"Only a big-government man would think of calling a trillion-dollar tax increase a spending cut or "saving." Technically, of course, it is true. A trillion-dollar tax increase would reduce spending by $1 trillion for those private citizens who were taxed. And from the perspective of the federal government, a trillion dollars taxed is a trillion dollars saved from the greed of the taxpayers who produced the wealth and might well want to spend or invest it in nongovernmental activities."Even Poland doesn't get it. You can't interfere with free markets.
"The Democrats who now run Washington don't want to hear this, because they benefit from blaming all bad economic news on President Bush. And Mr. Obama has inherited an unusual recession deepened by credit problems, both of which will take time to climb out of. But it's also true that the economy has fallen far enough, and long enough, that much of the excess that led to recession is being worked off. Already 15 months old, the current recession will soon match the average length -- and average job loss -- of the last three postwar downturns. What goes down will come up -- unless destructive policies interfere with the sources of potential recovery."
In part, the aggressive tactics of mortgage lenders have been made possible by the automated underwriting systems developed in recent years by the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). These two government-created companies buy 70% of new mortgages in the U.S. and repackage them as mortgage-backed securities, which they then sell to investors.
The new underwriting systems being used by Fannie Mae and Freddie Mac, which are analogous to the credit-scoring systems used by banks, allow for higher loan-to-income ratios than in the past to encourage home buying. That's good for borrowers, but the relaxed ratios could pose serious problems in the future. For one, there is already evidence that defaults are rising, particularly at the low end of the market, where there is a concentration of homeowners who might not have owned houses without the mortgage boom. The Federal Housing Administration (FHA), which makes low-income loans, saw mortgage delinquencies and foreclosures jump to 0.71% of its portfolio in the middle of last year. "That number has been hanging around 0.59% for years," says Wharton's Wachter, who used to work at the Office of Housing & Urban Development (HUD), which collects these statistics. That may not sound like much of a jump, but it amounts to about a $600 million increase in delinquencies.
For Fannie Mae (FNM ) and Freddie Mac (FRE ), which only began expanding into subprime mortgages two years ago, deteriorating credit quality may be a new and unpleasant experience. Since they control such a big chunk of the market, if their portfolios are perceived to be more vulnerable to credit issues, that could boost mortgage rates across the country.
Moreover, investors in mortgage-backed securities have always assumed that the two mortgage companies are backed by an implicit government guarantee that investors would be bailed out in the event of big mortgage defaults. But some Republicans in Congress have recently challenged these guarantees. If investors begin to worry that these guarantees won't be upheld, that could trigger a quick rise in mortgage rates, which would undercut the housing market.
Of course, the pessimists could be wrong, and the housing market could continue to sail upward. But remember that in the late 1990s, few people expected technology stocks to go bust. Now, it's housing that is supposed to be a no-lose proposition. As the old saying goes: "Fool me once, shame on you. Fool me twice, shame on me.The whole story from the beginning to the end here.
The cost of our health care is soaring because, to be frank, that health care is usually very good, and it does things routinely that almost no one else in the world contemplates — such as providing 83-year-olds with heart-valve replacements, 78-year-olds with hip and knee replacements, and those who drink, smoke, and are chronically obese with drugs and weekly doctor visits.
What could be done? President Obama could try some honesty. Thus he might say, “We are spending hundreds of billions to keep us healthy, vital, and alive in ways unimaginable a few years ago. To keep our part of the bargain, we must then encourage the aging to remain active and working — and delay retirement. If we are living to 80 rather than 65, then surely we can start receiving Social Security benefits at 67 rather than at 62. What we save in postponed payouts can go to the greater cost of keeping us alive to 80.”
President Obama apparently cannot say, “Americans — each time you have a child out of wedlock, each time you take an illicit drug, each time you break the law or go to jail, each time you romanticize brutality rather than honor scholarship, each time you allege the racism of the others rather than look into your own soul, you do your own small part in ensuring that we might not educate your child as we should — no matter how many thousands of dollars we lavish upon him.”
All government officials talk of spending wisely, but they never tell us the true extent of their financial malfeasance. Imagine if last week, in his address to Congress, President Obama had said something like the following: “We must cut spending, since the borrowed money must come from somewhere. Either we print more paper dollars, and eventually ruin the value of our currency in the manner now common in Zimbabwe or Argentina; or we continue to borrow from the Chinese, Japanese, and Europeans, and therefore mortgage both our honor and our autonomy; or, in the manner of War Bonds during the Second World War, we will have to ask you all to forgo stocks, 401(k)s, and real-estate investments, and instead each month, as part of your patriotic duty, buy U.S. government savings bonds that garner almost no interest, to subsidize our nation’s lavish borrowing and spending.”
For the last 20 years, all our presidents have talked much about health care, education, and spending, while saying little. Either they were not honest enough to tell us the truth — or they were convinced that, like children, we simply couldn’t handle it if they did.
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