Archives: 02/2010

Put Housing GSEs in the Budget and then Privatize

The two large housing government-sponsored enterprises, Fannie Mae and Freddie Mac, have been in government receivership since September 2008. The U.S. Treasury has given the housing GSEs $112 billion in cash infusions, and this past Christmas Eve it quietly announced it would cover all of Fannie and Freddie’s losses beyond the original $400 billion limit through 2012.

The president’s latest budget proposal continues to only count the cash infusions, which it projects to be $188 billion through 2020. On the other hand, the Congressional Budget Office also includes in its budget projections the subsidy cost of new loans or loan guarantees made by Fannie and Freddie, which results in a total projected hit of $370 billion through 2020.

The CBO’s rationale for including the subsidy cost is obvious:

[T]he Congressional Budget Office (CBO) concluded that the institutions had effectively become government entities whose operations should be included in the federal budget.

Is it not obvious to the administration?  Of course it is, but the administration doesn’t want the GSEs “on budget” because it will only make already dismal deficits look worse. It also hinders any effort to count the GSE’s combined $1.5 trillion in outstanding debt against the ever-increasing federal debt limit. Yesterday, Treasury Secretary Geithner waived the idea away when he told the Senate Budget Committee that “we do not believe it’s necessary to consolidate the full obligations of those entities onto the balance sheet of the federal government at this stage.”

Geithner also told Congress the administration will now wait till 2011 to propose an overhaul of Fannie and Freddie. The Associated Press noted the hypocrisy in the administration’s punt:

‘We want to make sure that we are proposing these changes at a time when we have a little bit more distance from the worst housing crisis in generations,’ Geithner said. That argument is exactly the opposite of the case Geithner is making for new financial regulations. Geithner is pressing Congress to move swiftly on new Wall Street rules, saying action must occur before memories of the financial crisis recede.

Geithner said he wanted measures that would ensure “the government is playing a less risky, but more constructive, role in supporting housing markets in the future.” But government “support” of the housing market is what fueled the housing bubble and subsequent damage to the economy. Why should the arsonist be trusted to put out the fire?

Unfortunately, policymakers get a lot of self-serving prompting from the housing industry, as I discuss in this Cato Policy Analysis. For example, the National Association of Realtors is currently shopping a plan on Capitol Hill that would turn Fannie and Freddie into government-chartered non-profits explicitly backed by the government. Instead, policymakers should begin the process of separating housing finance and state by developing a plan to privatize Fannie and Freddie.

Cato Experts Live-Blogging Health Care Summit

The White House meeting on health care began at 10:00 AM EST Thursday and Cato health policy experts offered live commentary for the opening remarks. You can read through the live-blog in the player below.

Ending Don’t Ask Don’t Tell

Contrary to the claims of some conservatives, gays can and do serve in the military. This video highlights the story of a combat medic at Fort Hood, Texas, one of the major troop installations in the United States. Warning: long video (13 minutes).

Sergeant Darren Manzella served as a combat medic, and his chain of command investigated the claim that he was gay. Manzella provided pictures and video of him with his boyfriend, but found “no evidence of homosexuality.”

The story makes clear that Manzella gave them plenty evidence of homosexuality, but it didn’t make any sense to get rid of a good soldier in a critical field when he wanted to continue serving and there was a war going on.

The British and Israeli armed forces allow gays to serve openly and still have first-rate combat units.  When Admiral Mullen, Chairman of the Joint Chiefs of Staff, says it is time to repeal DADT and believes that we can do so without compromising readiness, objections based on domestic politics, and not on military grounds, lose a lot of credibility.

What Do You Do Once You Get the Fight Out of Europe?

Yesterday Defense Secretary Bob Gates complained that European defense spending is too low:

The demilitarization of Europe — where large swaths of the general public and political class are averse to military force and the risks that go with it — has gone from a blessing in the 20th century to an impediment to achieving real security and lasting peace in the 21st.

If Gates is really upset about this, he should blame his predecessors.  The United States has played an active role in stifling European defense, and is now reaping what it has sown.  As Alex Massie points out, American opposition to anything that would “duplicate, decouple from, or discriminate against” NATO meant that anything the Europeans decided to do would have to be kept within the context of NATO and the “transatlantic alliance.”  For more on this phenomenon, see this paper by Cato research fellow Chris Layne, and pages 105-117 of Layne’s excellent and very provocative book The Peace of Illusions.

As we know in the context of public goods and alliance behavior, the bigger countries are forced to carry disproportionately big loads.  By extension, when there is one super-giant country in the alliance, the only reason smaller countries would contribute would be if it were outside of the alliance context, which we have just seen the U.S. opposes.  Accordingly, the European abrogation of its own defense has only gotten more pronounced since the end of the cold war, because Uncle Sucker has insisted on picking up the tab.  Call your Congressman.

And we have recent evidence of U.S. opposition to increased European efforts: on a trip to Europe last month, Secretary of State Clinton was asked about the prospect of an independent European defense force.  Her answer, in full:

Well, again, this is a European matter. It certainly is a French and German matter. And I respect the decision making of allies like France and Germany, so it is really within those two countries’ sphere of authority.

I think the U.S. view is that we would not want to see anything supplant NATO. If it were able to supplement NATO, that would be different. But given the strains that already exist on NATO’s budget and military expenditures in our countries, we think it’s smarter to figure out how to use the resources we have more effectively, use the alliance that we’re members of in a more strategic way. But again, that is ultimately a decision of the French and the German people.

What America is asking is for European countries to refuse transfer payments from U.S. taxpayers who are currently paying for their defense.  Not likely to happen.

Bonus question of interest to theory hounds: What does American opposition to the formation of an autonomous European security and defense policy tell us about IR theory?  Given that the countries in question definitely qualify as democracies, wouldn’t liberalism tell us that the United States should be encouraging, rather than stifling, an autonomous European defense?

A Campaign Finance Lesson

The Washington Post offers an instructive campaign finance story this morning. The essence of the story: employees of banks and brokerage houses contributed more to candidate Barack Obama in 2008 than to his rival John McCain. A lot more in fact: such employees gave almost twice as much to the current president at they did to the Arizona senator.

Now, however, President Obama is attacking the banks and Wall Street for greed and selfishness, not to mention for ruining the economy. Moreover, Obama is proposing curbs on Wall Street pay and heavy regulation of banks. It would appear, in other words, that contributions don’t buy many favors with this administration.

But the story goes deeper. Wall Street is now shifting its contributions to the GOP.  That’s not surprising. In fact, being an intelligent man, President Obama must have known his attacks on Wall Street might deprive his party of contributions. Yet, he went forward with the attacks and proposed laws.

Why? In the coming election, contributions will matter a lot less than votes. Obama thinks his attacks on Wall Street will cast the Democrats as the party of “us” against the detested “them.” The votes gained will greatly outweigh the donations lost. The currency of politics is votes in the market for election.

The next time someone tells you that donations are “legalized bribery,” ask them why Obama took $18 million from Wall Street and gave them in return endless abuse and hostile legislation.

Quid pro quo, indeed.

The Violation of Human Rights in Venezuela and Cuba

A report (PDF) released today by the Inter-American Commission on Human Rights condemns in well documented form the growing violation of human rights under the regime of Hugo Chavez. The 302-page study is yet another confirmation of the multitude of ways in which individuals, NGOs, union leaders, politicians, activists, businessmen, students, judges, the media and others who disagree with Venezuelan government policies are targeted by the government and its supporters through intimidation, arbitrary use of administrative and criminal law, and sometimes violence and homicide.

Among the many cases it documents, the report describes how the government last year shut down a publicity campaign in defense of private property run by our colleagues at the free-market think tank CEDICE. The government claimed that it did so to safeguard public order and the mental health of the population.

Particularly interesting is that the commission issuing this report (produced in December but for some reason only made public today) is part of the Organization of American States, which has proven itself useless at best and counterproductive at worst, in the face of blatant rights violations by the Venezuelan and other populist Latin American governments in the last decade. Will the same OAS that invited Cuba to rejoin the organization last year now debate the new report or will it and its head, Mr. Insulza, remain silent as they have for so many years?

Meanwhile in Cuba, the country Chavez holds as a model, political prisoner Orlando Zapata Tamayo died yesterday after going on a hunger strike, suffering beatings and having been denied water by prison authorities for 18 days. The mistreatment led to kidney failure. According to Cuba Archive, an NGO that documents deaths attributable to the Cuban regime, Zapata “was then held naked over a powerful air conditioner and developed pneumonia.” What will the Permanent Council of the OAS have to say about that?