Lagniappe

Default for Me, But Not for Thee

Fannie Mae, the wholly-owned subsidiary of the Federal Housing Finance Agency, recently announced it will take steps to penalize “strategic defaults.” A strategic default is when a homeowner who is underwater on his house simply walks away from the mortgage even though he can still afford to pay it back. From now on, borrowers who default in this way will be blacklisted from obtaining another Fannie Mae loan for a period of seven years, and in the states that allow it, Fannie Mae will sue the borrower for the balance of the loan.

I don’t mean to defend the practice of strategic default. It may be an economically rational thing to do under certain circumstances, but I believe in paying my debts and honoring agreements made in good faith. If you make a bad decision, you incur the loss and hopefully learn from the error. That being said, I find it particularly galling that Fannie Mae of all companies has the chutzpah to penalize this practice. After all, isn’t that basically what they themselves did by turning to the government for multi-billion dollar taxpayer-funded bailouts?

Fannie Mae made bad business decisions by buying up any and all mortgages that came their way. Once it became obvious that the loans were not worth the prices they paid, what did Fannie Mae do? Did they take their losses and tighten up their loan purchase rules? No. They turned to the government to forcibly transfer wealth from taxpayers to Fannie Mae’s coffers precisely so they wouldn’t have to take the losses or learn from their mistakes. Now they want to penalize borrowers for doing the exact same thing.

World Cup

As one of the relatively few Americans who actually follow soccer, I’ve been watching the World Cup closely. The US-Algeria match was easily the most exciting game I’ve ever seen. The US were two minutes away from being robbed of a well-deserved advancement into the second round, and with one stroke they wound up winning their group for the first time in eighty years. Hopefully their recent performance will spark more interest in the sport here.

But as this is primarily a political blog I did want to note that, as the ESPN commentators remind us, the World Cup is being broadcast on the American Forces Radio and Television Service to US soldiers stationed in 175 countries around the world.

That’s one hundred seventy-five. Foreign countries. 175.

North Korea is one of the few countries in the world that does not (yet) host any US armed forces personnel, and the Norks have delivered some fascinating headlines of their own in the early part of the World Cup tournament. Few North Korean fans were able to make the journey from Pyongyang to Johannesburg to cheer their team. (June and July is the busy season for slave labor camps, after all, and it’s hard to get time off work). So to make a decent showing in the stands, the dictatorship hired hundreds of Chinese people to dress up in the North Korean colors, wave flags, and pretend to be fans.

Who knew outsourcing to China had gone so far?

And for a while there it looked like they might also have to hire some Chinese players to replace the four North Korean players who briefly went missing (but who absolutely, positively, under no circumstances tried to defect).

And to top it all off, it was reported that the Dear Leader himself, Kim Jong-Il, used an invisible cell phone he invented to give the coach tactical advice during the first-round matches. Sadly, though, Kim’s soccer skills – as prodigious as they are – were not quite on par with his magic telephone design skills. The North Koreans fought hard against Brazil, losing by only one goal, but were later eliminated after a 7-nil beat-down delivered by Portugal.

Part of the problem for the North Korean team was that they drew the “Group of Death.” But an additional factor could be that the traditional North Korean starvation diet of grass and tree bark soup is not exactly conducive to World Cup play. Perhaps next time Kim Jong-Il will use his invisible cell phone to order some take-out for his team instead.

More or Less?

My apologies for the dearth of posts lately. I’m not sure what’s behind this most recent bout of writer’s block, but it’s been pretty fierce. I have been posting shorter items on Facebook and Twitter, however, so please check them out if you haven’t already.

Something did come up this weekend that I thought was worth exploring a bit. We’re planning to take a family trip to Bolivia for Christmas this year, so we’ve started working through our to-do list. Even though we’ve got a full six months before the trip, most of the items on that list involve dealing with various government agencies. And knowing how slowly those agencies operate, it seems that time is quickly slipping away.

High on the list of priorities is to renew my daughter’s passport. As I’m sure everyone is aware, all subjects are required to have a valid passport whenever they travel beyond the borders of the United States, regardless of their age. My daughter, for example, is six years old, and it’s vitally important that she have the proper documentation. That way our government can distinguish her from all the other six-year olds who, for all anyone knows, might be Al Qaeda terrorists.

The first step in the passport renewal process was to fill out the paperwork. The renewal form itself is two pages long, and must be accompanied by the original expired passport, an original birth certificate, photocopies of both sides of both parents’ driver’s licenses, and payment for the application fees. Check.

The second task was to find out where to file all this paperwork. This turned out to be a bit more difficult than I first thought. Even though my daughter has been issued a passport before, there is no renewal process available either online or by mail for a minor. Both parents must appear in person before the duly authorized potentate, with child in tow. Since my wife and I both work, we needed to find a passport agency that was open evenings or weekends. That ruled out the Dallas Regional Passport Agency, which is only open from 8am to 3pm, Monday through Friday. It also ruled out the thirteen closest US Post Office locations, most of which don’t accept passport applications. The few that do only process applications from 9am to 4pm, Monday through Friday.

Not to worry, though. The USPS website informed us that the post office in Bedford accepts passport applications on Saturday, from 10am to 12pm. Best of all, no appointment is required. So we loaded up the family truckster Saturday morning and headed out to Bedford, which is about a thirty-minute trip from our house. Arriving promptly at 10am, we walked in to discover the counter was still shuttered. A few other customers came in behind us to conduct some postal business of their own. For some reason, none of us were particularly surprised that the US Post Office was not open right on schedule. No problem, though. We could hear people behind the wall placing mail in the PO boxes, so we knew that in no time at all someone would raise the gate and we could all get started.

Or so we thought. A few more minutes passed, and no one appeared to open up or to offer any explanations. Since we could hear the post office personnel behind the wall, we could only assume that they could hear us as well (or see us on the CCTV monitor). And as loud as my kids were that morning, there should have been no mistaking the fact that the post office had customers waiting. Still, nothing happened.

Exasperated, my wife found an after-hours bell to ring (even though according to the post office’s schedule, we weren’t there after hours). An employee opened the window and told us that, despite what was posted online and the hours of operation listed on the building’s front door, that particular post office is actually closed on Saturdays. Besides, if we wanted a passport application processed, we’d have to go to the main site in Irving. They don’t do that at the Bedford location.

I was not happy.

Because of this, I have to take a couple hours off work tomorrow in order to pick up my daughter from daycare, bring her to the Irving post office, meet my wife (who also has to take off from work), submit the documentation, return my daughter to daycare, and then get back to the office. All so we can obtain a document that we shouldn’t even need in the first place - and pay for the privilege to boot.

Naturally, I couldn’t help but think the free market would manage this whole thing a bit better than the US Post Office does. It’s hard to imagine that a private firm, whose revenue actually depended on pleasing its customers, would create such a byzantine and inconvenient process for something as simple as the renewal of a form. I have to believe that a private company would offer more convenient hours, online renewals, or any number of other ways to streamline the process. And I’m absolutely certain that a private company would at least open its doors on time to serve paying customers.

This is not to say that all free market options would be perfect. But life is not a game of perfect, and we can only compare two options on the basis of their merits relative to one another - not to some idealized Nirvana state. I’ve certainly had unpleasant customer experiences with private firms from time to time, but those have been the exception, rather than the rule. My recent frustration with the post office, however, is no isolated event. It is part and parcel of any “service” provided by government, and is not something that can be remedied simply by “electing better people” or “conducting a blue-ribbon panel review.” The inefficiency and ham-fisted nature of the government relative to the free market is simply a function of the knowledge problem and the public choice problem, which are completely unavoidable in any organization that derives its livelihood from coercion rather than from voluntary exchange.

Given all this, it should be abundantly clear that the market offers better choices and delivers better results than any government agency. So why would anyone want government to do more than it does now? Do they really believe, despite all of their own direct experience to the contrary, that somehow the next new bureaucratic nightmare will magically be better? Do they really want their next visit to the doctor to resemble their last visit to the post office? I certainly don’t.

I’ve accepted the fact that most of the deep theoretical and ethical issues we libertarians raise often fall on deaf ears. So let’s put the high-powered math aside for a moment and boil it all down to something that should be understandable to all. The next time someone suggests that the government simply isn’t doing enough in this or that area, ask him to compare his worst experience at Target to his best experience at the Department of Motor Vehicles.

Which experience does he want more of in his life and which does he want less?

The Bigger Bully

In a recent CNN editorial, Democratic Party hack Donna Brazile argues that “to rule Big Oil, we need Big Government.” That she believes the largest government ever known to man is still far too small is not necessarily surprising. What’s surprising are the specious arguments she uses to support her position. For example, she opens her piece with the following anecdote:

In 1947, when AT&T was America's only phone company, a woman called the
company's chief operator to protest a long-distance charge on her bill. She
proved her house had been shuttered when the call was made, but the operator
refused to reverse the charge.

"This isn't the end of this, you know," she said.

The operator replied, "And where will you go?"

It’s an awfully good question, but Ms. Brazile must not have grasped all of its implications. If she had, she would never have included it in her editorial. Her point is that AT&T was a monopoly, and as we all know monopolies are bad for the individual consumer. So far, so good. But how exactly did AT&T become a monopoly in the first place? Did they so thoroughly out-compete all the other telecommunications providers that every single long-distance customer in the country voluntarily chose to subscribe to AT&T’s service? Not according to

AT&T’s own website. Instead, the company states that,

For much of its history, AT&T and its Bell System functioned as a legally
sanctioned, regulated monopoly. The fundamental principle, formulated by
AT&T president Theodore Vail in 1907, was that the telephone by the nature
of its technology would operate most efficiently as a monopoly providing
universal service. Vail wrote in that year's AT&T Annual Report that
government regulation, "provided it is independent, intelligent, considerate,
thorough and just," was an appropriate and acceptable substitute for the
competitive marketplace. The United States government accepted this principle, initially in a 1913 agreement known as the Kingsbury Commitment.

So AT&T became the monopoly Ms. Brazile despises because the big government she adores made it so, leaving the little guy nowhere to turn when it failed to provide the kind of service he needed. And now she wants this same big government to become even bigger so that it can “rule Big Oil.” Ruling Big Oil is obviously necessary because of the environmental disaster in the Gulf of Mexico. For Donna Brazile and her gang, the BP spill is just one more crisis that shouldn’t go to waste. Evidently the $3.7 trillion-dollar and climbing federal government doesn’t yet have all the resources it needs to control the $134.5 billion-dollar and falling British Petroleum.

Ms. Brazile says, “The far right likes to invoke Big Government like a bogeyman, a ghost to frighten the uninformed…What the right fails to acknowledge is that big business, by its nature, is a bully. And you don’t stop a bully by turning yourself into a 90 pound weakling. In fact, you may have to gain weight. Regardless, you have to exercise, changing pork to muscle. It’s going to take lots of muscle to truly hold BP responsible for the massive impact of its failure.”

It sounds like Donna Brazile is the one who’s uninformed here, and her “bigger bully” theory of social organization gets it exactly backward. Big business, by its nature, is just a group of people trying to sell you something. As long as free market forces are allowed to operate, you’re always at liberty to say no and to take your business elsewhere, or even to go into business for yourself should you discover an underserved market segment. When businesses make mistakes (and they will), they can be held accountable – not only legally through fines and imprisonment, but also by the market through lost sales and declining share prices.

Government, on the other hand, has no such checks on its behavior. It is above the law, and its revenue does not depend on pleasing its customers. Instead, it simply takes what it wants. Government is the ultimate monopoly – the one with all the prisons and guns. It is only when big business joins forces with the government’s monopoly on the use of force – as AT&T did back in 1913 - that the consumer really suffers.

Can British Petroleum throw you in jail or kill you with impunity if you choose not to buy its oil? No. Can the government throw you in jail or kill you with impunity if you choose not to pay for its “services?” Absolutely. So despite her claim to the contrary, the real natural bully is Donna Brazile’s own beloved government. And if you don’t like it, Ms. Brazile, where will you go?

Brazile is quite correct that the BP spill is an unmitigated catastrophe. And we seem to agree that BP should be held responsible for the cleanup and any property damage that results from the spill – up to and including selling the entire company for scrap metal if need be to cover the cost. After all, that’s what would have happened in a free market - that hypothetical scenario in which the government actually does what it supposedly exists to do, namely protect life, liberty, and property. But the government already has all the power it needs to do this one simple thing. No additional pork-fueled muscle is needed.

And in the case of the BP spill, our not-yet-big-enough-for-Donna-Brazile government chose not to carry out its stated mission. It chose instead to violate normal free-market interactions and to abandon its purported role as protector of property rights by capping BP’s liability at $75 million. While it is certainly true that the spill might have occurred even if there had been no liability cap, it is equally true that BP might have been a bit more cautious had they known up front that they would be held fully liable for any and all damages caused by such an accident.

No doubt the government will find a way to justify breaking its liability agreement with BP now that the problem has become such a PR nightmare, but the point is that Big Government is usually the agency that enables the bad corporate behavior that people despise in the first place. Further empowering that same agency will not solve the problem. It will only make it worse.