The Didache on Abortion and Charity - Possible Modern Implications

I blogged on the Didache last year. It is an instruction manual for new Christians (primarily conversions of gentiles) and may be the earliest writings of the Apostles, dating as early as 49 AD. It's too bad that it's not better known by Christians. It has implications for the modern Christian. Specifically, on abortion and the modern welfare state.

First on abortion:

Didache 2:2 - You shall not murder a child by abortion or commit infanticide.

Pretty clear isn't it? Why is abortion not discussed in the gospels? My guess is that Jesus preached primarily to the 1st century Jews where such practice was not widespread. The Greco-Romans practiced abortion and exposure. Jews believed in the primacy of the fetus in that era. The Jewish historian, Philo of Alexandria discusses Ex. 21:22-23 in context of the LXX. From Philo on Jewish Identity and Culture:

“The LXX transformed these Biblical verses into laws protecting the fetus.”

Now on the modern welfare state where everyone receives (bold emphasis added):

Didache 1.5c - Woe to the one who receives. For if he receives because he has need, he is guiltless, but if he does not have need, he shall stand trial as to why he received and for what, and being put in prison he will be examined about what he has done, and he will not come out of it until he pays the last penny.

Many would disagree, but I believe that so much of the profligate ways of the modern welfare state goes to those not in need. The senior prescription drug plan is just one such example.

Also note that Didache strongly advises Christians to be charitable and defend the poor but adds this:

1.6 But of this it was also said, 'Let your charitable gift sweat in your hands until you know to whom you give'.

Christians must be discerning to who is in need. However, the modern welfare state completely abrogates this aspect of giving. It’s interesting to note the amount of charitable giving between the prosperous blue (and secular) states versus the red states.

Much of the Didache is what I would assume to be a common sense approach to ethics, not just Christian ethics.

Peter Schiff on Obama

Schiff was one of the few hedge fund managers to predict this crisis a few years back. He doesn’t like Obama. Found at Housing Doom blog.

Paul Johnson on Modern Western Society

My favorite historian Paul Johnson chimes in on Forbes:

"in a nutshell: We are traveling along the high road to incompetence and poverty, led by a farcical coalition of fashionably liberal academics on the make, assorted eco-crackpots and media wiseacres. "

The rest is here.

Policy Predictions for After an Obama Victory

Over at Rasmussen' blog, a comprehensive list. Sounds like a to do list for the left.

Immigration, Affirmative Action, Bucking The Bailout - All Potential Election Winners For McCain

A Steve Sailer column on what the Republicans should have done. Well - we'll have to sit back and take it. We're moving towards a nanny state. The home mortgage defaulters, the aging baby boomers, and the young sycophants will rule the day. The dumbest of the bunch? The young sycophants as they will be paying for the mess and get very little for it.

Moscow Idaho makes the British Press

Peter Hitchens on this little corner of the world in the Daily Mail of London.

As America approaches her most momentous presidential election for decades, I am in the True (but not specially Wild) West, the top left-hand corner of the United States, a hard-core Republican state that most visitors only fly over.

They think it's dull. How wrong they are...

Hitchens treats the average Moscow resident with respect.

On the other hand he has these representative observations about the local liberals:

...Mr Reece, a courtly retired academic-with a Colonel Sanders moustache and Danish ancestry, has Moscow's biggest concentration of posters backing Obama sprouting on his front lawn. He usually displays a good crop of placards at election times but admits that he has never put up so many before....

....Mr Reece's language about Obama is almost religious. He uses words such as 'visionary' and 'inspiration'. He also says, rather frankly, that Obama is 'not too black'. But he knows little about him.

He has never heard of Tony Rezko, the Chicago businessman recently convicted of fraud and corruption, who seems to have helped Obama buy his house, and whom Obama lobbied for.

He has also never heard of John Stroger, a dreary business-as-usual Chicago machine politician whom Obama backed against a reform candidate, rather undermining his claim to be the apostle of change, and to be much of a visionary....

...This knowledge puts him ahead of another deeply civilised Obama fan, Tom Lamar, a liberal member of the City Council and head of a not-for-profit environmental institute.

He hasn't heard of any of these unattractive and unvisionary figures in Obama's past and present. But despite being so weakly informed about his hero, he is an unshiftable supporter.

When I put it to him that Obama has been handled softly by the American media, Mr Lamar responded: 'I haven't really noticed any free pass. I don't feel that he is untested and unexamined.'....

...But he was stuck for an answer when I pointed out that an effigy of Sarah Palin, complete with glasses, red dress and beehive hair, had been suspended by the neck from a noose in a Hollywood street as part of a Hallowe'en display.

Police have described this as a legitimate expression of opinion. Perhaps. Yet it is quite clear that if anyone hanged Obama in effigy, especially in the Lynching Belt of the Deep South, it would ignite a huge explosion of rage, and not be treated as 'legitimate'....

It's the educated elite like Reece and Lamar that will lead the USA to its downfall. The elites in this country are uncritical in their thinking and resemble the emotionalism found in primitive charismatic churches. They speak in tongues, only they channel simple Marxist blather rather any supposed divine inspiration. The elites fail to understand the basis of this republic and the role of that unique American character of the individual. The hyper-aggressive nature of that American will now be diverted away from the market that produces goods for the masses based on a profit motive towards obtaining wealth from the government. Just use the public education system as prime example number one. We spend more per pupil and get less for it than any other country in the world. Thank the hyper-aggressive teacher's unions for that.

Savings rates in 401k's

From the Seattle PI.

Although African-Americans are enrolled in employer- sponsored defined-
contribution plans at about the same rate as whites, they save far less each
month and have a considerably smaller portfolio balance. The median monthly
amount that blacks contribute to their 401(k) plan is $169, while whites
contribute about 50 percent more, or $249 each month. As a result, the median
total household savings for retirement reported by black respondents is $53,000,
compared with $114,000 for whites.

Could independent colleges be the next bubble?

Discovered on PhiBetaCons from MSNBC:

By Maurna R. Desmond
updated 3:54
p.m. PT, Fri., Oct. 24, 2008

In June, 157-year-old Antioch College
decided to "suspend operations" at its flagship campus despite a push from
alumni to rescue the flailing institution. At that point, only 60 students were
enrolled, and their $40,000 per year tuition was being heavily subsidized by
Antioch's five newer campuses...

...The crunch will be particularly bitter for the institutions that drained
coffers to build "country club colleges" complete with luxury dormitories, spas and top of the line sports
complexes to lure choice students, hoping that a sharper crowd would lead to
more accretive diplomas, entering a profitable cycle of more successful alumni
and increased donations...

Obama Accepting Untraceable Donations

From WaPo:

Contributions Reviewed After Deposits

By Matthew MoskWashington Post
Staff WriterWednesday, October 29, 2008; A02

Sen. Barack Obama's presidential campaign is allowing donors to
use largely untraceable prepaid credit cards that could potentially be used to
evade limits on how much an individual is legally allowed to give or to mask a
contributor's identity, campaign officials confirmed.

America's Most Overrated Product: the Bachelor's Degree

From the Chronicle of Higher Education.

...Among my saddest moments as a career counselor is when I hear a story like this: "I wasn't a good student in high school, but I wanted to prove that I can get a college diploma. I'd be the first one in my family to do it. But it's been five years and $80,000, and I still have 45 credits to go."...

...Even worse, most of those college dropouts leave the campus having learned little of value, and with a mountain of debt and devastated self-esteem from their unsuccessful struggles. Perhaps worst of all, even those who do manage to graduate too rarely end up in careers that require a college education. So it's not surprising that when you hop into a cab or walk into a restaurant, you're likely to meet workers who spent years and their family's life savings on college, only to end up with a job they could have done as a high-school dropout....

McCain for President

As only Charles Krauthammer can explain. From WaPo.

Embarrassed to tell people he's a journalist

Via Betsy's Page.

Foreclosures Rocket Into Outer Space

Via Bubble Markets Inventory Tracking blog.

The Age of Prosperity Is Over

From Arthur B. Laffer via WSJ.

Tuition for State Universities

The Solutions Through Higher Education site as data on tuition of state universities. Click on the following image.

Equal Opportunities = Equal Outcomes?

In this discussion of Fannie/Freddie and why standards for loans were lowered there is this monster in the closet called racism. This is racism. However can we expect equal outcomes when people are given equal opportunities (EO=EO)? That seems to be the bedrock of post-modern thought. Male/female ratios must be 50/50 in all endeavors, black representation must be proportional (or even greater) than their fraction of the population (about 11%). However, what happens when numbers describing behavior defy the EO=EO principle? The cry of racism rings, subtle white male power structure is at work (implying the improbable proposition that men don't compete but hand out goodies to each other) , the test is unfair and is based on cultural biases, ....

So what happens when the 3 major races in America are compared on equal terms, in this case FICO scores? Here's a Freddie Mac publication on that. In the following figure we see that for the same FICO score the black/Hispanic rate is about twice as high as the white rate.


Is this racism? This is EO without the EO. The Fannie/Freddie GSE's obssesed about this. Besides the lack of EO=EO on the FICO scores. More blacks have low FICO scores:

June 20, 2008 Louisiana Weekly

Fannie Mae moves to exclude: Bad credit scores could forever deny borrowers home loans

By: By Lisa Loving

Posted: Friday, June 20, 2008 10:14 am

...Adams says that on the VantageScore credit scoring system, which runs from 501 to 990, 84 percent of African Americans had credit scores at the lower half of the spectrum, below 745, according to a report by the Federal Reserve Board. Such scores would require home-buyers to pay 40 percent of a home’s purchase price as the down payment....

The conversion of VantageScore to FICO (*0.86) has the 745 as 641 FICO. That puts the average black score of 641 FICO is in the 15th percentile and a probability of loan default between 15-30%. The average FICO score is 723 and most lenders won't consider a score below 700. Above FICO 700 puts the probability of default at about 2%. This means that blacks default at a rate that is about 10 times greater than the population as a whole. Zillow Blog has more data.

Why do blacks and Hispanics default at greater rates on loans? Perhaps the savings rates give a clue. From a column from the October 21, 2007 WaPo:

This year's Ariel-Schwab Black Investor Survey found that blacks had median investments of $48,000, compared with $100,000 for whites. The survey looks at blacks and whites who earn more than $50,000 annually.

Now does racism play a part in all of this? Consider that the USA savings rate as a whole is far below other nations. Who's discriminating against us?

Limbaugh and Hanity & Colmes listeners better informed than NPR

Via Redcounty. A Pew Research study on politics of various news outlets. Limbaugh and Hanity & Colmes listeners bested NPR & New Yorker/Atlantic patrons. No surprise to me:

Here's a detailed breakdown of the percentage of individuals answering each of the three questions correctly from the different news audiences:

• The New Yorker/Atlantic: 71 percent (correctly identified Democrats as the majority in the House), 71 percent (correctly identified Condeleeza Rice), 59 percent (correctly identified Gordon Brown)
• NPR: 73 percent, 72 percent, 57percent
• Hannity & Colmes: 84 percent, 73 percent, 49 percent
• Rush Limbaugh: 83 percent, 71 percent, 41 percent
• Colbert Report: 73 percent, 65 percent, 49 percent
• Daily Show: 65 percent, 48 percent, 36 percent
• NewsHour: 66 percent, 52 percent, 47 percent
• O'Reilly Factor: 70 percent, 60 percent, 41 percent
• C-SPAN: 63 percent, 59 percent, 35 percent
• Letterman/Leno: 51 percent, 42 percent, 31 percent
• CNN: 59 percent, 48 percent, 29 percent
• National Enquirer: 44 percent, 32 percent, 22 percent

Education factor

In general, well-educated news audiences scored high on political knowledge. For instance, 54 percent of the regular readers of publications such as The New Yorker, The Atlantic and Harper's Magazine are college graduates, as are 54 percent of regular NPR listeners.

However, several news audiences with relatively low proportions of college graduates also scored well on the news quiz. Just 31 percent of regular "Hannity & Colmes" viewers are college graduates. Even still, 42 percent Hannity viewers got perfect scores on the political knowledge quiz, compared with 44 percent of NPR listeners.

Real Estate Market

Check out your local market.

Shuttle driver reflects on Nobel snub

From the Cape Cod Times. If I had the grant money I'd give him a call.

Twenty years ago, Douglas Prasher was one of the driving forces behind research that earned a Nobel Prize in chemistry this week. But today, he's just driving.

Prasher, 57, works as a courtesy shuttle operator at a Huntsville, Ala., Toyota dealership. While his former colleagues will fly to Stockholm in December to accept the Nobel Prize and a $1.4 million check, the former Woods Hole Oceanographic Institution scientist will be earning $10 an hour while trying to put two of his children through college.

....

After stints at a U.S. Department of Agriculture laboratory and working for NASA in Huntsville, Prasher was out of work for a year before he took a job at the car dealership.

Prasher said he has suffered from health problems and depression, some of which stems from being out of science for so long. But his sense of humor remains intact.

This year's physics and medicine prizes went to non-Americans. I think it's a trend.

More on Chris Dodd

The man should be in prison pinstripes not on the Senate Banking Committee. From the WSJ.

In February 2004, while Republican colleagues warned of the systemic risks posed by Fannie Mae and Freddie Mac, Mr. Dodd pronounced the mortgage market "one of the great success stories of all time." A year later, the Connecticut Democrat voted against a reform that would have limited the size of Fan and Fred's mortgage portfolios. Now that Fan and Fred have collapsed at a cost to taxpayers that could run to $200 billion or more, Mr. Dodd is also under fire for accepting sweetheart loans from Countrywide Financial, the subprime mortgage factory.

More from the WSJ on Sen. Dodd:

Dodd Bedfellows

• Dodd and Countrywide 10/10/2008 – The Senator should take the witness stand.
• Mortgage VIPs 06/25/2008 – Sweetheart deals are just a phone call away.
• Angelo's Angel 06/19/2008 – The senate bailout for Countrywide needs more scrutiny.
• Congress and the Countrywide Scandal 06/18/2008 – Some senators want a bailout for big political donors. What a surprise.
• Beltwaywide Financial 06/16/2008 – The new ARMs: Angelo-rated mortgages for senators.

Next up on the bubble horizon Medicare and Social Secruity

A Washington Times Op Ed Piece.

The potential taxpayer bailout for Medicare alone is 50 times greater than the recently passed bailout bill. For all entitlements, the potential tab totals 80 times today's bailout.

It's highly unlikely that an Obama Administration will face this down. More likely scenario - he adds to the entitlement pig.

2 studies on the role of subprime mortgages and the current crisis

Two recent papers have appeared on the causes of this the mortgage crisis. Gary Gorton of Yale has a very detailed one that describes the role of derivatives and Stan Liebowitz of UT-Dallas has another. They both pin the cause on the growth of subprime lending. Liebowitz attributes the disaster specifically on ARM's.

Gorton's paper is rich in data. For example on page 72 he shows the mind-boggling loss of $3.2 trillion in the sub-prime market. On page 52 he tracks the increases in defaults from 2003 to late 2007. For the prime market it went from 2.62 to 3.24%. For the subprime one it went from 13.04 to 17.31%.

ARM's, Alt-A, Prime Mortgages and Delinquency Rates

Delinquency rates by mortgage types and FICO scores at the Zillow blog.

China goes for methanol from coal

Now if we could also do the same. But we're sold on global warming, so no coal for us.

The production of methanol from coal gasification is a mature technology. In the United States, Eastman Chemical produces methanol from coal gasification at a plant in Kingsport, Tennessee that was built with support from the U.S. Department of Energy (DoE). Based on this experience, the U.S. DoE estimates that methanol can be produced from coal for as little as 50¢ per gallon. In China, production costs from coal are generally RMB$800-1,200 per metric ton of methanol (US$110-165/metric ton, or 33¢ to 50¢ per gallon). In addition, coke furnaces in China generate 80 billion cubic meters of waste gas each year, enough to produce 40 million metric tons of methanol, and significantly reduce pollution in the coal-producing regions. Coal-bed methane deposits of 30,000-35,000 billion cubic meters in China represent another significant energy resource as well as a hidden danger that claims miner’s lives each year. Just 1000 cubic meters of coal-bed methanol can produce one metric ton of methanol.

Fannie/Freddie, Regulations and Perpetual Motion Machines

From the Main Street Column of the WSJ:

On Capitol Hill, he notes, we had just the opposite. In terms of accountability, Fannie Mae and Freddie Mac were the worst of both worlds. On the one hand, they lacked the congressional oversight that would have come had there been an explicit and acknowledged taxpayer guarantee. On the other hand, the privileged position represented by this implicit guarantee removed the discipline that market competition forces on other private enterprises.

Mr. Baker goes further. He points out that it wasn't the unregulated part of the financial markets that got us here. It was the regulated part. In his own industry, he notes, the lack of a government guarantee means folks do a lot more due diligence before they part with their money.

That regulated part being Fannie/Freddie with its supposed congressional oversight.

A recent comment on this blog said that the GOP was in charge when F&F were starting to show signs of trouble. True enough but the past blog posts here show that the Democrats blocked all oversight attempts, effectively killing it in committee. Remember that this is a democracy where the minority party gets a say. And I must add the GOP is a afraid of the racist label, so let the idiotic schemes go along their merry way. Not much leadership in either party. We have the stupid and egalitarian party or the let's not be known as the nasty party of racists.

With the polls the way they are you Democrats may just get the presidency with a congressional supermajority. You can start implementing your grand societal schemes - schemes that you'll find that work about as well as perpetual motion machines. Next up Social Security, then Medicare.

More on Fannie/Freddie

The Fannie/Freddie debacle from Beliefcorner.com

In 1938, Fannie Mae was established by an act of Congress to provide liquidity to the mortgage market during an economic crisis known as the Great Depression. (Fannie history)

In 1970, over three decades later, Freddie Mac was established by an act of Congress to counteract Fannie Mae's growing monopoly of the secondary mortgage market. (Freddie history)

In 1977, the Carter Administration passed the Community Reinvestment Act (CRA) that required banks to offer an even disbursement of credit throughout the financial market in an attempt to curb past lending practices that targeted more desirable markets. At the time, republican critics charged that such an act would impose unnecessary regulatory burdens on lending institutions and distort credit markets by forcing banks to offer loans to under-qualified applicants.

In 1995, the Clinton Administration pushed even harder to increase the supply of affordable housing to low-income families by offering performance-based incentives (Lowered Standards) . According to economist Stan Liebowitz, these developments led to a loosening of lending standards that required no verification of income or assets, little consideration of the applicant's ability to make payments, and no down payment payments. The net effect was an inevitable collapse of Fannie Mae and Freddie Mac at the cost of its investors.

In April of 2001, the Bush Administration first red flagged Fannie and Freddie stating that "financial trouble of a large GSE could cause strong repercussions in financial markets, affecting Federally insured entities and economic activity."

On September 10th of 2003, Treasury Secretary John Snow recommended to the House Financial Services Committee that Congress enact "legislation to create a new Federal agency to regulate and supervise the financial activities of our housing-related government sponsored enterprises" and set prudent and appropriate minimum capital adequacy requirements.

In October of 2003, less than a month later, Fannie Mae disclosed 1.2 billion dollars in accounting errors.

In November of 2003, the Bush Administration upgraded their warning to a "systemic risk" that could very well extend beyond the confines of the housing market. In a July report, written by external investigators, it concluded that Freddie Mac manipulated its accounting to mislead investors. And other critics pointed out that Fannie Mae did not adequately hedge against rising interest rates.

In November of 2003, Council of the Economic Advisers, Chairman Greg Mankiw, argued that "legislation to reform GSE regulation should empower the new regulator with sufficient strength and credibility to reduce systemic risk." And in order to do such, the regulator would have "broad authority to set both risk-based and minimum capital standards" and "receivership powers necessary to wind down the affairs of a troubled GSE." (Remarks of Dr. N. Gregory Mankiw Chairman Council of Economic Advisers at the Annual Meeting of the National Association of Business Economists)

Where are we headed? From the WSJ.

The Wall Street Journal comments on the state of the housing bubble.

... Experts say that an additional 10% to 15% decline in house prices is needed to get back to the prebubble level. That decline would double the number of homes with negative equity, raising the total to 40% of all homes with mortgages. The mortgages of five million homeowners would then exceed the value of their homes by 30% or more, which could prompt millions of defaults...

NY Times on Fannie

A fairly good description of the debacle.

...Fannie, a government-sponsored company, had long helped Americans get cheaper home loans by serving as a powerful middleman, buying mortgages from lenders and banks and then holding or reselling them to Wall Street investors. This allowed banks to make even more loans — expanding the pool of homeowners and permitting Fannie to ring up handsome profits along the way...

...Fannie never actually made loans. It was essentially a mortgage insurance company, buying mortgages, keeping some but reselling most to investors and, for a fee, promising to pay off a loan if the borrower defaulted. The only real danger was that the company might guarantee questionable mortgages and lose out when large numbers of borrowers walked away from their obligations....

...Whenever competitors asked Congress to rein in the companies, lawmakers were besieged with letters and phone calls from angry constituents, some orchestrated by Fannie itself. One automated phone call warned voters: “Your congressman is trying to make mortgages more expensive. Ask him why he opposes the American dream of home ownership.”....

C-Span clips on Freddie/Fannie hearings from 2002-2004

An 8.5 minute video of C-Span clips of various Democrats defending Fannie/Freddie back in the early 2000's when Bush, McCain and company were trying to regulate this GSE. Found at Colossus of Rhodey.

A Video of the Fannie/Freddie Crisis

A long 10 minute Youtube video on the Fannie/Freddie crisis found at Right Mind.

A Video Explanation of the Fannie/Freddie mess

Found over at Verum Serum, a history of Fannie/Freddie debacle. You can guess which political party looks worse in all of this.

Fannie's Orphans

From the September 24, 2008 Seattle Times:

Says the repo middle man: Forget the bailout. Banks, homeowners: They mostly don't deserve it.

"You know what homes are in foreclosure? The ones where people sucked all the equity out," Shank says. "They went to Vegas. They bought Suburbans. They didn't think past whatever day it was."

Sen. Chris Dodd (D-Conn) Chair of the Senate Banking Committee, Hypocrite Extraordinaire

From Betsy's Page quoting Victor Davis Hanson:

Why are these guys in charge of deciding on the bailout

There is some cognitive dissonance in seeing Chris Dodd chair the hearing on the bailout in the Senate Banking Committee yesterday. As Victor Davis Hanson writes,

Very odd to see a Sen. Chris Dodd, of all people, today defiant and outspoken in his regard for the people:

if only he had returned (never too late) lavish contributions from Freddie Mac and Frannie Mae (as Senate banking chairman, he was their #1 targeted recipient and raked in over $160,000);

if only in the midst of a loan crisis, he had not received below-market-rate VIP loans from the now late great, melted-down Countrywide for whose parochial interests he championed;

if only he had not been instrumental in blocking past proposed firewalls that might have prevented the collapse of the two agencies that were the catalyst for this mess;

if only he had a bit of contrition for his own role in this national mess.

Surely in the interest of transparency and conflict of interest, any Senator, Republican or Democrat, who accepted money from Freddie and Frannie, or any of the imperiled investment houses, should recuse themselves from the present hearings—but then there might not be a quorum.

These are the same Democrats on the Banking Committee who three years ago blocked reform of Fannie Mae and Freddie Mac thus allowing the problems to metastasize for three more years. Remember, just a couple of months ago, Dodd was denying that there was any problem with Fannie and Freddie...........................

Gramm-Leach-Bliley Act vs. Fannie/Freddie

I've been hearing a lot about this present financial debacle being based on the Gramm-Leach-Bliley Act of 1999 which deregulated certain banking sectors. This is mostly put forth by Democrats hoping to draw attention away from THEIR Fannie/Freddie mess. Betsy's page has a good analysis of this.

.....Gramm-Leach-Bliley did not create securitization and collateralized debt obligations. It did not change the rules for banks’ leverage ratios. If anything, Gramm-Leach-Bliley mitigated some risks by allowing financial companies to diversify their businesses, and it is the most diversified firms that are best weathering the storm.........

...In 2005, the Senate Banking Committee, then under Republican control, adopted a strong reform bill, introduced by Republican Sens. Elizabeth Dole, John Sununu and Chuck Hagel, and supported by then chairman Richard Shelby. The bill prohibited the GSEs from holding portfolios, and gave their regulator prudential authority (such as setting capital requirements) roughly equivalent to a bank regulator. In light of the current financial crisis, this bill was probably the most important piece of financial regulation before Congress in 2005 and 2006. All the Republicans on the Committee supported the bill, and all the Democrats voted against it. Mr. McCain endorsed the legislation in a speech on the Senate floor. Mr. Obama, like all other Democrats, remained silent.

Now the Democrats are blaming the financial crisis on "deregulation." This is a canard. There has indeed been deregulation in our economy -- in long-distance telephone rates, airline fares, securities brokerage and trucking, to name just a few -- and this has produced much innovation and lower consumer prices.....

'Crony' Capitalism Is Root Cause Of Fannie And Freddie Troubles

From the Investor's Business Daily.

...It all started, innocently enough, in 1994 with President Clinton's rewrite of the Carter-era Community Reinvestment Act.

Ostensibly intended to help deserving minority families afford homes — a noble idea — it instead led to a reckless surge in mortgage lending that has pushed our financial system to the brink of chaos....

...Fannie and Freddie, the main vehicle for Clinton's multicultural housing policy, drove the explosion of the subprime housing market by buying up literally hundreds of billions of dollars in substandard loans — funding loans that ordinarily wouldn't have been made based on such time-honored notions as putting money down, having sufficient income, and maintaining a payment record indicating creditworthiness.

With all the old rules out the window, Fannie and Freddie gobbled up the market. Using extraordinary leverage, they eventually controlled 90% of the secondary market mortgages. Their total portfolio of loans topped $5.4 trillion — half of all U.S. mortgage lending. They borrowed $1.5 trillion from U.S. capital markets with — wink, wink — an "implicit" government guarantee of the debts.

This created the problem we are having today.

As we noted a week ago, subprime lending surged from around $35 billion in 1994 to nearly $1 trillion last year — for total growth of 2,757% as of last year....

How the Democrats Created the Financial Crisis: Kevin Hassett

From Bloomberg.

....But really, it isn't. Enough cards on this table have been turned over that the story is now clear. The economic history books will describe this episode in simple and understandable terms: Fannie Mae and Freddie Mac exploded, and many bystanders were injured in the blast, some fatally...

....What happened next was extraordinary. For the first time in history, a serious Fannie and Freddie reform bill was passed by the Senate Banking Committee. The bill gave a regulator power to crack down, and would have required the companies to eliminate their investments in risky assets.

Different World

If that bill had become law, then the world today would be different. In 2005, 2006 and 2007, a blizzard of terrible mortgage paper fluttered out of the Fannie and Freddie clouds, burying many of our oldest and most venerable institutions. Without their checkbooks keeping the market liquid and buying up excess supply, the market would likely have not existed.

But the bill didn't become law, for a simple reason: Democrats opposed it on a party-line vote in the committee, signaling that this would be a partisan issue. Republicans, tied in knots by the tight Democratic opposition, couldn't even get the Senate to vote on the matter.....

A Mortgage Fable

From the September 22, 2008 Wall Street Journal.

Obama, Barney Frank, Bush and Fannie/Freddie

Over at Verum Serum.

NY Times Explains Fannie Mae and the GOP

From the Doug Ross Journal.

WaMu in Orange County CA

From the September 19, 2008 OC Register:

In July 2007, Vijay and Supriti Soni of Corona del Mar paid $440,000 for a home at 2129 W. Civic Center Drive in Santa Ana.

Five weeks later, they resold the house to Javier Hernandez – the family gardener and handyman – for $660,000. That's a 50 percent gain in 38 days – at a time when real estate prices in Santa Ana were plunging........

The Subprime Loan Machine; Automated Underwriting Software Helped Fuel a Mortgage Boom

More on sub-prime loan software, from the March 23, 2008 NY Times:

...Automated underwriting ''replaced the ways we used to extend credit,'' said Prof. Nicolas P. Retsinas, director of the Joint Center for Housing Studies at Harvard....

..Samir Rohatgi, a vice president at MindBox, said that old system of manual underwriting actually encouraged loan officers working on commission to grant bad loans...

The old cliche' garbage in, garbage out applies here.

The Diversity Recession

From Steve Sailer at VDare:

...In recent times, investors have typically gotten rich in our society by betting on the rich to get richer. And most of the time, that's what happens: the rich get richer. Every so often, however, we have a meltdown because, during the bubble, investors temporarily overestimated the rate at which the rich will get richer—e.g., Silicon Valley in 2000, the Texas oil patch in 1982, commercial real estate developers around 1990, and so forth.....

...What's totally strange about the mortgage meltdown, however, is that the bet, at its base, was on the more marginal members of society to be able to pay off their inflated debts—a bet on the pretty-close-to-poor to get pretty-close-to-rich.

And that made no sense at all....

Fannie Mae and Countrywide

Fannie Mae and Countrywide, perfect together, from 1999:

NEW YORK--(BUSINESS WIRE)--April 19, 1999--

Fannie Mae (NYSE:FNM), the nation's largest source of financing for home mortgages, and Countrywide Credit Industries, Inc., the nation's largest independent residential mortgage lender, today announced that Countrywide's proprietary automated underwriting system, marketed as e-Approve(TM) and CLUES(TM), will be available on Fannie Mae's MORNETPlus Network...........

WaMu's Story

A Seattle Times Story:

.......................The answer, stripped of the lingo of high finance, is simple: WaMu loaned too much money to people who couldn't afford to pay it back.

From 2004 to the end of 2007, WaMu made $452.5 billion in some of the riskiest types of home loans: subprime loans, home-equity loans and short-term adjustable-rate mortgages, especially so-called "option ARMs," which allowed people to choose how much they wanted to pay each month.

Many borrowers, unsurprisingly, chose to pay as little as possible. Like credit-card users making only the minimum monthly payment, they ended up owing more than they'd originally borrowed.

All in all, more than half of WaMu's real-estate loans during that period were in one of those three categories. And they were the kinds of loans most likely to go sour once the housing boom cooled and the economy started to sputter.........................

.............In addition, WaMu made billions of dollars' worth of loans with only "limited documentation" of the borrowers' income, net worth or credit history. Such loans — often called "liar loans" or "NINJA loans," for "no income, no job or assets" — made up three-quarters of WaMu's option-ARM portfolio at the end of 2007..........

Were these NINJA loans aimed at illegeal aliens?

HOW FEDS INVITED THE MORTGAGE MESS

More on the Fannie/Freddie subprime mess, from the NY Post:

......Flexible lending programs expanded even though they had higher default rates than loans with traditional standards. On the Web, you can still find CRA loans available via ACORN with "100 percent financing . . . no credit scores . . . undocumented income . . . even if you don't report it on your tax returns." Credit counseling is required, of course.

Ironically, an enthusiastic Fannie Mae Foundation report singled out one paragon of nondiscriminatory lending, which worked with community activists and followed "the most flexible underwriting criteria permitted." That lender's $1 billion commitment to low-income loans in 1992 had grown to $80 billion by 1999 and $600 billion by early 2003.

Who was that virtuous lender? Why - Countrywide, the nation's largest mortgage lender, recently in the headlines as it hurtled toward bankruptcy.......

What is the root cause of the current mortgage crisis?

Excellent post at the Doug Ross Journal.

Who tried to reform Fannie Mae and Freddie Mac?

An excellent post over at Betsy's page.

$35,000/year salary and a $290,000 mortgage

This story pretty much sums up the root cause of the mortgage crisis.

• "Cortez makes $35,000 a year and has a poor credit history. Oliver Marquez, a financial counselor at the nonprofit Resurrection Project who advised Cortez, said the original $290,000 mortgage was well beyond his means."
• "More recently, some lenders have offered Alt-A loans to people who lacked sufficient documentation to get a traditional loan"

Another story from Bloomberg:

• "McLean, Virginia-based Freddie, which reported an $821 million quarterly loss two days ago, said that Alt-A mortgages were the biggest reason for a surge in its foreclosure losses. The delinquency rate for the $190 billion of the loans owned by Freddie or underlying the bonds the company guarantees jumped to 3.7 percent on June 30, from 1.8 percent on Dec. 31"
• "For minorities and immigrants, the ownership rate is less than 50 percent and that's what we're focusing a lot on and I think that that's where a lot of the growth in the market will be,'' Freddie Chief Executive Officer Richard Syron said in a interview with Bloomberg Television in 2004."

The Real Culprits In This Meltdown

From Investor's Business Daily.

The Real Culprits In This Meltdown

By INVESTOR'S BUSINESS DAILY | Posted Monday, September 15, 2008 4:20 PM PT

Big Government: Barack Obama and Democrats blame the historic financial turmoil on the market. But if it's dysfunctional, Democrats during the Clinton years are a prime reason for it.

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Read More: Business & Regulation

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Obama in a statement yesterday blamed the shocking new round of subprime-related bankruptcies on the free-market system, and specifically the "trickle-down" economics of the Bush administration, which he tried to gig opponent John McCain for wanting to extend.

But it was the Clinton administration, obsessed with multiculturalism, that dictated where mortgage lenders could lend, and originally helped create the market for the high-risk subprime loans now infecting like a retrovirus the balance sheets of many of Wall Street's most revered institutions.

Tough new regulations forced lenders into high-risk areas where they had no choice but to lower lending standards to make the loans that sound business practices had previously guarded against making. It was either that or face stiff government penalties.

The untold story in this whole national crisis is that President Clinton put on steroids the Community Redevelopment Act, a well-intended Carter-era law designed to encourage minority homeownership. And in so doing, he helped create the market for the risky subprime loans that he and Democrats now decry as not only greedy but "predatory."

Yes, the market was fueled by greed and overleveraging in the secondary market for subprimes, vis-a-vis mortgaged-backed securities traded on Wall Street. But the seed was planted in the '90s by Clinton and his social engineers. They were the political catalyst behind this slow-motion financial train wreck.

And it was the Clinton administration that mismanaged the quasi-governmental agencies that over the decades have come to manage the real estate market in America.

As soon as Clinton crony Franklin Delano Raines took the helm in 1999 at Fannie Mae, for example, he used it as his personal piggy bank, looting it for a total of almost $100 million in compensation by the time he left in early 2005 under an ethical cloud.

Other Clinton cronies, including Janet Reno aide Jamie Gorelick, padded their pockets to the tune of another $75 million.

Raines was accused of overstating earnings and shifting losses so he and other senior executives could earn big bonuses.

In the end, Fannie had to pay a record $400 million civil fine for SEC and other violations, while also agreeing as part of a settlement to make changes in its accounting procedures and ways of managing risk.

But it was too little, too late. Raines had reportedly steered Fannie Mae business to subprime giant Countrywide Financial, which was saved from bankruptcy by Bank of America.

At the same time, the Clinton administration was pushing Fannie and her brother Freddie Mac to buy more mortgages from low-income households.

The Clinton-era corruption, combined with unprecedented catering to affordable-housing lobbyists, resulted in today's nationalization of both Fannie and Freddie, a move that is expected to cost taxpayers tens of billions of dollars.

And the worst is far from over. By the time it is, we'll all be paying for Clinton's social experiment, one that Obama hopes to trump with a whole new round of meddling in the housing and jobs markets. In fact, the social experiment Obama has planned could dwarf both the Great Society and New Deal in size and scope.

There's a political root cause to this mess that we ignore at our peril. If we blame the wrong culprits, we'll learn the wrong lessons. And taxpayers will be on the hook for even larger bailouts down the road.

But the government-can-do-no-wrong crowd just doesn't get it. They won't acknowledge the law of unintended consequences from well-meaning, if misguided, acts.

Obama and Democrats on the Hill think even more regulation and more interference in the market will solve the problem their policies helped cause. For now, unarmed by the historic record, conventional wisdom is buying into their blame-business-first rhetoric and bigger-government solutions.

While government arguably has a role in helping low-income folks buy a home, Clinton went overboard by strong-arming lenders with tougher and tougher regulations, which only led to lenders taking on hundreds of billions in subprime bilge.

Market failure? Hardly. Once again, this crisis has government's fingerprints all over it.

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OBAMA TRIED TO STALL GIS' IRAQ WITHDRAWAL

WHILE campaigning in public for a speedy withdrawal of US troops from Iraq, Sen. Barack Obama has tried in private to persuade Iraqi leaders to delay an agreement on a draw-down of the American military presence.......[more]

Congressional recipients of Fannie Mae and Freddie Mac campaign cash.

The UK increases scrutiny of university degrees. From the BBC. Another one.

Teacher Salaries in Washington, via Seattle P-I.

How Fannie and Freddie weren't reined-in

A good explanation of how the Fannie and Freddie were allowed to brew from MSNBC.com.


....Fannie Mae and Freddie Mac were ascendant, giants of the mortgage finance business and key players in the Clinton administration's drive to expand homeownership.....

...In October 1992, a brief debate unfolded on the floor of the House of Representatives over a bill to create a new regulator for Fannie Mae and Freddie Mac. On one side stood Jim Leach, an Iowa Republican concerned that Congress was "hamstringing" this new regulator at the behest of the companies. He warned that the two companies were changing "from being agencies of the public at large to money machines for the stockholding few."

On the other side stood Barney Frank, a Massachusetts Democrat who said the companies served a public purpose. They were in the business of lowering the price of mortgage loans.

Congress chose to create a weak regulator......

.....The Clinton administration wanted to expand the share of Americans who owned homes, which had stagnated below 65 percent throughout the 1980s. Encouraging the growth of the two companies was a key part of that plan......

....The result was a period of unrestrained growth for the companies. They had pioneered the business of selling bundled mortgage loans to investors and now, as demand from investors soared, so did their profits.....

.....Fannie Mae and Freddie Mac enjoyed the nearest thing to a license to print money. The companies borrowed money at below-market interest rates based on the perception that the government guaranteed repayment,.....

.......In 2003, Richard H. Baker (R-La.), chairman of the House Financial Services subcommittee with oversight over Fannie Mae and Freddie Mac, got information from OFHEO on the salaries paid to executives at both companies. Fannie Mae threatened to sue Baker if he released it, he recalled. Fearing the expense of a court battle, he kept the data secret for a year. Baker, who left office in February, said he had never received a comparable threat from another company in 21 years in Congress. "The political arrogance exhibited in their heyday, there has never been before or since a private entity that exerted that kind of political power,".....

College Football's Highest-Paid Losers

From Forbes Magazine.

College Daze

by Charles Murray
Published in Forbes Magazine 9/1/2008

College is not all it's cracked up to be. Dumbed-down courses, flaky majors and grade inflation have conspired to make the letters B.A. close to meaningless. But another problem with today's colleges is more insidious: They are no longer a good place for young people to make the transition from childhood to adulthood. Today's colleges are structured to prolong adolescence, not to midwife maturity....[more]

College is not a Must

From the CSM

College is not a Must

........The total damage inflicted on students by the college-is-for-everyone mentality is incalculable. Students who cannot measure up to the demands for a college curriculum are made to feel like failures...........

Age of shroud of Turin disputed again

A Times of London story......

......A LEADING expert on the shroud of Turin has won the support of an Oxford University laboratory for new carbon dating tests on the venerated but controversial relic, which was dismissed two decades ago as a fake. ......

.....John Jackson, a physicist at Colorado University and a prominent expert on the relic, has argued that the tests were skewed by 1,300 years because of high levels of carbon monoxide. He said many other elements of the shroud, including details of the image, indicate that it is much more ancient......

Turin shroud controversy envelops pair

A Seattle Times Story...


.....Raised in Brooklyn, Rebecca Jackson, 60, was 34 when she decided to enlist in the Army and ended up at Fort Carson, near Colorado Springs, as a cook.

In 1990, she was watching a documentary on the shroud when it occurred to her that the image of the man's face looked like her grandfather's. She tracked down Jackson, who had appeared in the film and lived in Colorado Springs, to talk about her reaction. Their shared interest led to a relationship. Her religious conversion followed..........

For Most People, College Is a Waste of Time

Wall Street Journal
CHARLES MURRAY

August 13, 2008; Page A17

Imagine that America had no system of post-secondary education, and you were a member of a task force assigned to create one from scratch. One of your colleagues submits this proposal:

First, we will set up a single goal to represent educational success, which will take four years to achieve no matter what is being taught. We will attach an economic reward to it that seldom has anything to do with what has been learned. We will urge large numbers of people who do not possess adequate ability to try to achieve the goal, wait until they have spent a lot of time and money, and then deny it to them. We will stigmatize everyone who doesn't meet the goal. We will call the goal a "BA."

You would conclude that your colleague was cruel, not to say insane. But that's the system we have in place.

Finding a better way should be easy. The BA acquired its current inflated status by accident. Advanced skills for people with brains really did get more valuable over the course of the 20th century, but the acquisition of those skills got conflated with the existing system of colleges, which had evolved the BA for completely different purposes.

Outside a handful of majors -- engineering and some of the sciences -- a bachelor's degree tells an employer nothing except that the applicant has a certain amount of intellectual ability and perseverance. Even a degree in a vocational major like business administration can mean anything from a solid base of knowledge to four years of barely remembered gut courses....[more]

America's best colleges

Forbes' list of America's best colleges.

How Our Culture Keeps Students Out of Science

An opinion piece from the Chronicle of Higher Education.

Excerpts:

• "the shortage of Americans holding or pursuing advanced degrees in fields like computer science defies conventional market explanations. The average annual salary in the field is more than $100,000. Meanwhile, we have a robust supply of high-IQ baristas and college graduates with jobs that a generation ago would not even have required a high-school diploma."
• "Students respond more profoundly to cultural imperatives than to market forces. In the United States, students are insulated from the commercial market's demand for their knowledge and skills."
• "Success in the sciences unquestionably takes a lot of hard work, sustained over many years. Students usually have to catch the science bug in grade school and stick with it to develop the competencies in math and the mastery of complex theories they need to progress up the ladder. Those who succeed at the level where they can eventually pursue graduate degrees must have not only abundant intellectual talent but also a powerful interest in sticking to a long course of cumulative study."
• "on the emotional level, contemporary American education sides with the obstacles. It begins by treating children as psychologically fragile beings who will fail to learn — and worse, fail to develop as "whole persons" — if not constantly praised. The self-esteem movement may have its merits, but preparing students for arduous intellectual ascents aren't among them. What the movement most commonly yields is a surfeit of college freshmen who "feel good" about themselves for no discernible reason and who grossly overrate their meager attainments."
• "The intellectual lassitude we breed in students, their unearned and inflated self-confidence, undercuts both the self-discipline and the intellectual modesty that is needed for the apprentice years in the sciences."