troops out of Baghdad and straight into Darfur?

Or maybe you think that the fate of the Republic can only be assured with a McCain presidency because he’ll nominate strict constructionists to the Supreme Court. Anything’s possible, I suppose, but consider this – McCain’s great legislative “achievement” is the blatantly unconstitutional attack on free speech known as McCain-Feingold. Why would McCain nominate justices inclined to strike down his pride and joy?

As far as economic policy is concerned, there’s not a dime’s worth of difference between the two. And if they actually follow through on their threats to micro-manage the economy, there won’t be a dime’s worth left in a dime either. Both candidates agree that when the national budget is over $3 trillion per year, the national debt is roughly $10 trillion and climbing, and unfunded liabilities range between $50-$100 trillion, the obvious course of action is to promise more benefits and grow the government even further.

Such is the choice before us – McCain or Obama? Choose the form of the Destructor – Giant Slor or Stay-Puft Marshmallow Man? And don’t bother looking at any third-party candidates that might try to reduce rather than enlarge the scope of government. You wouldn't want to “waste your vote,” would you?

It Usually Begins With Snidely Whiplash

(Special thanks to Against the Grain’s Gardner Goldsmith for discussing this story on his show).  

Two years ago, Paula Taylor of Roxbury, Massachusetts, secured a subprime loan from Countrywide.  Nine months ago, she stopped paying her mortgage and is now being asked to vacate the property.  This, of course, is a great injustice, and Ms. Taylor is fighting her eviction.  And she’s not alone in her fight.  She has plenty of supporters who feel that Ms. Taylor has a right to remain in her house, since she is clearly the victim of those predatory lenders we’ve heard so much about. 

And just to be fair, I suppose it is possible that two years ago Countrywide’s crack team of ninja accountants burst into Ms. Taylor’s apartment in the dead of night, strapped her to a chair and, ignoring her pleas for mercy, forced her to accept a check for $259,000.  That would be dastardly, indeed, but the Boston Globe article makes no mention of such a heinous crime, so I will presume instead that she approached Countrywide of her own volition, asked them for a loan, and agreed to pay them back according to the terms offered.  That Bank of America, which now owns Countrywide, wants Ms. Taylor to live up to her side of the agreement and vacate the house they paid for is unconscionable, according to Steve Meacham of City Life/Vida Urbana.  Mr. Meacham goes even further, stating, 

 “Today we are witnessing a courageous woman taking a stand based on principle.” 

The article doesn’t elaborate upon which principle this courageous woman is standing, but it seems to involve the virtue of walking away from one’s agreement while keeping the house someone else paid for.  This may seem like an odd notion to those readers brought up to believe that stealing is wrong, but apparently it is enough to inspire Ms. Taylor’s supporters to sing “We Shall Not Be Moved” as they cheer Mr. Meacham’s calls to “put people before profits.”  

Mr. Meacham is quoted in the article as saying, "The eviction [protest] brings a lot of publicity and attention to the inherent contradiction of this situation.  It raises the issue of who's getting bailed out and who's getting stiffed."  He continues, saying that “while taxpayers are being asked to rescue Fannie Mae and Freddie Mac, evicted homeowners have little recourse.”  

Of course the taxpayers are not really being “asked” to rescue Fannie Mae and Freddie Mac, they are being forced to pay for a bailout package whether they agree with it or not.  And as Ms. Taylor says, “I don’t understand how the government can bail out the banks – the big people – and not come and service those who are in the community who were shafted by the bigger people.” 

So now we start to close in on the crux of the issue.  The “victim” of this little melodrama and her City Life supporters don’t object to bailouts per se – they just want the taxpayers’ money funneled to them, rather than to the banks.  

And this encapsulates what passes for public debate on this issue.  The two options under consideration by the chattering classes are:

• Option A:  take money from the taxpayer and funnel it to corporations that are deemed “too big to fail” by politicians, or
• Option B:  take money from the taxpayer and funnel it to the poor schlubs who entered into mortgages they couldn’t afford so that they don’t lose “their” houses. 

There is, however, a secret “Option C” that is studiously avoided by media pundits and politicians, and here it is:  Don’t take money from the taxpayer for either borrowers or lenders.  

Perhaps Option C is too complicated to explain within the time constraints of the typical news program, but by allowing businesses to succeed or fail according to market conditions and the decisions they make, and by letting individuals assume responsibility for their own actions, the rest of society would be free to go about its daily business.  Under secret Option C, if Countrywide fails, only Countrywide and its investors take the hit.  Similarly, when individual borrowers get in over their heads, the consequences of their bad decisions are borne only by those particular individuals.  

Note also that, under secret Option C, no one is prevented from helping those companies or individuals in need.  If you think that a mortgage lender is too important to fail, you would be well within your rights to cut them a check.  If your neighbor is in danger of losing his home, you’re free to pass the plate and raise funds voluntarily to ensure that he is able to stay in his house.  

The downside of secret Option C for statists, of course, is that they don’t get to take other people’s money by force.  Perhaps many of those who object to this alternative owe much of their understanding of free market economics to the old vaudeville routine “You Must Pay the Rent!” (made famous by Snidely Whiplash of The Dudley Do-Right Show).  These days, however, the play comes with a sad new twist: 

Bank of America:  “You must pay the rent!”

Paula Taylor:  “I can’t pay the rent!”

Bank of America:  “You must pay the rent!”

Paula Taylor:  “But I can’t pay the rent!”

Steve Meacham:  “Never fear, I’ll get the taxpayer to pay the rent!”

Paula Taylor/Boston Globe:  “My hero!”

Individual Liberty in America:  “Curses! Foiled again!”

 

 

I’m From the Government and I’m Here to Help the Housing Market

CNN reports that the Senate is now ready to “finally pass a comprehensive housing and foreclosure prevention bill.” Well, thank God Congress is finally getting involved in the mortgage industry! The laissez-faire attitude that has characterized the legislative branch’s reluctance to involve itself in economic issues for decades has allowed all those predatory lenders to get away with murder! It’s high time our elected representatives put a stop to it!

If you believe that, you’re reading the wrong blog. Let’s take a closer look at the bill the media hails as a long-overdue “fix” to the country’s mortgage woes. Again from CNN:

"The omnibus housing package attempts to address the housing crisis in several ways. Among them is providing more relief for some borrowers facing foreclosure; increasing access to mortgages in higher-cost areas; modernizing the loan guidelines for the Federal Housing Administration (FHA); and more stringently regulating Fannie and Freddie, the government-sponsored enterprises that have taken a beating this week amidst concern over how well funded they are."

Let’s review each of the main points of the plan, but with a bit more critical reasoning than those at CNN exhibit.

FHA role expansion. Under the Senate bill, the FHA could insure up to $300 billion in new 30-year fixed rate mortgages for at-risk borrowers if their lenders agree to write down their loan balances to 90% of the current appraised value of their homes.

• So now the taxpayer will be forced to subsidize and thereby encourage even more lending to the same people who shouldn’t have gotten mortgages in the first place.

Create a new regulator for Fannie and Freddie. The GSEs [government sponsored enterprises], which grease the wheels of the housing market by guaranteeing the purchase and trade of mortgages, will get a new regulator under the bill. That regulator, among other things, will have a greater say over how well funded the agencies are - a major concern in the markets that has sent stocks in both companies plunging.

• Fannie and Freddie have been regulated by Congress since they were first created by Congress. They now hold or back $5 trillion in mortgage debt, and are on the verge of financial collapse. The problem has never been lack of oversight. The problem has been the economically irrational decision to involve the federal government in what should be a purely private, free-market activity.

Raise conforming loan limits. The bill would permanently increase the cap on the size of mortgages guaranteed by Fannie and Freddie to $625,000 from $417,000. The FHA maximum loan limits for high-cost areas would also increase to $625,000. The House bill raises the limit at all three agencies to nearly $730,000.

• Just in case you were under the impression that these agencies exist to help first-time homeowners, keep in mind that even in Orange County, California, the median home price is “only” $537K. By raising the loan limits for the FHA, Fannie Mae, and Freddie Mac, these Government Sponsored Enterprises are not helping underprivileged first-time homebuyers – they’re helping people far wealthier than most get a better interest rate on that vacation home on the 16th green.

Help states buy foreclosed properties. Despite a White House veto threat, the Senate bill still contains a provision that would provide states with $4 billion to buy and fix up foreclosed properties.

• So now state governments will be in the business of flipping houses. The taxpayers will be forced to part with $4B of their own money so that local governments can use it to crowd out private real estate investors. The state-run “flips” will by definition not reflect actual consumer preferences, since the states don’t have to invest their own scarce resources according to market signals. They will be able to play real estate investor for free, using our money.

Most people realize that when you find yourself in a hole, the first thing to do is to stop digging. Congress, on the other hand, believes that once they’re in a hole they just need a bigger shovel. The current omnibus housing and foreclosure bill will only exacerbate the problems in the mortgage market. This is completely predictable. Sadly though, even with all the problems this new bill will cause, plus all of the previous government manipulation of the housing market, politicians and the media continue to overlook government's role in creating this mess. Senator Chis Dodd even has the nerve to claim "market failure."

"A lot of us hoped the market would take care of all of this and there would be light at the end of the tunnel, [but now] the only light at the end of the tunnel is a train coming."

He may be right about that - but the train barreling down upon us is run by Congress.

War Powers Act - The Sequel

A “blue-ribbon panel” led by former Secretaries of State James Baker and Warren Christopher has recommended that the War Powers Act be replaced by a more “effective” resolution. According to these Constitutional experts, the problem with the existing War Powers Act is that it has been largely ignored over the years. The way to correct this defect, apparently, is to write a new version that will be un-ignorable. Somehow. Maybe. (The details are still a bit fuzzy).

As CNN reports, ever since Congress first attempted to wash its hands of its responsibility to declare war back in 1973, presidents have flouted the War Powers Act’s requirement to make regular reports to Congress. As Sen. Slade Gorton remarked, “No president has ever made a submission to Congress pursuant to the War Powers Resolution since 1973.” [Emphasis mine]. Why the refusal to inform Congress of the progress of undeclared wars and sundry military engagements? Because presidents have considered the Act to be an unconstitutional restriction on the president’s role as commander-in-chief.

Well, they’re half right anyway. The Act is unconstitutional, but not for the reason various presidents have claimed. The resolution is unconstitutional because it delegates the war-making power vested in Congress by the Constitution to the Executive branch, a clear violation of the separation of powers. As James Madison wrote,

“The Constitution expressly and exclusively vests in the Legislature the power of declaring a state of war [and] the power of raising armies. A delegation of such powers [to the president] would have struck, not only at the fabric of our Constitution, but at the foundation of all well organized and well checked governments. The separation of the power of declaring war from that of conducting it, is wisely contrived to exclude the danger of its being declared for the sake of its being conducted.”

The Founders had reason not to trust the executive branch with the power to declare war. As James Madison wrote in a letter to Thomas Jefferson,

"The constitution supposes, what the History of all Governments demonstrates, that the Executive is the branch of power most interested in war, and most prone to it. It has accordingly with studied care vested the question of war in the Legislature."

History would seem to confirm Mr. Madison’s dim view of the executive branch in this regard. The last time Congress actually declared war was in 1942. Ever since then, the president has been allowed to commit American troops whenever and wherever he wished. Here is a list of military operations of varying degrees that have been carried out without a declaration of war from Congress (my apologies to any conflicts that may have been excluded from the list):

• Korean War
• Lebanon Crisis of 1958
• Vietnam
• Lebanon (1983)
• Grenada
• Panama
• Somalia
• Haiti
• Kosovo
• Persian Gulf War
• Afghanistan
• Iraq War

But the president is Commander in Chief! He should be able to do whatever he wants with the military! Well, not exactly. When we read the fine print of the Constitution (cleverly hidden in Article II, Section 2), we see that “The President shall be commander in chief of the Army and Navy of the United States, and of the militia of the several states, when called into the actual service of the United States….” Given that the Founders viewed a standing army as a grave threat to liberty, they limited the formation of an army to two years (a constraint that has yet to be eliminated by Constitutional amendment, by the way). If the armed forces were called into the actual service of the United States, it meant that Congress had declared war. It is only at this point that the president becomes commander in chief – it was never meant to be a full-time part of his job description.

But again, we’re talking to a brick wall when we speak of constitutional governance these days. No one cares, as evidenced by the fact that Rep. Ron Paul offered a declaration of war prior to the invasion of Iraq that garnered only three votes. Chairman Henry Hyde opposed the motion, stating,

"There are things in the Constitution that have been overtaken by events, by time. Declaration of war is one of them. There are things no longer relevant to a modern society. Why declare war if you don't have to? We are saying to the President, use your judgment. So, to demand that we declare war is to strengthen something to death. You have got a hammerlock on this situation, and it is not called for. Inappropriate, anachronistic, it isn't done anymore."

(A few years later, Representative Hyde was awarded the Presidential Medal of Freedom).

But despite what most in government obviously believe, there are also some practical benefits that derive from following the Constitution. Had Congress taken up Rep. Paul’s motion and actually declared war prior to the Iraq invasion, the Bush administration would have been spared the trouble of inventing new categories of jurisprudence out of whole cloth. There would have been no need to create an “enemy combatant” category and we could have avoided all the wailing and gnashing of teeth over habeas corpus rights for suspected terrorists. Prisoners captured on the battlefield would have simply been considered prisoners of war. Granted, their interrogators wouldn’t have been able to waterboard them, but I suppose one can’t have everything. Who knows? We might even have avoided the Military Commissions Act, which enables the executive branch to declare anyone an enemy combatant, no matter where they are or what their nationality might be (that means American citizens living in the United States could be accused of being an unlawful enemy combatant, picked up off the street, and imprisoned in a military brig for an indefinite period of time with no recourse to the U.S. legal system).

Of course, the primary reason to follow Constitutional strictures with regard to the war-making power is to make war itself much less common, thereby preserving the liberties of American citizens here at home. Let’s turn to James Madison one last time,

“Of all the enemies to public liberty war is, perhaps, the most to be dreaded, because it comprises and develops the germ of every other. War is the parent of armies; from these proceed debts and taxes; and armies, and debts, and taxes are the known instruments for bringing the many under the domination of the few.”