by | ARTICLES, ECONOMY, POLITICS
One of my favorite elected officials, House Majority Leader Eric Cantor, wrote an Op-Ed for his local newspaper in Virginia. Cantor addresses the fundamental and necessary economic premise that cutting spending will grow the economy.
Cutting spending will grow the economy
By TIMES DISPATCH STAFF | ERIC CANTOR
Published: February 26, 2011
America is at a tipping point, and Republicans have begun to take action.
Last week, the House passed unprecedented legislation reducing discretionary spending this fiscal year by more than $100 billion. In addition, we made clear that our long-term budget, to be unveiled in the spring, will address the entitlement crisis that threatens to bankrupt our country — a long overdue move that politicians for too long have kicked down the road. This show of fiscal restraint represents not merely a clean break with Congress’ free-spending past, but a rededication to economic growth and a laser-like focus on job creation.
It’s important to recognize the link between cutting spending and growing the economy. Like the gardenerpruning the tree, we do not cut for the sake of cutting, but out of necessity. It’s the only way to restore economic health and free up the private capital necessary for new growth. Put simply, less government spending equals more private sector jobs.
Economic growth is generated when businesses weigh their risks against their potential reward (returns after taxes) and make a decision that an investment is worthwhile. That investment can take the form of a capital investment or an investment in additional labor (jobs). Especially in this increasingly interconnected world, businesses will logically move their investments to wherever they can achieve the greatest returns without assuming too much additional risk.
For many years, America offered unparalleled opportunity for businesses to grow and succeed. Investors could find in the United States comparatively low taxes, a consistent regulatory environment and a stable currency. Tens of millions of jobs were created as America served as the global driver of growth and prosperity.
Yet today many doubt whether America can still power the world economy forward. Uncertainty over our deteriorating fiscal situation and increasingly burdensome regulatory structure has made job creators and investors think twice about deploying their capital in the United States.
As the federal government continues to borrow nearly 40 cents for every dollar it spends, America’s $14 trillion debt hangs over the economy like a dark cloud waiting to unleash a violent storm of higher taxes, inflation and higher borrowing costs. The very businesses and investors we need to grow our economy are waiting to see if this cloud will pass.
The more local and national business owners I meet with, the more obvious it becomes that our businesses are innovative and poised to grow; government just has to stop making it harder for them to compete.
As part of our larger effort, Republicans are reviewing and cutting job-impeding regulations that stifle job growth. Next week, we will repeal the onerous 1099 reporting requirement to provide small businesses with much-needed relief. Additionally, we are focused on other ways to grow the economy, including tax reform and implementing job-creating trade agreements.
Will the administration and the Senate join us in getting our fiscal house in order? Or will they continue to add entitlements and borrow and spend at unsustainable levels? If only they would unite with us, confidence can be restored in America and capital investment can return.
But if they don’t walk us back from the precipice, businesses will see only weaker prospects for profit and growth on our shores — and turn instead to other countries they deem safer. What does this mean for America? It means we would be a lot more like Europe. Our graduates and work force would have less opportunity to find work. Our prospective entrepreneurs would have less incentive to pursue their ideas. Unemployment would be permanently higher and growth would be permanently weaker.
During his recent speech to the Chamber of Commerce, President Barack Obama insisted that in response to his policies, businesses have a “responsibility” to hire more workers and support the U.S. economy. But that’s not how it works in market-based economies. There is no magic hiring wand.
If the president genuinely wants to create jobs, he should take a cue from Virginia. Gov. Bob McDonnell has turned a $1.8 billion deficit into a $403 million surplus, cut $4.2 billion out of the 2011 and 2012 budgets — and he has done so without raising taxes.
America needs to show the world that we are serious about slashing our debt. By cutting $100 billion off the president’s proposed budget and taking the lead in reforming entitlements, House Republicans have demonstrated that we are more than ready to help make the tough choices necessary to move us in the right direction. Moving forward, we will use every tool at our disposal to remove barriers to economic growth so that people can get back to work and we can start to get our fiscal house in order.
http://www2.timesdispatch.com/news/2011/feb/26/tdopin02-cutting-spending-will-grow-the-economy-ar-868581/?referer=http://www.facebook.com/l.php?u=http://timesdispatch.com/ar/868581/&h=82b92&shorturl=http://timesdispatch.com/ar/868581/
by | ARTICLES, ECONOMY, POLITICS
Continuing on the housing theme, I wanted to share with you an article written on February 7 by Robbie Whelan of the WSJ. Mr. Whelan has a good run-down on the current housing and lending situation as well as the accurate status of HAMP (Home Affordable Modification Program).
By ROBBIE WHELAN and ANTHONY KLAN
As the federal government’s flagship mortgage-modification program comes under scrutiny for failing to meet its goal of helping three to four million troubled homeowners, state-level efforts to boost modifications appear to be picking up momentum.
The Treasury reported Monday that the government’s Home Affordable Modification Program, or HAMP, had provided permanent help to 521,630 homeowners since the program began in spring 2009.
By comparison, over the same period, banks negotiating directly with borrowers have made about two million permanent loan modifications outside the government’s program. These modifications continued to rise in recent months even as the number of HAMP modifications trailed off.
Critics of HAMP say the program has made little impact on the housing market and should be ended. Last week, House Republicans introduced a bill to end the effort, calling it a “colossal failure.” The administration defends the program.
“I think we’ve got to remember that HAMP has achieved over a half-million modifications. These are people that make $50,000 a year, so to sort of write it off and say, ‘Well, it’s a failure,’ I think is not really appropriate,” said Tim Massad, an acting assistant Treasury secretary, in a hearing on Capitol Hill last week.
Banks say they are doing more of their own modifications—and fewer HAMP mods—because eligibility requirements for HAMP are more stringent. Once a borrower is deemed ineligible for the government program, a modification worked out directly with the bank sometimes is the best option.
But also having a big impact are state mandates requiring banks and loan-servicing companies to hold mediation sessions with borrowers prior to foreclosing, said lawyers for delinquent borrowers and judges handling foreclosure cases.
About 20 states encourage some type of foreclosure mediation program to allow borrowers and lenders to hammer out a settlement, according to the Center for American Progress, a liberal Washington think tank. Three of those states—New York, Florida and Connecticut—and a handful of cities make mediation mandatory.
In Florida, Fannie Mae has begun testing a foreclosure-prevention program to get banks to meet with troubled borrowers to negotiate mortgage modifications and other alternatives before filing foreclosure documents in court.
“If they’re looking at mounting legal costs and risks to foreclose, then the workout process might seem like the best option,” said Alan M. White, a professor of law at Valparaiso University in Indiana, who has written extensively on the mortgage crisis. “Banks have got states preventing you from foreclosing…dismissing cases and ordering mediation, those are just two tools that state judges have.”
Others say banks are more willing to modify loan terms—which generally means reducing interest rates, forgoing late fees and extending the terms of loans—because it’s starting to be cheaper than completing a foreclosure. In some cases, in some states, that process can take years and thousands of dollars in legal fees to complete.
Among the banks to ramp up modifications isWells Fargo & Co., which plans to hold 20 large-scale mediation sessions across the country this year. More than 150,000 borrowers who have missed payments, or have been in modification negotiations, have or will be invited to come to hotels and convention centers for rapid-fire meetings the bank hopes will result in loan modifications.
That’s what happened to Patricia Yador, 53, of West Orange, N.J. at a “home preservation workshop” held at the Marriott hotel in downtown Brooklyn last Tuesday. Wells Fargo, her mortgage servicer, agreed after a mediation conference to knock more than 2 percentage points off the interest rate on her $300,000 mortgage.
That cut her monthly payments from $3,257 to $2,833.
“These are tears of joy because [before] they always turned me down,” said Ms. Yador, who has owned her home for 17 years and lives on $2,100 in disability and pension payments since she stopped working as a hospital accounts manager about three years ago.
Ms. Yador was one of 30,000 borrowers that Wells Fargo invited to participate in the modification fair in the New York-New Jersey area. Borrowers like Ms. Yador, who end up in a non-HAMP modification, are far more common than those who go through the government program. Of the roughly 600,000 loan modifications made by Wells Fargo since January, 2009, 86% have been done outside of HAMP, and 14% through HAMP.
HAMP offers servicers financial incentives to reduce loans to 31% or less of a borrower’s income, but it also has stringent requirements for eligibility. Borrowers who have lost their jobs or who have expensive medical conditions or other debts often are rejected by HAMP.
A Wells Fargo spokesman said the modification fairs are driven by the bank’s desire to do right by its customers. But others say the stepped up efforts are in response to ratcheted-up pressure from the states.
For the last two years in Philadelphia, where foreclosures are handled by judge, courts have moved to a system where they automatically schedule a “conciliation conference” within 30 to 45 days of each foreclosure filing.
Servicers are required to send a representative in person or by telephone to these conferences. If they fail to do so, the case can be postponed. The courts also keep mediators and pro bono housing lawyers on hand to serve borrowers.
“Yes, we are asserting pressure, but it’s almost as if they want the pressure,” said Annette Rizzo, a judge with the Court of Common Pleas in Philadelphia. “The banks always say that reaching out to homeowners, it’s a black hole. It’s so hard to connect with them. That’s what we offer, to connect with them.”
About 75% of eligible, struggling homeowners show up for and participate in mediation sessions in Philadelphia court rooms, and they have produced about a 35% success rate for about 14,000 loans according to an evaluation of the program to be released next month. Programs in Staten Island, NY and Bloomington, Indiana, have produced similarly high participation rates.
To be sure, not every mediation or modification results in significant savings for homeowners and it’s not clear how these modification will perform over time.
In the third quarter, modifications done in the HAMP program reduced monthly payments by an average of $585, almost double the $332 reduction in payments for modifications done outside the HAMP program. Those loans with modifications that reduced payments by 10% or more were almost twice as likely to be current than those loans with modifications that reduced payments by less than 10%.
by | ARTICLES, POLITICS
USA Today
Friday, January 28, 2011
The Financial Crisis Inquiry Commission was impaneled to describe to Congress, the president and the American people what caused the financial crisis. What it produced was a story about the financial crisis, but not what caused the financial crisis.
Both the majority report by six Democratic appointees, and the dissent by three of the Republican members, acknowledged that the U.S. and world financial system were badly hurt by the collapse of a huge U.S housing bubble. The bubble’s collapse was destructive, everyone agrees, because banks and other financial institutions in the U.S. and elsewhere held large numbers of U.S mortgages — or securities backed by these mortgages — which lost most of their value when the bubble’s collapse drove down housing prices.
Left out of both the Democratic and Republican accounts was the vital fact that although many other countries also had housing bubbles, the number of mortgage defaults in the U.S. was many times higher than in any other country. This would suggest that the underlying cause of the financial crisis was the particular weakness of the mortgages in the U.S. financial system — the likelihood that they would default when the U.S. bubble deflated.
In my dissent, I point out that before the financial crisis began in 2008, half of all mortgages in the U.S. financial system — 27 million loans — were subprime or otherwise high risk. This was an unprecedented number and a far larger percentage than in any bubble in the past.
Why were so many U.S. mortgages so weak? Both the Democratic and Republican reports ignored this central question. The answer is that it was Housing and Urban Development’s policy, from 1992 to 2007, to reduce mortgage underwriting standards so that more people could buy homes. Home ownership rates rose. But in 2007 it all came apart.
Then the finger-pointing began — and continued in the two commission reports. But the government cannot escape the numbers. Just before the financial crisis, government agencies, or institutions under its control, held or had guaranteed more than two-thirds of the risky loans that brought the financial system down. If we don’t change these government policies, we won’t escape the next crisis.
Peter J. Wallison is a senior fellow at AEI and a member of the Financial Crisis Inquiry Commission.
by | ARTICLES, CONSTITUTION
A friend of mine over at CATO, Ed Crane, sent me a link to an ad currently running in the Washington Post, Politico, and other papers. I wanted to share it with you because it’s a good effort to education people on Constitutional authority. Their thrust is that it’s good that the GOP wants the House to cite the Constitutional authority for new legislation, but there is a danger the response will be a casual reference to the Commerce Clause or the General Welfare Clause. This ad points out (for the benefit of Congress) the true intent of those clauses, including the Necessary and Proper Clause. This is work from CATO’s excellent Center for Constitutional Studies.
Click here to see the ad
by | ARTICLES, ECONOMY, OBAMACARE
Mitch Daniels does a great job on this opinion piece to the WSJ on February 7th. I have reposted the articles in its entirety below.
AN OBAMACARE APPEAL FROM THE STATES
Unless you’re in favor of a fully nationalized health-care system, the president’s health-care reform law is a massive mistake. It will amplify all the big drivers of overconsumption and excessive pricing: “Why not, it’s free?” reimbursement; “The more I do, the more I get” provider payment; and all the defensive medicine the trial bar’s ingenuity can generate.
All claims made for it were false. It will add trillions to the federal deficit. It will lead to a de facto government takeover of health care faster than most people realize, and as millions of Americans are added to the Medicaid rolls and millions more employees (including, watch for this, workers of bankrupt state governments) are dumped into the new exchanges.
Many of us governors are hoping for either a judicial or legislative rescue from this impending disaster, and recent court decisions suggest there’s a chance of that. But we can’t count on a miracle—that’s only permitted in Washington policy making. We have no choice but to prepare for the very real possibility that the law takes effect in 2014.
For state governments, the bill presents huge new costs, as we are required to enroll 15 million to 20 million more people in our Medicaid systems. In Indiana, our independent actuaries have pegged the price to state taxpayers at $2.6 billion to $3 billion over the next 10 years. This is a huge burden for our state, and yet another incremental expenditure the law’s authors declined to account for truthfully.
Perhaps worse, the law expects to conscript the states as its agents in its takeover of health care. It assumes that we will set up and operate its new insurance “exchanges” for it, using our current welfare apparatuses to do the numbingly complex work of figuring out who is eligible for its subsidies, how much each person or family is eligible for, redetermining this eligibility regularly, and more. Then, we are supposed to oversee all the insurance plans in the exchanges for compliance with Washington’s dictates about terms and prices.
The default option if any state declines to participate is for the federal government to operate an exchange directly. Which got me thinking: If the new law is not repealed by 2013, what could be done to reshape it in the direction of freedom and genuine cost control?
I have written to Kathleen Sebelius, secretary of Health and Services (HHS), saying that if her department wants Indiana to run its program for it, we will do so under the following conditions:
• We are given the flexibility to decide which insurers are permitted to offer their products.
• All the law’s expensive benefit mandates are waived, so that our citizens aren’t forced to buy benefits they don’t need and have a range of choice that includes more affordable plans.
• The law’s provisions discriminating against consumer-driven plans, such as health savings accounts, are waived.
• We are given the freedom to move Medicaid beneficiaries into the exchange, or to utilize new approaches to the traditional program, instead of herding hundreds of thousands more people into today’s broken Medicaid system.
• Our state is reimbursed the true, full cost of the administrative burden to be imposed upon us, based on the estimate of an auditor independent of HHS.
• A trustworthy projection is commissioned, by a research organization independent of the department, of how many people are likely to wind up in the exchange, given the large incentives for employers to save money by off-loading their workers.
Obviously, this is a very different system than the one the legislation intends. Health care would be much more affordable, minus all the mandates, and plus the consumer consciousness that comes with health savings accounts and their kin. Customer choice would be dramatically enhanced by the state’s ability to allow more insurers to participate and offer consumer-driven plans. Through greater flexibility in the management of Medicaid, the state might be able to reduce substantially the hidden tax increase that forced expansion of the program will impose.
Most fundamentally, the system we are proposing requires Washington to abandon most of the command-and-control aspects of the law as written. It steers away from nanny-state paternalism by assuming, recognizing and reinforcing the dignity of all our citizens and their right to make health care’s highly personal decisions for themselves.
So why would Ms. Sebelius and HHS agree to this de facto rewrite of their treasured accomplishment? A glance at the recent fiasco of high-risk pools provides the answer. When a majority of states, including Indiana, declined to participate in setting up these pools, which cover those with high-cost, existing conditions, the task fell to HHS. As widely reported, it went poorly, with costs far above predictions and only a tiny fraction of the expected population signing up.
If the feds can’t manage this little project, what should we expect if they attempt it on a scale hundreds of times larger and more complex? If it were only Indiana asking, I have no doubt that HHS would ignore us. But Indiana is not alone. So far, 21 states—including Pennsylvania, Texas and Louisiana—have signed the same letter. We represent more than 115 million Americans. Washington’s attempt to set up eligibility and exchange bureaucracies in all these places would invite a first-rate operational catastrophe.
If there’s to be a train wreck, we governors would rather be spectators than conductors. But if the federal government is willing to reroute the train to a different, more productive track, we are here to help.
Mr. Daniels, a Republican, is the governor of Indiana.
by | GOVERNMENT, HYPOCRISY, SOCIAL SECURITY
With all the pressing issues of the day, it is outrageous that the moderator of Meet the Press, Mr. David Gregory, spent so much time last week badgering House Speaker John Boehner about President Obama’s religious beliefs and citizenship status. Even though Boehner continuously stated he believed the President was a Christian and a citizen, Mr. Gregory was clearly disturbed with the fact that Boehner had not used his position as Speaker of the House to issue or enforce some sort of official statement. When Boehner replied that it was not his job to tell Americans what to think or believe, Gregory question his leadership capabilities.
Contrast Mr. Gregory’s attitude toward Senate Majority Leader Harry Reid during an interview a few weeks ago and the bias is quite apparent. Harry Reid actually proclaimed on Meet the Press that we are not in a crisis in Social Security, that the Social Security system is “arithmetically sound” and that the problem of Social Security was merely fiction — perpetuated by people who do not like government! Yet, on an issue of such monumental factual error, Mr. Gregory left the Senate Majority Leader’s gross distortion of facts completely unchallenged.
The bias and misinformation continuing to be disseminated by weekend political talk shows is deeply infuriating.
by | BLOG
At a recent dinner, I asked a friend of mine if he would join me as a supporter of the Tea Party but he balked at the idea. This intrigued me; I know that he champions smaller government and fiscal responsibility – policies the Tea Party stands for as well. When I pressed him, he admitted that there’s a feeling about the Tea Party that makes him uncomfortable.
This got me thinking. My experience with the Tea Party movement, at least in New York, has been nothing less than superb. I’ve met a true cross-section of people – entrepreneurs, office workers, doctors, retirees, young people. They are intelligent, decently educated, passionate individuals. It astounds me that there is a great disconnect between what the Tea Party stands for and what the public perspective is. People need to understand that the Tea Party is not what the press portrays it to be – it is not out-of-touch, crazy, or reactionary. The Tea Party is about smaller government, lower taxes, the Constitution, and individual liberty. That’s it.
I am sure that there are Tea Party followers who have off-the-mainstream and even strange opinions, as do followers of any group. For instances, some Tea Partiers may be pro-immigration, while others may not be. It doesn’t matter; that is, there is no right or reason for any Tea Partier to be saying anything about immigration reform in the context of the Tea Party. Such opinions are not relevant to their Tea Party association. And though these ancillary opinions would be disregarded in other organizations, they become front and center – for liberals and the press – who want to diminish the Tea Party or try to sow discord.
The Tea Party is a movement of ordinary American people who share an excellent philosophy. The fact that they continue to be targeted, tarred, and trashed by the left-wing media should be an outrage to all Americans.
The Tea Party will be successful by continuing to impress upon Americans – person by person – the need for restraint in government, in taxes, and in spending.
by | BUSINESS, POLITICS, TAXES
The truth about Obama’s remarks:
#1) ON TAX BREAKS FOR THE WEALTHY: “And if we truly care about our deficit, we simply cannot afford a permanent extension of the tax cuts for the wealthiest 2% of Americans. Before we take money away from our schools, or scholarships away from our students, we should ask millionaires to give up their tax break. It’s not a matter of punishing their success. It’s about promoting America’s success”.
FACT: The highest-income earners are the greatest investors. Investment is much more stimulative than consumptive spending; raising the tax margin punishes the earners and the economy – while theat extra revenue will go straight to the government. These top 2% earners also provide nearly 50% of small business income in this country; by targeting them, Obama is also hurting businesses.
#2) ON FIXING THE TAX CODE: “Over the years, a parade of lobbyists has rigged the tax code to benefit particular companies and industries. Those with accountants or lawyers to work the system can end up paying no taxes at all. But all the rest are hit with one of the highest corporate tax rates in the world”
FACT: This is purely populist rhetoric. Accountants and lawyers do not eliminate tax liabilities. And it is not so much lobbyists as it is legislators pandering for votes who put in provisions intended to help their own individual special interests. This happened in the 1986 Tax Act under Ronald Reagan, when tax rates from 50% to 28% in exchange for a large number of deductions and writeoffs. However, the ink was barely dry when Congress used that as an opportunity to jack the rates up from 28% to 39.6% — which lasted until the Bush tax cuts pushed them back a little bit.
#3) ON A FEDERAL FREEZE FOR FIVE YEARS: “I am proposing that starting this year, we freeze annual domestic spending for the next five years. This would reduce the deficit by more than $400 billion over the next decade, and will bring discretionary spending to the lowest share of our economy since Dwight Eisenhower was president”.
FACT: Obama’s federal freeze comes after he has increased our spending 25% in two
years. We need to go back to FY2008 and start from there.
#4) ON JOB CREATION: “We’ll invest in biomedical research, information technology, and especially clean energy technology – an investment that will strengthen our security, protect our planet, and create countless new jobs for our people”
FACT: “Invest” is just code for increased government spending. Here’s an example of the government picking industry winners and losers, something they have no business – or qualifications – doing. This policy will result in a net job losses – taking away from market directed companies in order to subsidize activities that cannot justify investment by the free market. A better and more impacting idea would be to give businesses research credits that companies could use and develop on their own.
#5) ON CLEAN TECHNOLOGY: “Now, clean energy breakthroughs will only translate into clean energy jobs if businesses know there will be a market for what they’re selling. So tonight, I challenge you to join me in setting a new goal: by 2035, 80% of America’s electricity will come from clean energy sources. Some folks want wind and solar. Others want nuclear, clean coal, and natural gas”.
FACT: There is no clear consensus on the best type of clean energy. This only means continued uncertainty in the business markets, which will hamper the rate of recovery.
