Kill All the Bankers

Kill All the Bankers
By Bruce Bialosky
10/10/2011

There have been many attempts – from every part of the political spectrum – to assign blame for the financial turmoil of late 2008. Judging from the recent New York protests and the reaction to the introduction of monthly fees for debit cards, there are still many people angry with bankers. Whether that blame is justified is addressed in a new book, by Gretchen Morgenson and Joshua Rosner, entitled Reckless Endangerment.

The economic downturn has affected almost every American, and, as you might expect, has inspired several books on the subject. Selecting the best one can be challenging, but, for my money, none is finer than Reckless Endangerment. In a little over 300 very readable pages, the authors explain exactly what happened and identify the people who really warrant responsibility for this disaster. The book is so clear and informative that when I was finished , I was puzzled how to synthesize so much valuable information into a single column – it truly is chock full of fascinating information, devious characters, and compelling events. When I spoke with Ms. Morgenson, she indicated that the reason they wrote the book was to set the record straight – and, hopefully, to prevent this calamity from happening again. Whether that can be done remains a mystery, as the actual reasons and the real culprits that caused these ill-fated events are barely known as evidenced by the protests.

Many pages are spent defining the role of James A. Johnson, the former head of FNMA (Fannie Mae) who disappeared from the company when his handiwork brought our country to the brink. Most people know him only as the temporary head of Barack Obama’s Vice-Presidential search committee, from which he was canned because of his shenanigans at Fannie Mae and because of his sweetheart loans received from Countrywide’s Angelo Mozilo for his multiple mansions. He subsequently slid back into obscurity, earning big bucks behind the scenes.

Mr. Johnson, a Democratic political appointee, revamped Fannie Mae (with Freddie Mac following right behind) from a sleepy quasi-governmental entity (called in Washington-speak a GSE – government sponsored entity) into a huge funder of loans that lined his pockets, along with those of his cronies. The book describes how his crew manipulated results to maximize bonuses for Johnson, his successor and right-hand man (Franklin Raines), and the rest of the people who were setting us up for a big fall. Johnson also established an expensive lobbying machine that immediately squelched any attempts to rein in the twin entities.

The book also points blame at players in private industry. But when I asked what surprised her most from her research, Morgenson, who is no novice to these issues (having covered them for years for both Forbes and the New York Times), simply answered: “How much government involvement there was in the process.”

Even pros like Morgenson could be confused because Congress has worked overtime to muddle the facts, mostly to point fingers at banks and mortgage companies. But when I asked Morgenson who was most liable for this mess, she replied that the offenders were, in fact, Congress, adding that while there was bipartisan responsibility, the principal blame fell on the Democrats. They wanted to expand home ownership to certain minority communities without considering the related risk, and it was Democrats such as Barney Frank and Christopher Dodd who were primarily responsible for stopping efforts to control Johnson and his cohorts. Private industry may have been greedy, but they were merely following the dictates of Congress to expand home ownership.

Mr. Frank, who seems to have been owned and operated by Fannie Mae, was one of the chief protectors of the GSEs. When asked in 2005 about the potential downside to giving loans to people financially ill-prepared to repay them, the cantankerous Mr. Frank answered: “We’ll deal with that problem if it happens.” Congresswoman Maxine Waters, his fellow Democrat, was another one willing to risk public funds based on ill-conceived schemes. Ms. Waters came to the conclusion that someone who made monthly rent payments could just as easily afford a house, so she pushed for even more ridiculous no-money-down loans. Waters seemed to overlook all the additional costs related to home ownership, such as repairs, insurance, and property taxes.

Before you buy into the need to control the banks that were – according to the litany of the Left – so ungrateful for being bailed out, pick up Reckless Endangerment to gain clarity on who dug the hole out of which we’re still climbing today. Then buy a copy for one of the Wall Street protesters; maybe they’ll learn that if they really want to protest this mess, they’ll have to hop onto an Amtrak train and march on Washington.
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Why The Federal Deficit is So Large
By Bruce Bialosky
10/3/2011

Federal entitlements, which comprise 60% of the budget, have been correctly identified as the root cause of our growing annual deficit. We certainly need to enact significant reforms of Social Security, Medicare, and Medicaid. However, in order to achieve some level of fiscal integrity, there is an equally important change that we must all accept – just saying no.

This became apparent when Congress went home for their August break without an agreement on an FAA funding bill – leaving 4,000 federal employees out of work for 13 days. The center of this dispute – and a pristine illustration of how callously Congress regards our money – is the allocation of hundreds of millions of dollars for construction and operation of airports so remotely located that they are, in effect, rarely used. Our Congress, far more comfortable with trading favors than budgetary discipline, continues to underwrite these pointless expenses when what we need more than ever is the ghost of Susan Powter to descend over our capital, screaming “Stop the Insanity!”

The preceding is just one example of our irrational spending habits. Here are others:

1. The Postal Service. The USPS was transformed in 1971 as an independent, self-supporting entity – which last year was underwritten to the tune of $8 billion. Congress should have dictated a balanced budget for the service years ago, but individual members demand that underutilized post offices remain open and that money-losing services are maintained. Of course, they have a franking privilege (free mailing), so it doesn’t affect them personally. If this boondoggle weren’t underwritten with OPM (other people’s money), this operation would have been either slashed or in bankruptcy years ago.

2. Defense bases. There is a legitimate debate about the cost of our defense, but unfortunately this contains too little discussion about the need to consolidate our military bases (principally because every time this topic arises, a national war breaks out). There’s no doubt that federal funds expended to support these bases inject a huge amount of money into local economies. In a time of overwhelming deficits, it’s time that Congress put the interests of the nation ahead of those of their individual districts.

Many bases could be reduced in size (or closed). Land could be sold off; excess supplies liquidated, and scrap metal exchanged for valuable dollars. Once again, this generally isn’t done because it’s OPM.

3. Underwriting illegal aliens. America has struggled with its budget for the last 30 years, with only a brief period where we weren’t racking up significant debts. And yet, somehow we’ve decided that we can provide extensive services to people who enter this country in violation of our immigration laws.

Let’s put aside for a moment the immense costs to maintain border patrol and deportation services. Why would a country that doesn’t have enough funds to cover its most basic responsibilities take on the obligation for health care and education for those who came here illegally?

We can sympathize with those people who risk their lives to come here from countries that offer them little or no opportunity. However, it is not our obligation to fund their needs – if it were, then we should also be writing monthly checks to the people of Haiti, Cambodia and Sudan. Despite massive deficits, the Obama Administration has chosen to abandon deportation efforts for illegal immigrants who are not convicted felons.

California, which has not had a balanced budget in ten years despite a legal requirement to do so, recently enacted a law to provide college financial aid to children of illegal immigrants. The bill allows access to taxpayer-funded assistance for students who came to the country before age 16, attended a California high school for at least three years, and graduated (a cartoon character could accomplish that challenge.) Ironically, this law was passed in the same session in which the legislature cut funding to the UC and Cal State systems, resulting in fee increases for American citizens of up to 40%.

4. Emergency costs. No one in their right mind would argue that our governments shouldn’t help Americans affected by a major calamity such as a hurricane, earthquake or tornado. But where does it say that we should underwrite individual losses?

Saving lives, repairing roads and railways, and providing aid to temporarily displaced citizens is a basic aspect of government. Unfortunately, a significant amount of the losses are due to individuals living or building in hazardous areas. If insurance companies won’t insure these people, why should the government step in and cover the cost?

All of these outlays have a common element: parochialism greased by OPM. If elected officials ever thought beyond their own next election and realized that not only is the money not theirs to spend, but it is money we can’t even afford, they might actually reconsider their votes.

There is always another need, but do we have to pay for all of them? Leftists are always screaming about how Republicans want to put grandma out of her house and starve children. What the GOP actually wants is for government to cut back where it is responsible to do so.

If the Super Committee looked at these areas, they could save billions of truly wasted dollars. Our new Congress has recently displayed the ability to do the right thing and cut unnecessary programs. If they did it again, America might once more discover the road to fiscal sanity.
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To read another article by Bruce Bialosky, click here.