Archives: January, 2010

FHA’s New Stringent Standards

The Federal Housing Administration will reportedly announce more stringent lending requirements and higher borrowing fees. The move comes in response to growing concerns that rising losses on mortgages it insures will require a taxpayer bailout. Although any credit tightening is welcome, the agency will not propose an increase in the minimum downpayment, currently 3.5 percent. (Borrowers with credit scores below 580 will be required to put down a minimum of 10 percent, but most FHA lenders already require a 620 minimum score.)

Yesterday, the Wall Street Journal noted that “home builders are worried” the FHA would propose raising the minimum downpayment. The CEO of a Texas builder said it would be a “game changer,” meaning that it would hinder the nascent housing recovery. However, other industry observers believe otherwise:

In markets where home values are still falling, buyers who put little money down could see their equity wiped out quickly. The FHA is “just manufacturing more upside-down homeowners by the truckload in Arizona, California, and Nevada,” says Brett Barry, a Phoenix real-estate agent who specializes in selling foreclosed homes.

FHA commissioner David Stevens counters that inhibiting lending by increasing downpayment requirements would “perpetuate” price declines. But falling prices are a painful, but necessary, correction needed to bring the housing market back into equilibrium. Government interventions in the wake of the housing bubble’s burst have created an artificial cushion. Thus, any alleged housing recovery could prove illusory when the cushion is removed. In addition, the longer the government tries to prop up the housing market, the greater the economic distortions and risk to taxpayers.

The article cites the example of a 42-year-old air-conditioning repairman who just bought a house with the FHA minimum 3.5 percent downpayment. To meet the requirement he had to borrow part of the money from his father-in-law, which he then repaid with the $8,000 first time homebuyer tax credit. He now has a $1,466 monthly mortgage payment on a $50,000 salary. Factoring in utilities and other homeownership costs, it’s not inconceivable that half of his pre-tax salary will be devoted to just his home. Is it any wonder the FHA is experiencing large default rates?

Can Scott Brown’s Election Stop the Federal Takeover…of Education?

Yesterday, I wrote about President Obama’s proposal to extend the Race to the Top program, this time letting school districts completely bypass state governments and apply directly to the feds for funding. I pointed out that the proposal was one among several troubling signs that Obama intends to put Washington fully – and, of course, unconstitutionally – in charge of American education.  At the time, I didn’t realize how right I was.

When I was writing yesterday I was basing my comments on documents from the White House’s website and hadn’t yet read the details of what went on at the President’s photo-op announcing the proposed extension. I sure wish I had: At the dog-and-pony show, the President just came right out and said that he wants to push aside states – mentioned by name was famous holdout Texas – that dared to invoke the Constitution and not participate in a program that was, Constitution or no Constitution, supposed to be voluntary.  

“Innovative districts like the one in Texas whose reform efforts are being stymied by state decision-makers will soon have the chance to earn funding to help them pursue those reforms,” intoned the President. 

Fortunately, Texas Governor Rick Perry wasn’t about to be cowed: “I will say this very slow so they will understand it in Washington, D.C.: Texas will fight any attempt by the federal government to take over our school system.”

So it’s pretty certain now, more so even than just 24 hours ago: President Obama wants to federalize American education.

Thankfully, a lot can clearly happen in 24 hours. Yesterday’s election of Scott Brown in Massachusetts could very well send shockwaves of fear through the ranks of Democratic (and maybe even Republican) legislators in DC, who might finally get the message that Americans just don’t like federal takovers. Heck, perhaps even the President will get the message. If so, then maybe even something as relatively small as a $1.35-billion scalpel designed to cut through states and get right at districts could be seen as too dangerous to handle.  

That’s speculation, of course, but we should know a lot more  in just, oh, the next 24 hours.

The Brown Revolution

Around the world over the past decade, longstanding and stultifying power elites have been toppled by what came to be known as the “color revolutions” – notably the Rose Revolution in Georgia, the Orange Revolution in Ukraine, and hopefully the Green Revolution in Iran. Now the political elites in Boston and Washington have been rocked by the Brown Revolution.

Pundits have been describing a possible Brown victory in terms like “canary in the mine,” “depth charge,” “shock waves,” “nuclear explosion,” “full freak-out,” and “angels will weep and the Charles River will run red with blood.” Political scientist Raymond La Raja said a Democratic loss would be the first shot in what could be a revolutionary war – “like the Battle of Lexington and Concord.” That’s what worries the Democratic ruling establishment.

This “revolutionary” video got more than 400,000 views in the week before the election.

Scott Brown takes over a seat in the United States Senate that has been held by one family (including its seat-fillers) for just over 57 years, since John F. Kennedy was elected to it in 1952, before Brown was born. Massachusetts hadn’t elected a Republican senator since 1972. In the closest U.S. Senate race of the past decade, Democrat John Kerry won by 35 points.  All 10 of its House members are Democrats, and about 90 percent of both legislative chambers. That’s a well-entrenched political establishment. And as so often happens with long-ruling parties, it has seen its share of corruption: Three consecutive House speakers have resigned under clouds. It’s no surprise that Massachusetts Democrats have finally encountered the kind of voter reaction that national Democrats did in 1994, and national Republicans in 2006 and 2008.

Given President Obama’s falling job approval, growing opposition to the Obama health care plan, the recent elections in Virginia and New Jersey, the fury in Nebraska over Ben Nelson’s wheeling and dealing, the growing recognition that libertarians are a major part of the decentralized “Tea Party” movement, and rising poll support for “smaller government,” the Brown victory is a flashing red light with a siren warning Democrats not to proceed with a health care bill that voters don’t like and a big-government agenda that Americans weren’t voting for in 2008.

Brown is no libertarian. But he campaigned against the Obama-Reid-Pelosi health care plan and against tax increases, so he will be part of the opposition to the current governing agenda. And he stood up to challenge the Democratic machine when no one else did. And certainly events in Georgia, Ukraine, and elsewhere are sufficient reminder that the failings of individuals don’t invalidate the popular movement.

How does an entrenched political party respond to a successful rebellion? Well, one way is for both the local and national officials to refuse to certify the results of the election and try to ram unpopular programs with the votes of rejected legislators. Would Democrats try to do that with more elections looming in just 10 months? Harry Reid and Barney Frank say absolutely not. Expect a lot of scrambling this week.

Tuesday Links

  • Gene Healy on today’s election in Massachusetts: “If Republican Scott Brown wins the Massachusetts special election Tuesday, the Bay State will have its first GOP senator since the era when disco was king. And Brown will have the much-derided Tea Party legions to thank.”
  • George W. Obama? “Bush’s successor—who actually taught constitutional law at the University of Chicago—is continuing much of the Bush-Cheney parallel government and, in some cases, is going much further in disregarding our laws and the international treaties we’ve signed.”
  • Podcast: “Our America Initiative” featuring former New Mexico Governor Gary Johnson. Johnson discusses out of control government spending, immigration, the Bush years, the drug war, defense policy and more.

Race to Domination

Today’s the day that states must submit their applications to the U.S. Department of Education to compete for round-one “Race to the Top” grants. But no worries if your state’s a little behind: Not only will there be another application round for the $4.35-billion dash-for-cash, but as President Obama announced today, he wants a $1.35-billion sequel to what was supposed to be a one-time, stimulus-funded contest.

The important question, of course, is whether sponsoring this race is worthwhile for federal taxpayers. The clear answer is no.

Sure, in response to RttT states have been raising charter-school caps, allowing teachers to be evaluated using student performance, and instituting other changes, but they’ve done little of real substance. Just raising caps won’t make it much easier to get good, competitive charter schools since most of the charter-supply problem revolves around over-regulation and painful authorization processes. And while states have eliminated prohibitions on using student test results to evaluate teachers, they haven’t done much to actually base teacher evaluations on student performance or other meaningful metrics.

What has RttT done that is of substance? Unfortunately, push yet more power into federal hands, forcing  states and districts to jump through all manner of hoops for a chance to get back some of their citizens’ money. Indeed, it is becoming painfully clear that President Obama intends to put Washington firmly above the states in the hierarchy of education power.

For his $1.35 billion RttT expansion, President Obama plans to allow districts to directly compete for federal funding, bypassing states completely. And then there’s his crusade for national curricular standards. His administration has been talking up “common” standards since almost day one, and in the ”fact sheet“ accompanying the RttT expansion announcement the first bullet states that RttT emphasizes “designing and implementing rigorous standards and high-quality assessments, by encouraging states to work jointly toward a system of common academic standards.” 

Don’t be fooled, by the way, by the “states” working “jointly” thing, or utterly unbelievable administration denials. If the feds are paying states to adopt common standards then those standards will be de facto federal. Either that, or the feds will let states adopt any old joint standards and still get paid. Six of one bad thing, half dozen of the other…

Thankfully, there is resistance to Obama’s bribe-to-the-top scheme. Texas, most notably, has refused to participate in RttT, with Gov. Rick Perry declaring that ”we would be foolish and irresponsible to place our children’s future in the hands of unelected bureaucrats and special interest groups thousands of miles away in Washington.” And Texas is not alone: According to a New York Times article appearing yesterday, states and districts around the country are refusing to put on their track shoes and run for the federal funds. 

Still, federal money – taxpayer money – can be a tough thing for any elected offical to turn down. Sooner or later, if we let him, Obama will almost certainly find an amount that no state or district can resist.

The Hopelessly Stupid Politics of the Iran NIE

The Washington policy establishment is now pulsing with excitement over news that the intelligence community (IC) is revising its 2007 statement that “We judge with high confidence that in fall 2003, Tehran halted its nuclear weapons program; we also assess with moderate-to-high confidence that Tehran at a minimum is keeping open the option to develop nuclear weapons” and that this halt “lasted at least several years.”

Funny story: The day the NIE came out, Ted Carpenter and I were arriving in Los Angeles to give at talk at the LA World Affairs Council on Iran.  Immediately on our deplaning, the questions started coming: “What do you think about the NIE?  How does this change things?”  “What NIE?” I asked.

So amid our last minute preparations for the talk, I was scrambling to get hold of a copy, but being the Luddite I am, I couldn’t manage to get my computer to work, or to get the .pdf to open right on my Blackberry.  But I was ultimately able to pull up the first sentence, quoted above, and to look at the first footnote.

That was all anybody needed to do.  The footnote read:

For the purposes of this Estimate, by “nuclear weapons program” we mean Iran’s nuclear weapon design and weaponization work and covert uranium conversion-related and uranium enrichment-related work; we do not mean Iran’s declared civil work related to uranium conversion and enrichment.

Well, this is like saying Iraq had weapons of mass destruction because we found a few degraded mustard gas shells out in the middle of the desert.  That wasn’t what anybody was referring to when “Iraq’s weapons of mass destruction” were a topic of conversation, so it proves only that if you redefine things you can change conclusions.  Much of the nuclear infrastructure that is in dispute in Iran is contained in “civil work related to uranium conversion and enrichment,” so the new definition does not include much of what people speaking in the vernacular are including when they say “Iran’s nuclear program.”  So at the talk that night in LA, I said this:

the headline splashed all over the newspapers with respect to the National Intelligence Estimate (NIE) is that Iran in 2003 suspended, and kept in suspense, its nuclear weapons program; however, it continues to operate facilities like that at Natanz which could at some point in the future be used as part of a nuclear weapons program. So it really becomes a definitional problem in the context of what components of Iran’s industrial infrastructure are included in this nuclear weapons program and which of them are kept outside of it. From my reading of the news reporting I think that it has been at least mildly misleading.

Predictably, American neoconservatives began rending their garments and gnashing their teeth, whipping each other into a frenzy, decrying the “politicized intelligence” at the CIA (do they ever tire of that?).  But really, is it too much to ask of journalists who write about national security (and, to be fair, their headline writers) to read one footnote in a document that contains about three pages of text?  I’m not the smartest guy in the world, and I managed to figure out what the deal was while in a big time crunch, without access to the full document, and without a sizeable rolodex of insiders I could call to help me figure out what was going on.  Still, the American journalistic community splashed headlines like “NIE: Iran halted nuclear weapons program in 2003” and such.  So in a sense, the neocons were right: the inferences people drew from reading the reporting on the NIE were inaccurate.

But this is, more than anything, a critique of the American journalistic establishment than it is the IC.  Writing in the first sentence of a three-page document a provocative claim and then footnoting a definition that dramatically alters the implications of the claim is not really all that tricky.  The people who assemble news stories, who did not exactly cover themselves in glory in scrutinizing government claims before the war in Iraq, were either lazy or stupid in this case as well.  Given the benefits the neocons reaped from the media’s laziness or stupidity in the Iraq case, the spluttering outrage in this case was always a bit much to take.

In Case This Needs Saying: It’s a Tax

Last week, President Obama unveiled a plan for something he called a ”Financial Crisis Responsibility Fee,” to be fleshed out in his forthcoming budget proposal. He will seek to have some set of financial services providers pay money to the government as comeuppance for the recent financial crisis and government involvement in trying to remedy it.

The naming of the “Financial Crisis Responsibility Fee” is a fairly conspicuous attempt to avoid calling it a tax. (My colleague David Boaz points out the sheer number of taxes the Obama administration and its allies are considering.) But it’s fairly clear that this thing is, indeed, a tax.

The galaxy of government revenues has a number of different planets—taxes, fees, penalties, and a few others. If they’re well constructed, fees are generally favored because the recipients of services or benefits pay their costs. Fees avoid redistribution of wealth (either toward or away from payers). But this doesn’t mean that you can name any payment to the government a ”fee” and produce fair and appropriate results.

When I worked on Capitol Hill, I was tasked with writing a bill to deny federal agencies the power to raise taxes, requiring them to be approved by Congress. (You’d think that only Congress should set or raise taxes, right? Sorry to disappoint.) The goal was not to draw fee-setting into the ambit of the bill.

After extensive reasearch into the dividing line between fees and taxes, which is not as simple as one might imagine, I produced the following definition, as found in the Taxpayer’s Defense Act (introduced in the House during the 105th Congress, and the House and Senate in the 106th Congress):

[T]he term “tax” means a non-penal, mandatory payment of money or its equivalent to the extent such payment does not compensate the Federal Government or other payee for a specific benefit conferred directly on the payer.

Parsing it briefly: A penalty is not a tax. A voluntary payment is not a tax. Both payments of money and tranfers of value not denominated in dollars can be taxes. A payment that compensates a benefit conferred is not a tax, but the part of a payment going above the benefit conferred is. Non-tax payments are for a specific benefit conferred directly on the payer, not benefits conferred on regulated entities generally or on the country as a whole. (Though this isn’t specified in the definition, being regulated isn’t a benefit.)

With even the New York Times referring to President Obama’s “Financial Crisis Responsibility Fee” as a “tax,” there doesn’t seem to be much chance of that the administration will get the “fee” label to stick. But, just in case, here’s confirmation: It’s a tax.