...And You Remove All Reason and Logic

The New Yorker has this analysis of the rate freeze that Secretary Paulson has brokered. It focuses on only one of the five points of why I thought this rate freeze is bad and dangerous policy. It does concur on that point, which is that this rate freeze will only marginally help those it intends to anyway.

Although the plan will provide real relief for at least some homeowners, it’s more like a Band-Aid than like the major surgery that some of the hype makes out. That’s because at this point interest-rate resets are just a small part of the mortgage-market problem. Postponing rate resets doesn’t change the fact that too many people spent far too much borrowed money on houses with prices that were far too high, and that they are now stuck in homes that they can’t really afford and can’t sell. Even with the interest-rate freeze, foreclosures will keep rising

I believe the article is largely right, and from experience I believe that most sub prime borrowers just simply overbought. They took on property they couldn't afford. I believe that the rate increase would only perpetuate not create the problem. (Please note there is a great deal of debate on this point within the industry so my view is not a given. Some people do believe that it was in fact the rate increase that started the problem).

That said, there was something else in the article that is even more concerning.

Not for everyone, though. The plan sets up a system of triage, separating borrowers into three categories: those who will be able to keep paying after the rates reset, or else refinance their loans; those who can pay now but won’t be able to when the rates go higher; and those for whom even the current rates are too high. Only the second group will get help. Also, the plan doesn’t go into effect until next year—if your loan resets on December 31st, you’re out of luck.

In other words, what this plan will do is punish responsible borrowers and reward irresponsible borrowers. Think about what this article is saying for a minute. If you happen to be holding onto a subprime loan and you can afford the new higher payment, the rate freeze doesn't apply to you and you are forced to take that higher payment. If, on the other hand, you could afford the lower payment but not the new payment, you will have your lower payment frozen for you. Does this make any sense? How could the government possibly institute a policy that rewards irresponsible borrowers and punish responsible borrowers and think this will have anything but a disastrous effect?

Furthermore, how exactly is one to determine who can and can't afford the payments? They are going to freeze rates that are going to reset in the future. We are talking about millions of loans. What are the parameters? Who will decide? How can this turn into anything but a bureaucratic nightmare? This is a process that will be ripe for fraud, manipulation, and chaos. Again, this is a textbook example of a moral hazard. Government continues to believe that they can create a moral hazard with a positive outcome, however they do it by removing all logic and reason.

This process is going to fraught with litigation. Imagine if you are one of the borrowers that is determined to be able to pay the new loan, what is the likelihood that you will look to sue to drop your rate? What if you were a borrower that was wise enough to take a higher fixed rate? What is the likelihood you will look to have your rate lowered artificially? How can anyone possibly justify rewarding the irresponsible while punishing the responsible? There is no way this would pass legal mustard. The worst part is the absurdity is spelled out in the plan itself.

Rudy On Leadership, the GWOT, Healthcare and More

I had a chance to see Rudy Giuliani speak at the Italian American Sports Hall of Fame in Chicago on Friday. While I don't necessarily have too much reference point, I do believe that in most ways this was much like any campaign towhall meeting and speech. It was still quite illuminating nevertheless.

I believe you can tell a lot about a candidate's agenda by what they focus on during such a meeting. The first policy that Rudy spoke about was illegal immigration and how important it is to finally get a handle on it. His newfound commitment towards combatting illegal immigration will no doubt be met with skepticism and controversy by many of my conservative colleagues. Unfortunately, it is one of those debates that is in many ways pointless. There will be plenty that will look at his prior New York City record and concluded based on past performance that he isn't serious. There will be those like me that will look at his current plan for illegal immigration and say he always gets accomplished what he sets his mind on. His plan involves beefing up the border patrol, building a fence technological and real, and creating a tamper proof ID card. Thus, take it for what it is worth.

His thoughts on the GWOT were no doubt general. His first thought vis a vis the GWOT is that we must stay on offense. This has became his calling cry with regards to this issue. He believes in victory in Iraq and he defined that as an Iraq that is an ally not an enemy in the GWOT. He believes that it is NOT an option to allow Iran to get nuclear weapons. He also mentioned that Pakistan must be worked on though frankly besides vague ideas his plan was short on specifics. Some might take this as a sign that he may not be the right person however I would humbly disagree. Rudy has a long and very successful history in confronting and beating bad guys. As U.S. Attorney, he took on and defeated the mafia in his district. As Mayor of New York City, he took on the criminals and beat them lowering crime dramatically. He has a history of taking on bad guys. He has a history of beating them. While the terrorists may not be a perfect comparison to the bad guys he has a history of beating, his prior accomplishments can't be ignored when determining the best terror warrior.

The most fascinating portion of the meeting, for me, came in his answer regarding health insurance. Rudy's plan to revolutionize health care is entirely conservative. The hallmarks are lower taxes, health savings accounts, and market principles. He believes that much of the problem comes in the fact that people don't usually choose their own health insurance. Since most get it through work, it is essentially chosen for them. As such, when it comes to health insurance, people aren't the dutiful consumers that they are towards other products and services. Through credits, tax breaks, and health savings accounts, Rudy believes that individuals will be able to not only buy their own health insurance but at a lower cost than they normally do. In many ways, Rudy's vision of health care mirrors that of John Stossel's. Consumers drive down the price of everything and drive up the quality, and we must give the consumer choice back to the individual. He does it through health savings accounts, credits, and tax breaks. He also pointed out that our litigious society has created an environment of defensive medicine and higher costs. He proposed that the loser of any lawsuit must pay for the costs of both parties to limit many of the more egregious lawsuits.

On taxes and spending, Rudy tried to wake up the echos of Ronald Reagan. He stressed over and over his commitment to limiting the size of government. It was his solution to a whole host of economic related problems. He pointed out that limiting the size of government is largely done through leadership. He pointed out that none of his deputies in New York City ever came to him asking to make the budget for their respective department smaller. Thus, it was ultimately up to him, the Mayor, to stand firm in limiting the size of government even if he had to take on his own administration to do it.

He spoke about productive and unproductive taxes. An unproductive tax is one that is among the most extreme when compared to the civilized world. For instance, he pointed out that our corporate income tax is one of the highest in the entire civilized world. He said that if we merely lowered our tax so that is closer to the middle not at the top that it would keep a lot of the business we lose. He said his tax policy would focus on identifying and lowering those taxes that he determined to be unproductive.

He ended the meeting with an answer to something dear to my heart, the mortgage crisis. He said that he thought Paulson's plan to freeze rates was a good idea. I was quite put off by this question, and and if you want to know why please read this. He also said something very interesting right afterwards. He said that he believed that it was a good idea especially in light of pending Congressional action. I took this to mean that this was the least of two evils. If freezing rates means halting action on such things as H.R. 3915, then while it is still not a good idea it might be better than the alternative.

He was asked how he would confront the mortgage crisis, and this he answered perfectly. He pointed out that the duty of the President is NOT to focus on any given segment of the market but rather to be a proper momentum builder for the economy as a whole. He believed that shrinking government and waste would not only strengthen the economy but the housing market. One can take this as a canned answer, and to some extent it is, however I personally find it a positive that a Presidential candidate doesn't feel the uncontrollable urge to tinker with every portion of the economy that may be going wrong at any given time.

The meeting was revealing not only for what he said but what he didn't say. There was absolutely nothing about any social issues. Clearly, Rudy is trying to downplay his socially liberal record as much as possible and frankly his supporters didn't much care because there were no questions. I was surprised that he didn't touch at all on judges as well, though I assume his public unabashed support for strict constructionists holds. He also said nothing about guns or the environment as well. Rudy took out a lamenated card that had his twelve commitments. That is where I believe his focus will be in his administration. If you are worried about Rudy's position on any matter, check the twelve commitments. If that position isn't on there that, it is unlikely his administration will spend much time on the issue anyway.

All in all, I found Rudy to be quite charismatic and charming, still maybe not quite Mike Huckabee, but charismatica and charming nonetheless. At one point, a voter revealed that not only was he a supporter but also a registered Democrat. Rudy, spontaneously, came over and gave the man a big bear hug. I continue to maintain my support for him, and all reasons stand. He is a proven leader. He has a proven track record. He has a proven history of shrinking government, cutting waste, cutting taxes, expanding choice, and confronting bad guys. In this day and age, I believe that is exactly what we need.

Analysis and Reaction to Mitt Romney's Speech

Mitt Romney gave a speech many believed he needed to give discussing his faith. I didn't hear it or see it so I will act merely as a sort of weigh station of news and reaction to it.


Power Line has audio of the speech and a full transcript.

Over the last year, we have embarked on a national debate on how best to preserve American leadership. Today, I wish to address a topic which I believe is fundamental to America's greatness: our religious liberty. I will also offer perspectives on how my own faith would inform my Presidency, if I were elected.

There are some who may feel that religion is not a matter to be seriously considered in the context of the weighty threats that face us. If so, they are at odds with the nation's founders, for they, when our nation faced its greatest peril, sought the blessings of the Creator. And further, they discovered the essential connection between the survival of a free land and the protection of religious freedom. In John Adams’ words: 'We have no government armed with power capable of contending with human passions unbridled by morality and religion... Our constitution was made for a moral and religious people.'

Freedom requires religion just as religion requires freedom. Freedom opens the windows of the soul so that man can discover his most profound beliefs and commune with God. Freedom and religion endure together, or perish alone.

Given our grand tradition of religious tolerance and liberty, some wonder whether there are any questions regarding an aspiring candidate's religion that are appropriate. I believe there are. And I will answer them today.

The view from the right blogosphere was generally impressed.

He appealed to religious liberty, the liberty that America was founded on. He pointed to what a lack of religious freedom can lead to. And I think he did an excellent job of showing Americans that he is indeed an ally in the fight for the collective faith of all Americans and the religious freedoms we too often take for granted.

The right punditry was more balanced.

There was much in the speech that evangelicals and other religious conservatives will find to their liking. First, there was Romney's treatment of religious liberty. He said it is an inalienable right "with which each is endowed by his Creator." He implied it is, amongst all our liberties, the very first. Romney said he understood the religion clause of the First Amendment as being fundamentally about securing "the free practice of religion" and pointed out that while achieving religious liberty has been a long and arduous process, its benefits--"diversity of cultural expression" and "vibrancy of .  .  . religious dialogue"--are evident and contrast sharply with what you find in Europe, where established churches seem to be "withering away."

Second, Romney took a whack at those (unnamed) who take "the notion of the separation of church and state .  .  . well beyond its original meaning" by seeking "to remove from the public domain any acknow-ledgment of God." It is, he said, "as if they are intent on establishing a new religion in America--the religion of secularism. They are wrong." Romney called for public acknowledgments of God--"in ceremony and word." God "should remain on our currency, in our pledge, in the teaching of our history, and during the holiday season, nativity scenes and menorahs should be welcome in our public places." Romney even managed to work in a reference to judges, saying we need jurists who will stick to original meaning and let stand, for example, "under God" in the Pledge of Allegiance.

Third, Romney affirmed that religion is a force for the nation's well-being. "No movement of conscience can succeed in America that cannot speak to the convictions of religious people," he said, citing as examples abolition in the 19th century and civil rights in the 20th. He also mentioned "the right to life itself," a movement not yet finished--and clearly of importance to many Republican primary voters.

The rest of the punditry was a lot more mixed. Here is some from E.J. Dionne.

Romney's speech at the George H.W. Bush library in College Station, Tex., was by turns brilliant and frustrating, inspiring yet also transparently political in its effort to find the precise balance that would satisfy Republican primary voters.

When he spoke of the dangers of subjecting candidates to doctrinal investigations, Romney had perfect pitch. His opponents -- particularly Mike Huckabee, a Baptist minister who is reaping a great harvest of evangelical Christian support in Iowa -- should join him in warning against religious bigotry.

"There are some who would have a presidential candidate describe and explain his church's distinctive doctrines," Romney said. "To do so would enable the very religious test the Founders prohibited in the Constitution. No candidate should become the spokesman for his faith. For if he becomes president, he will need the prayers of the people of all faiths."

There was also his poetic assertion that "we do not insist on a single strain of religion -- rather, we welcome our nation's symphony of faith."

But in light of all this, it was a neck-snapping moment when Romney declared: "What do I believe about Jesus Christ? I believe that Jesus Christ is the Son of God and the Savior of mankind."

With those words, Romney legitimized the most fundamental test being imposed on him in some evangelical Christian quarters. He was telling them he deserved an "A" on the religious exam they cared about most. He has every right to declare his faith in Jesus, but didn't his profession, in this context, undercut his central and proper contention that a candidate should not be asked to "describe and explain his church's distinctive doctrines"?

Here is one from the Salt Lake Tribune...

The Creator] should remain on our currency, in our pledge, in the teaching of our history, and during the holiday season, nativity scenes and menorahs should be welcome in our public places.

Clearly a nod to religious conservatives who are pushing for religious expression in the public sphere.

So many of the [European] cathedrals now stand as the postcard backdrop to societies just too busy or too 'enlightened' to venture inside and kneel in prayer.

This speaks to the fears of the religious right that if they don't protect and promote religion now, America will go the way of secular Europe.


Infinitely worse is the other extreme, the creed of conversion by conquest: violent Jihad, murder as martyrdom. . . . killing Christians, Jews, and Muslims with equal indifference. These radical Islamists do their preaching not by reason or example, but in the coercion of minds and the shedding of blood.


This is pure religious right rhetoric, but it is also offensive to Muslims to use "Islamists" as a term of fear and horror.


We do not insist on a single strain of religion - rather, we welcome our nation's symphony of faith.

The "symphony of faith" may be Romney's best metaphor, but critics are already using it against him, pointing out that humanists, agnostics and atheists seem to be excluded from playing.

Finally, just for fun here is the view from the Kos.

He didn't say the word "Mormon" once, I don't think. [UPDATE II: Final word count score -- Mormon: 1; Muslim/Islam/jihad: 5] So to the extent that you bought the hype and tuned in because you had genuine questions about the LDS church, you came away empty-handed. And possibly with the nagging feeling that Romney's hiding something after all.

What the speech did succeed in showing is that the Romney operation is the nearest successor (to date) to the Bush operation in its willingness to play the press corps for suckers. Promise a "major address" on some pressing issue, play the expectations game according to the Conventional Wisdom -- that is, raising the stakes by having surrogates use back channels to inflate expectations about the importance of the substance to be addressed -- and then turn it all on its head by delivering nothing of what was promised, and daring the press corps to write their stories with their pants down, having played into the game of promising something big.

The other master stroke here was the choice of venue: the George H.W. Bush Presidential Library. That puts the Romney name next to the Bush name in the papers -- a grab at the mantle, if people will just look past the "H" -- and it allows Romney to deliver what was essentially Republican religionist pablum (I believe in God, He should be on our money, plus we need "our kind" of judges) from behind a podium bearing the presidential seal. A media consultant's dream come true, and what should be a fat bonus for the advance team (but they never get the money).

Update on the Rate Freeze

Several business journals have recently come up with editorials that echo what I have been saying about the rate freeze. Here is a snippet from IBD...

The flaws of the plan are many and fatal.

First, the deal will reward irrational behavior and encourage such behavior by homebuyers in the future. It was not logical for people to take out mortgage obligations they couldn't afford, but it will become logical for them to do so in the future if they can reasonably expect that the government and their lender will later bail them out when the going gets tough.

Second, the deal will thwart the market by keeping home prices artificially high. In recent years, laughably easy credit has let many people "buy" homes who otherwise could not have done so, pushing up prices.

We've had "liar" loans, in which people could just state their annual income without fear that their mortgage lender would call their employer to check. We've had "Nina" loans, for "No Income, No Assets." And we've had "Ninja" loans, for "No Income, No Job or Assets." Consumers, armed with the easy money provided by these silly terms, have pushed home prices to record levels when they're measured against personal income, making falling home prices not only inevitable but healthy.

Here is the view from Forbes...

Decried as a bailout of irresponsible borrowers by some and a financial industry wrist slap by others, the plan is not mandatory for the financial industry, though more than three-quarters of lenders and servicers say they embrace the idea. The biggest, Countrywide Financial, Wells Fargo, Citigroup and JPMorgan Chase, who collectively service $4.3 trillion in mortgage loans, all support the plan.

Still, independent mortgage-servicing firms, some of which are not overseen by federal banking regulators, could opt out, leaving their borrowers still vulnerable to foreclosure.

And investors may not like it. The financial industry lobby worked aggressively to make sure the plan included indemnification for them so investors of bonds backed by these mortgages won't sue them after lenders change the terms of the loans. The more lenders who volunteer to join the program, the less vulnerable they'll all be to lawyers, saying it had become industry practice.

Another issue: The plan only applies to those who are current in their mortgage payments but who are determined to be unable to afford higher reset rates. It won't apply to those who are already faltering, and it won't apply to those who face resets but are deemed able to afford it.

That raises the inevitable moral hazard question. "I'm very skeptical of this," says Bert Ely, a banking regulation consultant in Arlington, Va., who was among the first to say in the 1980s that there would be a taxpayer bailout of the federal deposit insurance fund in the midst of the real estate lending crisis of that decade. "It's government-sponsored collusion."

Finally, here is the word from the Wall Street Journal

The next time we suggest that the government give advice to the private sector, tie us down until the fever passes. A couple months ago, we endorsed the idea of mortgage service companies voluntarily negotiating with subprime borrowers and investors to avoid a wave of defaults next year.

Now come the politicians to wrap their arms around the idea, and maybe give the U.S. a reputation for forcibly rewriting financial contracts. Don't cry for us, Argentina?
Both Treasury Secretary Hank Paulson and the White House are touting a plan to freeze interest payments on up to two million troubled mortgages.

This one from the New York Post falls into the category of why don't you tell me how you really feel...

Yet this plan, bad as it is, has little chance of helping most of the people who face the possibility of foreclosure - after all, 1.5 million Americans will see their mortgage rates "reset" to higher rates next year.

So Treasury Secretary Hank Paulson will propose to Congress to let cities and states issue tax-exempt debt to bail out even more borrowers.

Cities and states would borrow billions and lend the money to "homeowners" (in fact, these borrowers don't actually "own" their homes; they only own the mortgage). The "homeowners," in turn, would use the money to pay off the mortgages they can't afford - and take out new, more affordable mortgages with their city or state government. (Not all tax-exempt debt is guaranteed by the city or state that issues it, but this debt would have to be - no private investor will touch this risk right now for an interest rate that would be "affordable" to these borrowers.)

The whole idea is disastrous - and not simply because it is massive government interference in the private markets. The problems are almost too painful to describe:

Finally, in response to to my previous work on this, I received this ANONYMOUS comment...

As a threshold matter, I treat any comment that begins by citing a politician with a healthy dose of skepticism. I'm not knocking politicians for doing their jobs. I'm just stating the obvious--their views are extremely skewed.As for freezing Rates, while I respect the poster's opinion, it is built on a false premise. One artificially jaded by his admitted "insider" position. In plain English, the arguments seems to be as follows: Capitalism depends on freedom to contract. When this freedom is interrupted, the system breaks down and everyone suffers the consequences for a few bad decisions. In the poster's view, the present mortgage crisis was largely created by a few economically and intellectually inferior individuals taking on financial burdens they should have known they could not carry. Now, according to this view, the government is interfering with an important moral and intellectual lesson that the gullible, but benevolent lenders are poised to teach. Moreover, because of this, the banks will be forced to retaliate by raising everyone's rates.As previously stated,
this position is replete with foundational flaws. First, lenders may be gullible, but they are far from innocent. Brokers, Banks, and title companies have, for several years (at least), colluded to mislead so-called sub-prime consumers who approach them from a bargaining disadvantage due to their, again, so-called spotty credit profiles.

Tellingly, the prime/sub-prime distinction is a banking industy invention intended to allow banks to charge usurious interest rates. And, hidden finance charges, fees and penalties have increased the number of technical defaults (via hidden universal default provisions) and (along with other predatory practices) have resulted in an increasingly small prime consumer population. But, as of late, the mortgage industy has taken deception to a new low. Which brings me to my next point. Other than credit histories (many of which--despite the Fair Credit Reporting Act and consumers' diligent efforts to update the information--contain vague and/or incomplete negative references many years old), the vast majority of sub-prime homeowners are just as financially able as prime consumers. They are doctors, lawyers, accountants, CEOs, etc. The average sub-prime homeowner pays his mortgage, his HOA, and his taxes on time, despite paying, in many cases, twice as much as his counter-part for the same home.

Contrary to the most prevalent explanation, it is not their ability to pay for the house they purchased that is at issue. Instead, it is their ability to pay the concealed premium on that house that neither they nor their counter-part can afford.

Take for instance, the Jumbo two-year interest only ARM. If you believe the poster, these people were fully informed about the affect of the LIBOR index (or, at least, knew what it was) on their loans after the 2-year interest only period. They knew that the interest capped out at, say, 12.7% from a teaser of 7.0% and that the rate would reset multiple times (every six months). They were also informed that very few if any finance companies would refinance such a loan. I think not.

This characterization strains credability and common sense. No one would knowingly agree to such terms. The Brokers and the lenders with their secret kick-back deals assured these consumers that, though the loan would reset (giving no mention of multiple resets or the actual dollar value of the payment increase), the consumer would refinance before then. They also routinely fail to explain the variabl interest rate provision of the contract, in part, because they can't understand the LIBOR themselves. If they do understand, they know that the deal would be dead on the table if they told the customer that his payments would go from $3700.00 per month to $5000.00. So, instead, they point to the page and vaguely reference a reset at the end of the 2-year period, skipping any details. If, by chance, they are selling to an attorney, they simply let the person read it. But, unless you work within a lending institution and regularly deal with such provisions, even an attorney will be completely lost (One does not usually have the final documents until he is sitting at the table at the title company). So, most will rely on the broker's interpretation, thinking, "at worst, I will have to refinance at the end of the term." So, the customer is a little gullible too.

Finally, as to the legal implications--and I'm an insider on this issue--this country has not seen the magnitude of litigation against major banking institutions that is currently in in the pipeline since Worldcom.

Now, this is naive and misleading on several levels. First, clearly this poster hasn't read all of my work, but just this piece. Had they read this piece, they would have known that I blamed five entities working in cohesion: the banks, Wall Street, the mortgage broker, the borrower, and the Legislature. Had they read this piece, they would have known that I even laid much blame for starting this crisis on Alan Greenspan.

Now, since the poster naively claims that my claim is flawed because I only blame the borrower, which I don't, I can stop now in the analysis, however I won't. They falsely claim that sub prime and prime don't have any difference in terms of income. While it is true that income is, in and of itself not the factor that determines prime or subprime (debt to income is), it is just a plain lie to claim that sub prime is not much more skewed towards the poor. Through logic and experience I have learned that while sometimes wealthy people have as poor a credit profile as poor people, I have learned that on the whole wealthy people have a much easier time paying their bills and thus have better credit.

They claim that it is the hidden part of the contract that sub prime borrowers can't pay. Again, in my six years, I know that overwhelmingly people buy homes at a higher price than they intended. That is my back up for my supposition, the poster gives no evidence for their hypothesis. They also claim that the paperwork is too difficult and thus the borrower is then not held responsible for the signature they gave to it. First, I pointed out that Congress has created an atmosphere in which it is easier to rip someone off. Second, that is pure hogwash. If you can't understand what you are signing, don't sign it. I had a twenty three year old that spent nearly six hours at the closing because he literally read and understood every word in every document before he signed. Good for him because he wasn't "gullible". To claim that the language was to complex and thus people agreed to things they wouldn't have is not only fellacious but irrelevant. They agreed to them and their signature is proof.

Then, he claims that sub prime is nothing more than a means for banks to charge outrageously high rates. While the rates are much higher, this poster would be surprised to learn that banks use a sophisticated manner in which to reach those rates. For the most part, borrowers get what they deserve. While sub prime is higher, it also excuses such things as bankruptcy, foreclosure, multiple mortgage lates, low credit scores, and sparse credit history. No one is forced to take on any rate, however if someone gets a sub prime loan it is almost always because that is exactly what they deserve.

Finally, they claim that my concern of the litigation nightmare in unwarranted because it won't rival Worldcom. That absurd statement speaks for itself and needs no counter.

Why Freezing Rates is Bad and Danerous Policy

According to Fox News, the President has reached an agreement to freeze rates on Adjustable Rate Mortgages for five years.

Congressional aides say the Bush administration has hammered out an
agreement with industry to freeze interest rates for certain subprime mortgages
for five years in an effort to combat a soaring tide of foreclosures.

These aides, who spoke on condition of anonymity because the details have not yet been released, said the five-year moratorium represented a compromise between desires by banking regulators for a longer time frame of as much as seven years and industry arguments that the freeze should only last one to two years.

Another person familiar with the matter said the rate-freeze plan would apply to borrowers with loans made at the start of 2005 through July 30 of this year with rates that are scheduled to rise between Jan. 1, 2008, and July 31, 2010.

This is a dangerous and bad policy on several levels.

1)Whenever the government steps in on a private contract and renegotiates it, it leads to all sorts of unintended consequences. In this case, banks use extremely sophisticated modeling techniques to determine the interest rate that borrowers receive. Those models take into account whether or not a rate will eventually begin to move or not. By freezing rates for five years, he has thrown those models totally out of whack. In other words, the risk profile of these loans no longer matches the rate as determined by the models. This not only throws banks out of whack but Wall Street as well that turned those mortgages into bonds.

Whatever liquidity problems are currently in the market, those are nothing like the liquidity problems that will be created when loan terms are changed wholesale. If banks don't receive the rate, and the underlying payment, that they expected, then we will really see some liquidity issues. Remember, one, banks expect to take homes when payments aren't made, and two, they expected certain interest rates and payments from mortgages. Now, they will get neither, and their money is tied up expecting both.

This nightmare is further perpetuated because the definition of sub prime is not clearly defined. For instance, one of the big problem mortgages are option arms. Many of these mortgages are what we refer to as monthly ARM's. That means their rate changes every single month. If Bush includes these into sub prime, he will simply create a nightmare for the banks. Since they are monthly ARM's you can bet that much of the underlying rate was based on a model that had that rate moving every month. If that rate is now frozen for five years, you can bet that banks will take a giant financial hit.

Keep in mind that if you don't care if banks take a hit, you should. If they take a hit, they will pass that hit onto the consumer in terms of higher rates on all future mortgages.

2) Bush has now also created a moral hazard. The folks that he is saving took on a mortgage profile, a rate that adjusts, that they shouldn't have. This was entirely by choice. Now, he is stepping in and stopping an event that is supposed to happen to an Adjustable Rate Mortgage. Instead of learning a difficult and valuable lesson, these folks will now get the message that risky financial moves can be met with government interference to save them before those risky moves turn into consequence.

3)Bush has now created a litigation nightmare. There are all sorts of folks that are currently in fixed rates, five year Arms, and other loans in which their rate either doesn't adjust or hasn't yet adjusted. Those folks are holding onto mortgages with higher rates than the folks who's rates he has artificially frozen. They will all scream bloody murder and demand that their rates be adjusted downward. They will be right. Imagine if you took on a fixed rate which was a higher rate than the equivalent adjustable rate. You did this with a certain financial loss, at least initially, because that rate was higher and with it the payment. Now, you hear that folks that didn't take the same precautions as you are now having their rates frozen for them artificially and will now enjoy lower rates, artificially again, for at least five more years. You would, rightfully so, feel entitled to the exact same rate. You would likely get a lawyer and I firmly believe that Bush has now opened banks up to all sorts of lawsuits.

4)Finally, and this is coming from an insider. This rate freeze isn't going to do anything of substance. The people that Bush thinks he is helping are in over their heads. I know because 99 times out of a 100 my borrowers always bought a property that was more expensive than one they claimed they wanted to buy. The sort of sub prime borrowers that Bush thinks he is helping are irresponsible. They bought 250,000 dollar homes when they could only afford 200,000 homes.

That dynamic is not going to be changed by freezing rates. These folks maybe able to afford to make these payments for a while longer but not forever. They are still in over their heads. Also, what about all of those folks that are in Prime loans that are adjustable rates. Won't they also demand that their rates be frozen? Won't everyone who is on time demand that their rate either be frozen or lowered? By helping the most desperate and the most irresponsible, Bush has now opened up a can of worms that he frankly can neither predict or control.

EPILOGUE:

Now, a mortgage colleague of mine tells me that a radio report says that the only loans that will be affected will be those that are according to him, "on time". On time is rather nebulous. For instance, on time could mean current. It could also mean always on time. If he is only helping those that are always on time, then he is frankly taking all sorts of profit potential away from banks, because those folks most likely would have continued to be on time with or without the freeze. If he is talking about those that are on time now, but have been late, then he is delaying the inevitable. Either way, if it isn't defined clearly, I can assure all that it will be another litigation nightmare.

My Hubris Moment Vis a Vis Susan Estrich

I know that I am threatening to step over the lines of political analytical hubris as I disect this piece by Susan Estrich, however I will explain later what gives ME the right to challenge such an accomplished political operative. Before that, here is some disclosure. I am NOT a Huckabee supporter, and he wouldn't even be in my top three choices for the Republican nod. (I am a Rudy supporter)

Huckabee is now a bona fide contender because the knives are out all over the place for him. For instance, Rick Moran wrote this scathing analysis.

But Mike Huckabee is not a conservative – at least not any kind of conservative that I would recognize as such. His tenure as Arkansas governor was marked by a corn pone populism – part Huey Long and part Jimmy Carter along with a massive increase in the tax burden on the individual taxpayer in his state as well as a sharp rise in spending. Huckabee channeled the ghost of Huey Long in his funding of state road improvements – largely through a hefty gas tax increase and a controversial bond issue. He also put a $5.25 premium on nursing home patients and raised the sales tax in the state. The Club for Growth detailed his “conservative” tax policy and ideas:

...

The Club for Growth isn’t the only fiscally conservative group that has looked in askance at Huckabee’s record. The Cato Institute was also unimpressed by Huckabee’s tenure as governor. They gave him an “F” in fiscal policy for 2006. Hucksterites will point to his $80 million tax cut package he pushed through the legislature that eliminated capital gains taxes on home sales and indexed taxes to the inflation rate. But that’s just a drop in the bucket. While Huckabee claims to have cut taxes 90 times totaling $378 million, the state’s Department of Finance and Administration says he also raised taxes 21 times that brought in a whopping $883 million. Under his “conservative” governance, the “average Arkansan’s tax burden” went “from $1,969 in the fiscal year that ended June 30, 1997, to $2,902 in the fiscal year that ended June 30, 2005, including local taxes.”

Red State is having a virtual orgy of scathing analyses of Mike Huckabee. Michelle Malkin has weighed in negatively on her forte, illegal immigration. It is obvious that the right is now picking apart every nook and cranny of his record. I have never been one to look this deeply at anyone's record. I know that in reading some of the most extreme analyses of Rudy's record that a lot can be twisted. I HAVE FOUND that detractors and supporters alike have totally misanalyed the phenomenon that is now the candidacy that is Mike Huckabee.

It really comes down to two words: charm and charisma. Those are universally appealing qualities and Huckabee has them in spades. He far exceeds those qualities compared to any of his Republican opponents, and matches even Barack Obama in those two qualities. He has a solid resume to boot which is something Obama doesn't have. Charm and charisma is the simple and succinct explanation for his tremendous appearances in every debate, and he exhibits those two qualities in every interview and appearance.

This brings me back to Susan Estrich. Now, the reason that I have decided to put Estrich in my cross hairs and not everyone of my colleagues is that she doesn't simply misanalyze Huckabee but the entire state of our party. Second, she is a Democrat and with all due respect to her, she knows less than me, a Republican, about the dynamics of our party. Now, here is a sampling of her analysis.

Huckabee is an interesting guy. He is a straight shooter, a former Baptist minister, a born-- not born-again--conservative.

But as a Democrat, am I worried about Hillary or Barack taking on this former Arkansas governor?

Not a little. Certainly not a lot.

Not only is he out of step with the rest of America, as opposed to the right tail of the right tail of the Republican party, which is to say the religious conservatives who dominate the caucus and primary process, on social issues, but his proposals in such areas as federal taxation and especially Social Security are enough to make any Democrat’s mouth water.Not that anyone loves taxes, but eliminating the IRS and progressive tax system and replacing it with one that puts a flat tax on all consumption, which is the most regressive way to pay our bills, doesn’t have political winner written all over it. It’s one of those ideas that people with no chance of winning run and lose on. Think Steve Forbes. It’s not one you want to defend in the World Series.

But that’s nothing compared to his proposal to get rid of the payroll tax for Social Security, and his support for private retirement accounts. Did anyone say Florida?

There is plenty to blast here. First, the minute you don't take someone seriously as an opponent is the moment your opponent defeats you, just ask USC about their loss to Stanford, the Soviets about their loss to the U.S. in 1980, Georgetown about their loss to Villanova, and the St. Louis Rams about their loss to the Patriots in 1999.

Second, while she claims that most of his proposals aren't mainstream, she backs none of it up with data. She claims ridiculously that the flat tax is a loser by attaching it to Forbes. The Flat Tax is not necessarily a loser, Steve Forbes is. The flat tax is new and revolutionary and most people don't know it or understand it. What such a proposal needs is a great ambassador to sell it. What a great salesperson needs is: charm and charisma. See where I am going here. Huckabee has all the attributes that Forbes was missing to be able to sell a revolutionary idea to the public like the flat tax. Besides what exactly will the Democrats counter with, tax increases?

She claims that while no one likes the IRS or taxes the flat tax is regressive. It is but it also gets rid of income taxes entirely. It bulks up sales taxes which are entirely voluntary (in other words you choose to buy stuff). In any case, I don't want to debate the fair tax here. What I do know is that the fair tax can be framed just fine if it has the right person framing it. Clearly, she dislikes the Fair Tax and dismisses it out of hand without much analysis. I believe that by doing so Estrich...well let me let Vizzini of The Princess Bride explain...

fell victim to one of the classic blunders! The most famous is never get involved in a land war in Asia, but only slightly less well-known is this:

...believing that something you don't like will also be disliked by the public at large.

She, not surprisingly, condescends to his faith and spirituality as if he is out of the mainstream. Eighty percent of this country is Christian. They may not be a Baptist Minister like Huckabee, however, again, when he speaks about his faith people WILL be impressed because: Charm and Charisma.

She claims that she wouldn't be worried about a race between Huckabee and Hillary. I would. Huckabee is charming, charismatic and likeable and Hillary is not. He compares just as favorably against Obama, given that he is experienced and Obama is not. Everyone compares favorably to Edwards so that is beneath me.

The worst part of the analysis is the claim that Huckabee's rise is indication that our party is in trouble. Nothing could be further from the truth. His rise shows that our party is strong and vibrant. It shows that we have a plethora of good, qualified candidates that can at anytime capture anyone's attention. The Democrats have a scandal ridden, cold unlikeable, candidate who's only accomplishment is being married to a popular President competing against a lightweight with less than four years of national experience. In third position is a total fraud who claims to be for the little guy while living in a home that measures five digits in square footage. None of the other candidates are worth even one look.

The Democrats are arrogant and cocky because they think that Iraq has dragged the Reps down to where they can't recover. I think that will all change soon enough, and their cockiness is quite obvious in Estrich's piece. There is a reason why superbia, or pride and arrogance, is one of the seven deadly sins, and the Democrats should heed the warning not to revel in it.

Finally, I am still a bit of an internet dunce. Thus, I can't seem to figure out how to put the video into this post. Thus, for an example of Huckabee's charm and charisma check out the video in the post directly above this...

If Embryonic Stem Cell Research is SO Great...

Why doesn't George Soros use one of his several billions to fund it. This is the question that I asked to a liberal family friend at Thanksgiving dinner. The question came up after they mischaracterized George Bush's position on stem cell research. They claimed that George Bush is against stem cell research.

First, Bush's position, along with his supporters on this issue, must be clarified. Bush isn't against stem cell research and in fact he isn't against any form of stem cell research at all, even the controversial embryonic stem cell research. Bush isn't even against government funding for all embryonic stem cell research. He is for funding on embryonic stem cells that have already been discarded. What he is against is the government funding of embryonic stem cell research in which embryos are created for the sole purpose of being destroyed for research. He doesn't believe that tax payer funds should be used for research in which human life is destroyed.

A new scientific discovery has put the issue of embryonic stem cell research back in the forefront. I want to give a hat tip to my Redstate colleague tomlinsondouthat for finally putting this sophisticated science into layman's terms. Think of the different forms of stem cell research as disks. Adult stem cells are blank disks however they can only be used for one purpose like: DVD's, CD's, games, etc. This is called multipotent. Embryonic stem cells are blank disks that can serve any function. This is called pluripotent. Obviously it goes without saying that there is potential in embryonic stem cell research not held in traditional stem cell research. Now, scientists have discovered a technique in which they can essentially take adult stem cells and remove all of their data and turn them into something close to any embryonic stem cell.

The science is interesting and fascinating but let's face it most of us are too stupid to understand. The morality, on the other hand, is something all of us need to think about. Proponents of federal funding for stem cell research believe that any procedure with potential must be explored because science must be given a chance to flourish fully. While this is true, there must also be some line that we cannot cross even if there is scientific potential. For instance, human cloning has plenty of scientific potential and even this scientific layman wouldn't be surprised if it lead to many discoveries that saved lives. That doesn't mean that we as a society should support its research, and it certainly doesn't mean that the federal government should use tax payer funds to fund it. Heinrich Himmler's experiments also probably had great scientific potential. Of course, no one believes those should be done let alone funded by the federal government.

There will be many proponents of embryonic stem cell research that will say my comparisons are ridiculous and unfair. Are they though? After all, proponents of embryonic stem cell research believe we should create human life for the sole purpose of destroying it. Given that context is it really not a good comparison? What is more obscene than the destruction of human life? THAT IS THE ROOT OF EMBRYONIC STEM CELL RESEARCH.

The proponents of embryonic stem cell research don't consider an embryo a human life because it doesn't perform all the functions of traditional humans. This is of course the most obscene position. They are the ones that favor destroying the life before it lives the way they consider living and then say it isn't really a life. These are the important questions that proponents of embryonic stem cell research refuse to answer or write off.

In fact, it was Bush's insistence on moral and ethical scientific research that fostered the environment for the innovations recently discovered in stem cell research. While his opponents condemned him for standing in the way of scientific breakthroughs, he provided funding to the National Institute of Health so that scientists could develop methods of research on stem cells that didn't face the moral dilemmas of embryonic stem cell research.

It is exactly the sort of society that Hitler favored that says morals and ethics be damned in favor of scientific research. While those, like my family friend, condescend to those like me who have the nerve to ask such ethical questions, I ask my original question? If embryonic stem cell research is so great then why can't scientists get George Soros to provide funding.

I recently read the book, Freedomnomics, and it left me with no doubt. The free market is the ultimate equalizer. If embryonic stem cell research is really that great and all moral questions are trivial then researchers should have no trouble going into the private marketplace for funding. There are more than enough philanthropists looking to park their money in worthy causes. If the proponents of embryonic stem cell research are really right, they don't need the federal government to give them a hand out for funding research. That isn't what they want though. They want us all to ignore the important ethical questions raised by embryonic stem cell research, and still use government, or tax payer funds, to fund it. This despite the fact that many tax payers are against this sort of research.

The proponents of stem cell research on the one hand claim that ALL ethical questions are trivial and then want to force tax payers to fund the research despite their own ethical questions. If all ethical questions are irrelevant, and embryonic stem cell research is all that, then the private marketplace really is the best place for embryonic stem cell research.

The fact that proponents are so forceful in supporting government hand outs tells me that maybe their position really isn't all that.

Don't Fret Reps...2008 is Our Year

I know what everyone has heard. Our fundraising is down. The base is sour on the Reps over spending, Katrina, illegal immigration, and Iraq. Republican Representatives and Senators are retiring and quitting left and right. The generic Congressional ballot has Dems up about twelve percent. Everyone is down and they need not be. Here is why



1)Iraq...This is the main reason for Republican's being sour and Democrats being energized and I believe by this time next year it will be the exact opposite. While the media refuses to report on the progress, it is there, it is measurable, and even though the MSM refuses to report on the progress the general public notices it more and more everyday.



Here is essentially what happened. About a year ago, the Sunni Sheiks sick of the unbelievably sadistic, evil, and heavy handed manner in which AQI treated their own citizens, turned on AQI and began working with the coalition. It is now commonly referred to as the Anbar Awakening and it has worked fabulously. The city of Ramadi has been completely transformed. It has gone from one of the most violent cities not only in Iraq, but frankly in the world, to one of the safest cities in Iraq. As AQI was defeated in Anbar they tried to regroup in other places like Diyalah. This time the coalition, using their new grassroots methods, followed AQI to Diyalah. As a result, AQI is on defense, and their ability to cause death and destruction is way down. This led directly to troop and civilian deaths being down dramatically in September. They are down even more so far in October. For instance, while there were just over 60 troops killed in Iraq in September and this was down almost 30% from August, the number of troops killed from September 15-October 15 was only 30. In fact, we are on pace for about 25 troop deaths in the month of October.



Now, as AQI, the Sunni militia, was being destroyed, this lead directly to the beginning of the destruction of the Shia militias. The Shia militias used to be the only effective method of protecting the citizenry against Sunni militias. With Sunni militias neutralized, the citizens feel a lot less need for protection. Now, they see the Shia militia members for the evil humans that they are.



So, where are we? We are at the beginning of the end of all the bad guys in Iraq. As I refer to it, this is the classic divide and conquer strategy. Thus, while the Dems continue with their defeatist attitude, the reality on the ground is the exact opposite. There is still plenty of work to do however we are winning, and by this time next year victory will be at hand. Thus, once the reportage catches up, and it will, the defeatism of the Democrats will paint them as the weak on defense party that they are.



2) George Soros. Anyone who has read my work knows that this radical is trying to buy the 2008 elections for the Democrats and then wants to use that victory to change America radically. His minions like Moveon.org and Media Matters have found their way into forefront of major stories recently. As a result, the cover which Soros used to enjoy is now being removed. Soros is a radical individual. He is essentially a Socialist though he refers to his economic philosophy as wanting a "mixed economy". He is a radical seculary progressive. He would like a radical gay agenda, drug legalization, abortion on demand, euthanasia, all removal of religion from the public square, as well as aggressive tolerant education. In fact, one only needs to look at San Francisco, and its own radical social agenda, to see what America would look like if Soros ever realized his vision. On foreign policy, he believes that the war on terror has been used by the Bush administration as a guise to expand its own empire and as an excuse to start wars. In fact, he doesn't even see the GWOT as a war, and believes the proper way to deal with our enemies is to negotiate with them. He thinks that Iran and Syria should both be negotiated with unconditionally.



Whether it is economic, social, or foreign policy, it is nothing short of uncanny how similar the Democrat's agenda is to Soros'. From universal health care, the rejection of even a ban on partial birth abortion, giving homosexuals the same civil rights as blacks, women, and older folks, to the promise of unconditional negotiations with Iran, the two agendas cross all spheres of political debate. This is no accident. Moveon.org and its ideological partner Daily Kos have each accounted for millions in the coffers of Democrats. Groups like Media Matters, Americans Coming Together, and Center for American Progress (all groups in one way or another linked to Soros money) are all run or linked to Democratic heavy weights. For instance, Harold Ickes, former White House staffer in the Clinton White House, runs ACT. John Podesta, another WH staffer under Clinton, runs CAP. Hillary Clinton once bragged this about Media Matters...

putting together a network in the blogosphere and a lot of the new progressive infrastructure, institutions that I helped start and support like Media Matters and the Center for American Progress…”

Wherever you look the link between the Democrats and Soros is everywhere.


3) Hillary Clinton. She is a polarizing figure and the Dems have no idea what they are about to get themselves into when they nominate her. Clinton continues to have unbelievably high unfavorability ratings. They already approach 50% and the Democratic field has treated her with relatively kid gloves. That won't happen in the general election. Rudy Giuliani has already made a pillar of his Republican primary platform to go after Clinton. That will only be ratched up. Furthermore, Clinton is saddled with many scandals that have been glossed over by the MSM. Some are more recent like Norman Hsu. Some are older like Peter Paul. Some are brand new like the scandal involving poor immigrants from China Town. They all, especially with the plethora of scandals she has already been involved in, goes to paint a picture of a corrupt individual who will sell themselves to anyone that will help her gain power and ultimately be beholden to the same individuals if she ever gets into office. Here is what she said vis a vis special interest groups at Yearly Kos,

Because you know, a lot of those lobbyists, whether you like it or not, represent real Americans. They actually do.

She has a quasi socialist economic policy. In fact, she was once famously quoted as saying this,

shared responsibility for shared prosperity

and this,

on your own" society that has widened the gap between rich and poor.
"I prefer a 'we're all in it together' society,"

I firmly believe that once Hillary is exposed for the Socialist that she is most Americans will reject her vision.
Finally, on foreign policy, she has no firm position. She has gone from hawkishly behind the war to dovishly for pulling out and everything in between. She has already flip flopped on Iran. She went from being against unconditional talks to being for unconditional talks in only a matter of months. As Charles Krauthammer pointed out, she has no principles and will do or say whatever she thinks the public wants to hear at any given time. While this maybe an effective strategy now, it won't work as well in the general election. As evidence, I want to reference this poll (now normally I hate polls, however given the current up trend this one is quite interesting) Here it is.

A leaked Democratic poll has suggested that Hillary Clinton, the frontrunner in the race for the party's presidential nomination, could lose the 2008 election because of her "very polarised image".

The survey by the Democratic pollsters Lake Research indicated that both Mrs Clinton and Barack Obama, second in the Democratic race, trailed Rudy Giuliani, the Republican front runner, in 31 swing congressional districts.

Remember, this poll is taken while all the supposed trends are up for the Dems. I believe that will be much different in six and nine months. Hillary is not built to beat Rudy among moderates. He is socially liberal. He is more experienced, more charismatic, and he stands firm on the issues. While she has her admirers, those come mostly from the liberal end of the sphere. She won't be able to fool moderates into believing she is one of them. She has a thirty year plus record of being consistently way left.


4) My favorite Reagan quote...that is

the nine most terrifying words in the English language are 'I'm from the government and I'm here to help'

This is the response to just about any Democratic economic policy initiative. Imagine in a debate, Hillary Clinton goes through, in detail, her plan for making sure that everyone is covered through some form of Universal Health Care, and her opponent says this,

You know listening to the Senator, I can't help but remember an old quote of Ronald Reagan's that I like, 'the nine most terrifying words in the English language are 'I'm from the government and I'm here to help'. That is what I am thinking right now. The Senator thinks every personal problem can be solved by the government and frankly I get terrified when someone thinks like that.


That would not only be the line of the debate, but frankly put everything she wants, is, and is trying to accomplish in a whole new and very negative light.


5) The only polls that count. That is the election poll. So far, there have been two elections. One was won overwhelmingly by a Republican, and in another, the Republican did much better than anyone expected. In Louisiana, Bobby Jindal not only won, but got more than fifty percent in a multi person field and thus won the election out right even though most times the first election leads to a run off in Louisiana. In Massachusetts, Jim Ogonowski lost on 51-45 to Nikki Tsongas despite Tsongas not only having name recognition but being in an overwhelmingly Democratic district.



For these five reasons, I believe that we need not fret Reps...2008 is our year.