Before I begin my week long July 4 vacation it seems only fitting to post some comments regarding the 5-4 decision overturning the D.C. gun ban. Furthermore, it seems fitting that this ruling comes just days before we celebrate our July 4 holiday, symbolic of a generation who understood that the quickest road to tyranny is an unarmed populace.
What's so troubling, however, is that four Supreme Court justices truly believe that the Second Amendment does not guarantee an individual's right to bear arms, even in light of overwhelming historical evidence of the sheer number of persons from our founding era who owned guns but who were neither members of a standing army nor state militia!
The thought process of the dissenting justices is as astonishing as it is illogical. Consider this comment:
Justice John Paul Stevens: "[the majority] would have us believe that over 200 years ago, the Framers made a choice to limit the tools available to elected officials wishing to regulate civilian uses of weapons."
Tools? Is Justice Stevens really suggesting that the Second Amendment of our Bill of Rights is actually a "tool" for the government! How does someone with such a backwards view of the Framer's intent and the Constitution ever become a member of the highest court in the land? The framers wrote the Bill of Rights to empower the people, the masses, not to empower the elected few, not to give government more "tools."
The "free State" in the clause "...being necessary to the security of a free State..." isn't the government, but the people. Otherwise, what's the point? Why bother noting that arms are for securing the state (the governing) when tyrants all over the world were doing just that without a written Constitution? That is, if the right to bear arms applied only to state-controlled militias, what difference would this be than that of the government already controlled by King George III?
There was one precise Framer's intent for the Second Amendment: To use armed force to overthrow a government who might turn its armies on the people. Period.
This intent is so historically documented that only the disingenuous could dare to argue otherwise.
Thomas Jefferson, himself neither a member of an army nor militia, but who owned rifles and pistols (aka handguns), put it thusly:
"No freeman shall ever be de-barred the use of arms." -- proposed for the Virginia Constitution of 1776.
We established however some, although not all its [self-government] important principles . The constitutions of most of our States assert, that all power is inherent in the people; that they may exercise it by themselves, in all cases to which they think themselves competent, (as in electing their functionaries executive and legislative, and deciding by a jury of themselves, in all judiciary cases in which any fact is involved,) or they may act by representatives, freely and equally chosen; that it is their right and duty to be at all times armed;
---Thomas Jefferson to John Cartwright, 1824.
"The constitutions of most of our States assert that all power is inherent in the people; that they may exercise it by themselves in all cases to which they think themselves competent..., or they may act by representatives, freely and equally chosen; that it is their right and duty to be at all times armed; that they are entitled to freedom of person, freedom of religion, freedom of property, and freedom of the press." --Thomas Jefferson to John Cartwright, 1824.
"What country can preserve its liberties if its rulers are not warned from time to time that their people preserve the spirit of resistance? Let them take arms." --Thomas Jefferson to William Stephens Smith, 1787.
And, like Jefferson, James Madison, considered the father of the Constitution, was a lawyer by trade. Thus, both were wealthy, both isolated from Indians or other frontier dangers, both with no need to hunt for survival.
Here's what Madison thought of gun ownership to combat tyranny:
A Government resting on a minority, is an aristocracy not a Republic, and could not be safe with a numerical & physical force against it, without a standing Army, and enslaved press, and a disarmed populace.
In other words, to survive, tyrants need a lack of those things -- press, assembly, gun ownership -- which our Bill of Rights promises.
As Eugene Volokh put it, I guess this makes James Madison what anti-gun factions would term a "gun nut."
Late last week, Gallup published its annual survey of public confidence in U.S. institutions.
At the top, with an impressive combined "great" or "a lot" approval of 71% sits the military, described since 2003 as presiding over a "failure" in Iraq.
At the bottom of the heap, displacing HMOs as our worst institution, one finds the second branch of government, our Congress, at 12%. The Gallup folks noted it is "the worst rating Gallup has measured for any institution in the 35-year history of this question." Nancy Pelosi and Harry Reid, come on down! You've made history.
-- Dan Henninger
Forget Oil, Tax Lawyers' Windfalls
June 25, 2008; Page A14
Recent investigations of some plaintiffs tort law firms have resulted in criminal pleas or massive settlements in the hundreds of millions of dollars, as you've documented in several editorials including "The Firm" (June 18). More investigations are to follow, according to the news. My point is that these cases have finally disclosed an inconvenient truth: The plaintiffs tort bar makes obscene profits at incredible profit margins.
Meanwhile, the Democrat-controlled Congress wants to tax oil companies on their "windfall profits." Why are they not targeting the plaintiffs tort bar for their outrageous profits? The profit margins they make would likely be found to be obscene to most Americans, especially when people are made to realize that the oil companies' profit margins are not only below most other industries, but far, far less than that of the plaintiffs bar.
The reason we hear nothing about these law firms is simple: The tort lawyers are among the biggest contributors to the Democratic Party. Not only does Congress ignore the obscene profits of the tort bar, but new laws are being proposed or passed that protect or enhance those profits. An example is the recent bill to allow tort lawyers to deduct "loans" made to clients to finance their litigation.
If taxing "windfall" profits is truly the goal, then the tort bar is certainly an appropriate target. Personally, I have no problem with anyone making as much profit as they can in a free market, but then I am not the one grandstanding and demanding new taxes on "windfall profits." For me, I bet on Congress's hypocrisy to win out over its alleged principle on this one.
Dave Drier, in an interview with Dennis Miller on his radio show last week, emphasized the importance of granting legal immunity to the Telecomms when they pass to our intelligence agencies communication intelligence. As you remember, several years ago the patriotic-impared New York Times published classified information on the warrantless wiretap program (even though communications which include at least one party not on domestic soil were never considered warrant-required). Democrats then made an election issue of it, claiming that it would ruin our democracy -- even though the British and French have been doing so for decades and their Republics are just fine, thank you very much.
Drier quoted Mike McConnell -- our current Director of National Intelligence who was also served on Bill Clinton's National Security Council -- as saying that ever since the Telecomms stopped monitoring communications without assurances of immunity from legal threats, "We are missing about 60 percent of the communications taking place among the bad guys, the people who want to kill us."
So when Barack Obama, among others, say we are less safe now than before 9-11, they're partly right. But not for the reasons they think.
Now, here's the down side of the new FISA deal.
The steep price of this authority is that from now on all of these overseas eavesdropping orders will require advance approval by a special FISA court of rotating judges. This will apply even to emails or calls that emanate in, say, Peshawar and never leave Pakistan – except that by the accident of our Internet age they may happen to move through American switching networks.
The deal does carve out an exception to this judicial preapproval for "exigent circumstances" involving urgent threats, but the FISA judges would still have to approve after the fact. No other nation in the world, to our knowledge, requires such deference to judges when tracking foreign enemies abroad.
This judicial review is supposedly to check abuses by the executive. But it also imposes a judge in the middle of the wartime chain of command. A judge, moreover, who may have no special intelligence expertise and no understanding of the enemy threat. For this reason, these judges will in practice tend to rubber stamp executive requests.
But the precedent of judicial intrusion is still dismaying because it will be used as a baseline to limit future Presidential discretion. As for potential abuses, at least an Attorney General and President are accountable to voters if they use this authority to spy on their political opponents. On the other hand, if a willful judge denies a surveillance request and Americans are killed as a result, he is accountable to no one. Recall the "wall" of separation between intelligence and law enforcement that developed in the 1990s under domestic FISA and which the 9/11 Commission so criticized. No one paid any political price for that.
That wall, by the way, was mostly due to the insistance of former Attorney General Janet Reno's deputy, Jamie Gorelick.
By the way, should he defeat McCain in November, do you know who Barack Obama is considering for his Attorney General post? Yep, Jamie Gorelick.
Welcome to September 10, 2001.
Marines vs. smears.
By Michelle Malkin
Yet another U.S. Marine, Lt. Col. Jeffrey Chessani, had charges dropped Tuesday in the so-called Haditha massacre — bringing the total number of Marines who’ve been cleared or won case dismissals in the Iraq-war incident to seven. “Undue command influence” on the prosecution led to the outcome in Chessani’s case. Bottom line: That’s zero for seven for military prosecutors, with one trial left to go.
I repeat: Haditha prosecution goes 0-7. But you won’t see that headline in the same Armageddon-sized font the New York Times used repeatedly when the story first broke.
The Times, Rep. John Murtha (D., Pa.), and the rest of the antiwar drum-pounders who fueled the smear campaign against the troops two years ago should hang their hands in shame. They won’t, of course. Perpetuating the “cold-blooded Marines” narrative means never having to say you’re sorry.
It means never having to look Lt. Col. Chessani (charges dismissed), Lt. Andrew Grayson (acquitted), Lance Cpl. Stephen Tatum (charges dismissed), Capt. Lucas McConnell (charges dismissed), Lance Cpl. Justin Sharratt (charges dismissed), Sgt. Sanick Dela Cruz (charges dismissed), Sgt. Frank Wuterich (awaiting trial), and their families in the eyes and apologize for the preemptive character assassination they all faced at the hands of the hyperventilating, noose-hanging press.
Murtha and company applied Queen of Hearts (“Off with their heads!”) treatment to our own men and women in uniform while giving more benefit of the doubt to foreign terror suspects at Gitmo. It is worth recalling, because the press won’t do it for you, what they concluded about the now-crumbling Haditha case in the summer of 2006 before a single formal charge had been filed.
MSNBC hangman Keith Olbermann, who couldn’t wait to define the entire war in Iraq by a single moment about which he knew nothing, inveighed that the incident was “willful targeted brutality.” Due process? For convicted cop-killer Mumia Abu-Jamal, of course. For our military? Never mind.
Far-left The Nation magazine railed, “Enough details have emerged . . . to conclude that . . . members of the 3rd Battalion, 1st Marine Regiment perpetrated a massacre.” The publication also judged the event “a willful, targeted brutality designed to send a message to Iraqis.” Not content with hanging the troops, The Nation pinned blame on the president and a so-called “culture of impunity” that supposedly permeates the most accountable military in the world.
Singing the same tune as The Nation, the New York Times spilled a flood of front-page ink on the case and took things a step further in a lead editorial blaming not just President Bush, but also top Pentagon brass for the “nightmare” killings in Haditha. Times reporter Paul von Zielbauer filed over 30 stories on the case, which the paper wishfully called the “defining atrocity” of the Iraq war.
Hoping to facilitate a self-fulfilling prophecy, media tools around the world likened Haditha to the Vietnam War’s most infamous atrocity — from the Guardian (“My Lai on the Euphrates?”) to the London Telegraph (“Massacre in Iraq just like My Lai”) to the Los Angeles Times (“What happened at the Iraqi My Lai?”) to the New York Times’s Maureen Dowd (“My Lai acid flashback”) and the Associated Press, which reached into its photo archives to run a 1970 file photo of My Lai to illustrate a Haditha article.
And, of course, there’s the permanent stain left by the slanderous propaganda of Rep. Murtha — the stab in the Marines’ backs heard ‘round the world: “Our troops overreacted because of the pressure on them, and they killed innocent civilians in cold blood.”
Relatives of the Haditha Marines have called for Congress to censure Murtha, who cuts and runs to the nearest elevator when questioned about the Haditha dismissals. He and the Haditha smear merchants have skated while the men and their families suffered global whippings on the airwaves and eternal demonization in print. Whose “culture of impunity”?
[AFP] Saudi Arabia said Thursday it planned to increase daily oil output by 200,000 barrels per day, according to a statement posted on the country's London embassy website.
The Saudis are increasing output because they're worried that the United States will increase -- long term -- the amount of domestic oil we drill and refine. This puts Democrats on the same side of the political fence as Saudi Arabia -- they both oppose more US domestic oil production.
Brilliant job, Democrats! We'll see how that works out for you come November...
Meanwhile, I'm sure you've heard it by now -- US oil companies, say the opponents of more drilling for domestic oil, already have access to the vast majority of federal lands, but are choosing not to drill for oil.
Here's the rest of the story:
[WSJ]...it is true that only 0.46% of the Outer Continental Shelf is producing oil (though only 2.3% is under lease). But because of the exploration ban, oil companies go in more or less blind, not knowing the extent of the available resources. Millions of acres lack oil or gas, which is why it's called "exploration." Federal law stipulates that an oil company must sink a producing well within 10 years or lose the lease; it often takes nearly a decade to navigate the geography, not to mention the long process of environmental and regulatory review. Or coping with multiple lawsuits from the green lobby.
So, Democrats would have the US oil companies invest billions of dollars of their capital to explore areas that have no *proven* oil reserves, while blocking access to those lands that *have* proven oil reserves.
Sure, sure, Karl Rove is evil and all that, or so we're told. But as it's been said, facts are stubborn things. Here's a few from Mr. Rove, regarding the "windfall profits tax":
Instead ask this: Why should we stop with oil companies? They make about 8.3 cents in gross profit per dollar of sales. Why doesn't Mr. Obama slap a windfall profits tax on sectors of the economy that have fatter margins? Electronics make 14.5 cents per dollar and computer equipment makers take in 13.7 cents per dollar, according to the Census Bureau. Microsoft's margin is 27.5 cents per dollar of sales. Call out Mr. Obama's Windfall Profits Police!
It's not the profit margin, but the total number of dollars earned that is the problem, Mr. Obama might say. But if that were the case, why isn't he targeting other industries? Oil and gas companies made $86.5 billion in profits last year. At the same time, the financial services industry took in $498.5 billion in profits, the retail industry walked away with $137.5 billion, and information technology companies made off with $103.4 billion. What kind of special outrage does Mr. Obama have for these companies?
While it may be a revelation to the senator [Sen. Kent Conrad, D--ND], ordinary Americans, myself included, do not apply for their mortgages by calling the CEO of the mortgage company... I had hoped that a new Democratic majority meant the end of cronyism and petty bribery. Sen. Conrad's actions have disproved that.
-- Rob Teir
Great editorial by Bret Stephens:
However it turns out for John McCain this fall -- and so far he's running his general election campaign the way Gen. Ricardo Sanchez ran counterinsurgency ops -- the Arizona Republican is sure to carry at least one battleground state by a landslide. That state is called Iraq.
Last week, the Pew Research Center released the results of a survey of more than 24,000 people in 24 countries. Result: From Japan to Tanzania to Germany to Russia, the world has "more confidence" in Barack Obama than in his Republican rival to "do the right thing regarding world affairs."
But Pew did not poll Iraqis, whose opinions about the choice America makes should weigh at least as heavily with us as the collective wisdom of, say, Brazil. Whom would they prefer as the next U.S. president?
Constraints of time and money being what they are, I have not gotten round to phoning 1,000 Iraqis to get their views on Obama-McCain. But I did sit down last week with four key provincial Iraqi leaders, Sunnis and Shiites, who -- without actually endorsing Mr. McCain -- made their views abundantly clear.
"The Iraqis are really fearful about some of the positions the Democratic Party has adopted," says Sheik Ahmed Abu Rishah. "If the Democrats win, they will be withdrawing their forces in a very rapid manner."
Mamoun Sami Rashid al-Awani, the governor of Anbar province, agrees. "We have over a million casualties, thousands of houses destroyed," he says. "Are we going to tell [Iraqis] that the game is over? That the Americans are pulling out?"
Messrs. Abu Rishah and Awani, both Sunni, have possibly the toughest political jobs on the planet. Sheik Abu Rishah inherited the leadership of the Iraq Awakening movement when his brother was killed by al Qaeda last September. Gov. Awani's immediate predecessor was kidnapped and killed by insurgents, and he has survived more than a score of assassination attempts.
Today, the governor speaks with a mixture of confidence and foreboding. He insists al Qaeda has been vanquished. But, he adds, "Iraq is in a strategic location and has huge resources. There are a lot of eyes on Iraq." Later in the conversation, he makes his point more precisely. "Liberating Iraq is a very good dish. And now you are going to hand it over to Iran?"
A sense of incredulity hangs over the way Iraqis see the U.S. political debate taking shape. The governor tells a moving story about their visit to Walter Reed hospital, where they were surprised to find smiles on the faces of GIs who had lost limbs. "The smile is because they feel they have accomplished something for the American people."
But the Iraqis came away with a different impression in Chicago, where they had hoped to meet with Mr. Obama but ended up talking to a staff aide. "We noticed there was a concentration on the negatives," the governor recalls. "The Democrat kept saying that Americans have committed a lot of mistakes. Yes, that's true, but why don't you concentrate on what the Americans have achieved in Iraq?"
The Iraqis are even more incredulous about Mr. Obama's willingness to negotiate with Iran, which they see as a predatory regime. "Do you Americans forget what the Iranians did to your embassy?" asks the governor. "Don't you know that Ahmadinejad was one of [the hostage takers]?"
Here Hussein Ali al-Shalan, a Shiite from Diwaniyah in southern Iraq, offers a view. "For a long time, Iran has felt like Iraq is theirs. Our fear [about U.S. negotiations with Iran] is, you will be giving them something that we believe would prolong our agony. We are not against Iran. We have to coexist and work toward our mutual interests. The question is, is this possible at this stage? That's why we need the army to give a final push so the Iraqis can feel the fruits of our democracy."
It's not just Iran. "There is no other country that supports us," says Gov. Awani. "What is happening in Iraq scares everyone," by which he means the neighboring autocracies that have something to fear from a successful democratic model in their midst.
That only makes America's ambivalence toward its democratic creation that much stranger to the Iraqis. Will the next administration abandon both its principles and its friends in the region? For what?
The administration and the Iraqi government are now wrangling over a status-of-forces agreement -- evidence that Iraq has reached a point where it can once again act like a sovereign nation. But the Iraqis leave no doubt that they want a deal, not least "so Iraq would be able to protect U.S. interests in the region," as Sheik Abu Rishah puts it. Having lost 4,100 Americans for Iraq, the Iraqis are offering to return the sacrifice -- assuming only that the alliance endures.
Throughout our interview, the men did not stop fingering their prayer beads, as if their future hinges on their ability to make their case to the American public. They're right: It does. Which is why Iraq, all but alone among the nations, will be praying for a McCain victory on the first Tuesday in November.
"I am for having women in the newsroom and minorities in the newsroom -- I'm all for it. It opens up our eyes and gives us different perspectives. But just as well, let's have people with military experience; let's have people from all walks of life, people from the top-echelon schools but also people from junior colleges and the so-called middling schools -- that's the pageantry of America . . . You need cultural diversity, you need ideological diversity. You need it."
That's a quote from an interview Tim Russert had with Bernard Goldberg, author of the 2001 hit exposing mainstream media slant, Bias.
Labels: media bias
[WSJ] Give Senator Christopher Dodd credit for nerve. On Tuesday, the very day he finally admitted knowing that Countrywide Financial regarded him as a "special" customer, the Connecticut Democrat also announced that he was bringing to the Senate floor a housing bailout sure to help lenders like Countrywide.
How much will Countrywide benefit from Mr. Dodd's rescue? The Senator's plan allows mortgage lenders to dump up to $300 billion of their worst loans on to taxpayers via a new Federal Housing Administration refinancing program, provided the lenders are willing to accept 87% of current market value. The program will be most attractive to lenders and investors holding subprime and slightly-less-risky Alt-A loans made during the height of the housing bubble in 2006 and 2007.
As the market leader during that period, Countrywide originated $167 billion of such loans, more than 11% of the nationwide total, according to Inside Mortgage Finance. Analyst Fred Cannon of Keefe, Bruyette and Woods estimates that the company is still holding more than $30 billion in subprime and Alt-A loans on its books, based on the company's most recent quarterly financials.
Even for the loans Countrywide has already packaged and sold, the company would still benefit from the bailout. That's because Countrywide continues to service the loans, and every loan that goes bad means increased costs for the servicer.
Those mortgage loan sales also typically come with a guarantee that Countrywide will buy back the loans if it turns out they were fraudulent. The more loans that fail, absent a federal refinancing, the more investors will be digging into the details of these stinkers and tossing them back to Countrywide. Mindful of the looming danger, in the first quarter of this year Countrywide increased by 46% its reserves to cover these so-called "rep-and-warranty" agreements.
What's more, the company is holding $34 billion in home equity loans, which are even more risky than the mortgage loans, and typically result in 100% losses for the lender if a borrower defaults. The Dodd bailout will make it more likely that Countrywide gets some recovery from the worst of these loans because the mortgage holder will need to negotiate a settlement with the owner of the home equity loan before participating in the federal bailout.
If borrowers and lenders take full advantage of this new federal program, and Countrywide loans go south at roughly the same rate as those from other lenders, this suggests a potential taxpayer bailout of more than $25 billion for Countrywide-originated loans. Even if the losses turn out to be far less, why should taxpayers do anything to help a company that did so much to foment the mortgage mess?
Meanwhile, Mr. Dodd continues to insist that, though he knew he was a "special" Countrywide customer, he didn't think he was getting any special financial benefit. But a $75,000 reduction in mortgage payments is no small matter for anyone living on a Senate salary of $169,300. Why else would he be known around Countrywide as a "Friend of Angelo" – Angelo being Countrywide CEO Angelo Mozilo.
Yesterday, nine Senate Republicans led by South Carolina's Jim DeMint sent a letter asking Majority Leader Harry Reid to delay consideration of Mr. Dodd's housing bailout bill in light of its benefits for Countrywide – and Countrywide's benefits for Mr. Dodd. That's an excellent idea, in addition to a Congressional and Justice Department probe of Countrywide, Fannie Mae and the favors they seem to have spread around Washington. American taxpayers need to understand more about who they're being asked to bail out here, and why.
Congress and the Countrywide Scandal
By DICK ARMEY
June 18, 2008; Page A15
Countrywide Financial Corp.'s "friends of Angelo" program provided sweetheart loans to key banking players in Washington, D.C. They included former Fannie Mae chief executive Jim Johnson, Senate Budget Committee Chairman Kent Conrad (D., N.D.) and Senate Banking Committee Chairman Christopher Dodd (D., Conn.).
The growing scandal surrounding the "friends of Angelo" loans (so-called by company employees, referring to Countrywide CEO Angelo Mozilo) should serve as a political wake-up call. Yet the Senate appears intent on pushing forward legislation, co-authored by Sen. Dodd, that would bail out the worst actors in the subprime mortgage banking industry.
Campaigning in Lancaster, Pa., on March 31, Sen. Barack Obama blamed Countrywide's CEO for "infecting the economy and helping to create a home foreclosure crisis." Yet Rep. Barney Frank (D., Mass.) and Mr. Dodd have crafted a bill to provide $300 billion in new taxpayer loan guarantees to Countrywide and others. The bill will allow troubled financial institutions to foist the riskiest mortgages in their portfolios onto the Federal Housing Administration (FHA) -- ultimately putting the American taxpayer on the hook for their bad bets.
Right now, nearly a third of Countrywide's mortgage portfolio is composed of an especially chancy loan called a "payment-option ARM." Also known as negative-amortization loans, payment-option ARMs allow borrowers to pay less than the interest owed each month, with the shortfall added to the principal balance. At set intervals the loans are recalculated, or recast, to be fully amortizing. The new payments -- based on current interest rates and a higher balance -- rise dramatically.
Hundreds of thousands of payment-option ARMs are scheduled to recast next spring, which everyone expects to cause a wave of delinquencies. The Dodd-Frank plan would allow Countrywide and others to cherry-pick their worst loans and roll them over to the FHA. The bill has been advanced in the name of homeowners, but it's all too clear who is being rescued.
The FHA cannot handle a Dodd-Frank wave of $300 billion "in-distress" loans. The loan volume alone will nearly double the size of the FHA. Yet last week the agency, floundering under its existing portfolio, announced $4.6 billion in new losses. These losses destroy 22% of the FHA's entire capital reserves and raise doubts about the agency's solvency.
On June 9, FHA Commissioner Brian Montgomery told reporters that he opposes the Dodd-Frank approach, saying that the FHA "is not designed to become the federal lender of last resort, a mega-agency to subsidize bad loans." Last week the Congressional Budget Office (CBO) projected that banks will use the program to offload their "highest-risk loans" to the taxpayer, and that a stunning 35% of all of the loans refinanced through Dodd-Frank will eventually default on the FHA.
Unsurprisingly, Countrywide executives have testified in support of expanded FHA refinancing. The company itself is a longtime and significant contributor to Messrs. Dodd and Frank. According to data from the Center for Responsive Politics' opensecrets.org, Mr. Dodd raised more than $6.3 million this election cycle -- 76% of his total war chest -- from banks, finance and real estate companies.
As for Republicans, most members of the Senate Banking Committee voted for the Dodd-Frank bill in exchange for reforms of Fannie Mae and Freddie Mac. The reforms, part of a deal brokered by Sen. Richard Shelby (R., Ala.), create a new regulator to establish tougher standards for the portfolio holdings of Freddie and Fannie.
While both of these agencies are in dire need of reform, this deal is still a mistake. By foisting this compromise on their Republican colleagues, Democrats are holding the reform of Fannie and Freddie hostage in order to increase bipartisan support for a bailout of reckless mortgage lenders.
Moreover, the bill creates a new tax that will create a permanent "affordable housing trust fund" -- a $500 million per-year slush fund designed to funnel money to left-wing activist groups like Acorn. Freddie and Fannie must pay into this fund even if they are not profitable, compromising their already overextended capital base.
In a free market, businesses take risks and reap either profits or losses. But markets only work when businesses are held accountable for their bad decisions. The message this proposed legislation sends to the market is clear: Big lenders like Countrywide who make bad bets can count on generous bailouts -- and responsible renters, homeowners and taxpayers who pay their bills on time can count on getting stuck with the tab.
--- Mr. Armey, House majority leader from 1995 to 2002, is chairman of FreedomWorks.
New Evidence on Government and Growth
By KEITH MARSDEN
June 16, 2008; Page A15
In the early 1980s, Ronald Reagan embraced the ideas of a small group of economists dubbed "supply-siders." They argued that lower taxes and slimmer government would stimulate growth, enterprise, harder work and higher levels of saving and investment. These views were widely ridiculed at the time, dismissed as "voodoo economics."
Reagan did succeed in lowering some taxes. But a Democrat-controlled Congress weakened their impact by raising government spending sharply, resulting in large budget deficits.
A quarter of a century later, many more countries have cut taxes and reined in heavy-handed government intervention. How far have they gone down this path, and with what success?
My study, "Big, Not Better?" (Centre for Policy Studies, 2008), looks at the performance of 20 countries over the past two decades. The first 10 have slimmer governments with revenue and expenditure levels below 40% of GDP. This group includes Australia, Canada, Estonia, Hong Kong, Ireland, South Korea, Latvia, Singapore, the Slovak Republic and the U.S.
I compared their records to the 10 higher-taxed, bigger-government economies:
Austria, Belgium, Denmark, France, Germany, Italy, the Netherlands, Portugal, Sweden and the United Kingdom. Both groups cover a representative range of large, medium and small economies measured by their gross national incomes. The average incomes per capita of the two groups are similar ($27,046 and $30,426 respectively in 2005).
Most governments have reduced their top tax rates and spending-to-GDP ratios over the last decade or so, according to data published by the OECD, IMF and World Bank.
But slimmer governments have done so at a faster pace, and to significantly lower levels. Their highest tax rate on personal income fell to a group average of 30% in 2006 from 36% in 1996. Top corporate rates were lowered to an average of 22% from 30%. Their average ratio of total government outlays to GDP fell to 31.6% in 2007, from an average peak level during the previous two decades of 40.4%
Investment growth jumped to an average annual rate of 5.9% in 2000-2005, from 3.8% over the previous decade. Exports have risen by 6.3% annually since 2000. The net result was a surge in economic growth. The IMF reports that GDP soared in the slimmer-government group at a 5.4% average annual rate from 1999-2008 (including its forecast for the current year), up from a 4.6% rate over the previous decade.
Over that same period, the bigger-government group was more timid in its tax reductions. Their highest individual rates declined to an average of 45% from 49%, and corporate rates to 29% from 35%. Furthermore, their average spending-to-GDP ratio only fell to 48.3% from a peak of 55.2%.
The bigger-government group therefore failed to gain any competitive advantages in global markets by generating or attracting larger investment funds. Their investment growth slowed to an average annual rate of 0.8% in 2000-2005, from 4.1% in 1990-2000. Their export growth rate almost halved to 3.1% annually in 2000-2005, down from 6.1% in 1990-2000. The bottom line is a drop in their average annual GDP growth rate to 2.1% in 1999-2008, from 2.3% over the previous decade.
Nor did they balance their books. They ran budgetary deficits averaging 1.1% of GDP in 2006, whereas slimmer governments generated an average surplus of 0.3% of GDP. Their net government debt averaged 39.2% of GDP in 2006, more than four times higher than the latter's. Interest payments on their debt took 2.3% of their GDP, compared with an average of just 0.5% in the slimmer-government group.
Slimmer-government countries also delivered more rapid social progress in some areas. They have, on average, higher annual employment growth rates (1.7% compared to 0.9% from 1995-2005). Their youth unemployment rates have been lower for both males and females since 2000. The discretionary income of households rose faster in the first group. This allowed their real consumption to increase by 4.1% annually from 2000-2005, up from 2.8% in 1990-2000. In the bigger-government group, the growth of household consumption has slowed to a 1.3% average annual rate, from 2.1% during the 1990-2000 period.
Faster economic growth in the first group also generated a more rapid increase in government revenue, despite (or rather, because of, supply-siders suggest) lower overall tax burdens.
Slimmer-government countries seem to have made better use of their smaller health resources. Total spending on health programs reached 9.5% of GDP in the bigger government group in 2004, 1.6 percentage points above the average in the slimmer-government group. Yet slimmer-government countries have raised their average life expectancy at birth at a faster pacer since 1990, reaching an average level of 78 years in 2005, just one year below the average for bigger spenders. Average life expectancy is now 80 years in Singapore, although government and private health programs combined cost only 3.7% of its GDP.
Finally, spending by bigger governments on social benefits (such as unemployment and disability benefits, housing allowances and state pensions) was higher (20.3% of GDP in 2006) than that of slimmer governments (9.6%). But these transfers do not appear to have resulted in greater equality in the distribution of income. The Gini index measuring income distribution is similar for both groups.
Other forces clearly helped to narrow income disparities in slimmer-government economies. These forces include wage-setting practices, saving habits, the availability of employer-funded pension schemes, and income sharing among extended families.
Both groups reduced the share of defense spending in GDP over the past decade. The slimmer-government average fell 0.1 points to 2.2% in 2005, but this level was 0.5 percentage points above the bigger-government average. The average share of armed forces personnel in the total labor force in the bigger-government group fell to 1.1% from 1.5% in 1995, whereas it grew to 1.7% from 1.5% in the slimmer-government group.
Information on public order and safety expenditures is incomplete. But for the 11 countries for which data are available, slimmer governments seem to take their responsibilities more seriously. They spent an average of 1.8% of GDP on these functions in 2006, compared with 1.5% by bigger governments.
The early supply-siders were right. My findings firmly reject the widely held view that lower taxes inevitably result in cuts in public services, slower growth and widening income inequalities. Today's policy makers should take note of how tax cuts and the pruning of inefficient government programs can stimulate sluggish economies.
Mr. Marsden, a fellow of the Centre for Policy Studies in London, was previously an adviser at the World Bank and senior economist in the International Labour Organization.
I honestly liked Tim Russert a lot. He was a great journalist. And in this world of blatant media slant, one way and the other, to left and to right, I think Russert was one of the most effective at keeping slant in check. His death is a loss to journalism, a loss to politics, and most importantly a loss to his family.
God bless them and comfort them.
Critics of the Bush Administration's antiterror policies often cite the attitudes of our European allies as models of wisdom and effectiveness. And sometimes these critics are right, though not in the way they imagine.
Only a day before the Supreme Court handed down yesterday's Boumediene decision (see here) – which gives alien detainees access to American courts and American rights that they had sought to destroy – the British parliament voted to extend the time terrorist suspects can be held without charge to 42 days from 28. In the U.S., it's 48 hours.
Meanwhile, in Germany, the government of Angela Merkel last week approved a draft law widening the powers of the federal police to monitor homes, telephones and computers. Germany's regional police already enjoy some of these powers. But German federalism makes it difficult for law enforcement to act effectively when terrorists cross provincial borders, a loophole the old Baader-Meinhof gang was notorious for exploiting. This is the very problem Berlin now seeks to correct.
The British bill barely carried in parliament and faces an uphill challenge when it goes to the House of Lords. But it has the support of 69% of the public – not much of a surprise in a country where the chief of domestic intelligence (MI5) has publicly estimated that at least 2,000 people pose a serious threat to national security. The German bill, too, will be fiercely debated as it works its way through its various readings. But what a contrast to the attitude of Democrats in the U.S. Congress, who have refused to extend liability protection to phone companies that assisted the government in wiretapping foreign terrorist suspects in the immediate aftermath of September 11.
It has been nearly seven years without a major terrorist attack on American soil. Europeans have not been so lucky (though they've had several lucky escapes). Maybe that's why they're becoming more "American" in taking a hard line on terrorists, even as America's own Supreme Court moves in the opposite direction.
In previous rulings this same Supreme Court asked Congress and the president to create a system to hold and try illegal combatants during wartime. They did so with two laws, the 2006 Detainee Treatment Act and the 2006 Military Commissions Act. Now the court says, "just kidding," as Justice Scalia sarcastically rebuked in his dissent of the 5-4 ruling. The Court's majority opinion, written by the five liberal justices, is completly at odds with historical legal precident on this issue. Keep reading.
To reach yesterday's decision, Justice Kennedy also had to dissemble about Justice Robert Jackson's famous 1950 decision in Johnson v. Eisentrager. In that case, German nationals had been tried and convicted by military commissions for providing aid to the Japanese after Germany's surrender in World War II. Justice Jackson ruled that non-Americans held in a prison in the American occupation zone in Germany did not warrant habeas corpus. But rather than overrule Eisentrager, Mr. Kennedy misinterprets it to pretend that it was based on mere "procedural" concerns. This is plainly dishonest.
By the logic of Boumediene, members of al Qaeda will now be able to challenge their status in court in a way that uniformed military officers of a legitimate army cannot. And Justice Scalia points out that this was not a right afforded even to the 400,000 prisoners of war detained on American soil during World War II. It is difficult to understand why any terrorist held anywhere in the world – whether at Camp Cropper in Iraq or Bagram Air Base in Afghanistan – won't now have the same right to have their appeals heard in an American court.
Article I, Section 9 of the Constitution contains the so-called Suspension Clause, which says: "The privilege of the Writ of Habeas Corpus shall not be suspended, unless when in Cases of Rebellion or Invasion the public Safety may require it." Justice Kennedy makes much of the fact that we are not currently under "invasion or rebellion." But he ignores that these exceptions don't include war abroad because the Framers never contemplated that a non-citizen, captured overseas and held outside the U.S., could claim the same right.
Justice Kennedy's opinion is full of self-applause about his defense of the "great Writ," and no doubt it will be widely praised as a triumph for civil liberties. But we hope it is not a tragedy for civil liberties in the long run. If there is another attack on U.S. soil – perhaps one enabled by a terrorist released under the Kennedy rules – the public demand for security will trample the Constitutional delicacies of Boumediene. Just last month, a former Gitmo detainee killed a group of Iraqi soldiers when he blew himself up in Mosul. And he was someone the military thought it was safe to release.
Justice Jackson once famously observed that the Constitution is "not a suicide pact." About Anthony Kennedy's Constitution, we're not so sure.
What's truly ironic is that these five justices may themselves be targets of terrorists one day released prematurely from Guantanamo. Recall Spanish authorities charged 32 Islamic extremists for their failed plot to bomb Spain's National Court (their equivilant of the Supreme Court). In a lesson of the folly of appeasement, which is something that these justices should have considered, this bombing plot occurred after Spain's withdrawl from Iraq. In other words, Spain's forign policies are irrelevant to the bombing radicals, rather to the Islamicists, Spain's liberally-constitutional parlimentary style of government (i.e, not being a sharia-law state) is their true crime.
Have a little fun real quick, input into Google: +"stunning setback" guantanamo. You can do the same with "stinging rebuke," etc.
Page after page of uncreative reporters parroting one another on today's "stunning setback" and so on of a Supreme Court ruling a right of Guantanamo detainees to challenge their imprisonment in federal court.
WSJ: The much-anticipated decision, which broke 5-4, opens the door to the first-ever independent review of the reasons hundreds of men have been held at the offshore naval base for as long as six years. Reporter Jess Bravin writes that it is the third ruling in four years to reject the White House's claims of power over prisoners it deems enemy combatants. Taken together, the rulings repudiate President Bush's view that the 9/11 attacks imbued him with authority to set aside civil liberties akin to that President Lincoln assumed in the Civil War and President Roosevelt asserted during World War II.
Whether one agrees with the decision or not it's ridiculous to call yet another 5-4 decision, in which Justice Kennedy swings left, as a rebuke or that Bush's war decisions are somehow grossly different than Lincoln or Roosevelt.
A rebuke is 9-0, or 8-1 or at least 7-2. Heck, one might even make the argument with a 6-3 ruling, where at least one conservative justice sides with the 5 liberals. This decision is nothing but a typically partisan one in a series of 5-4 partisan rulings. Had there been one more conservative on the court, and that ruling been in favor of Bush by 5-4, you can wager your next paycheck that the media and opponents would paint the decision as partisan.
(Just as they did the 2000 election, for they never would have labeled that 5-4 decision as a "stunning rebuke" of Gore. However, the 7-2 Supreme Court decision that the Florida Supreme Court's method for recounting ballots - in just three Democratically controlled counties - was unconstitutional -- that's a stunning rebuke! Got it?)
Even worse, to compare Bush's detention of 300 men -- who were armed, wore no uniforms, followed no Geneva conventions or recognized rules of war -- to Roosevelt's extreme imprisonment of 110,000 Japanese-Americans (that is to say, citizens of the US) is nothing more than historical masturbation -- pleasurable to the revisionist but fantasy nonetheless.
Economist Larry Kudlow notes that one never knows what John McCain one is going to get.
A few days ago McCain delivered a Reaganesque speech on economic policy, which included tributes to growth through low taxes, supply-side philosophy and credit to private business as the backbone of the country.
But this morning on NBC's Today Show , McCain talks of evil oil, cartels, finite oil (huh!?), and "obscene profits.
[Kudlow] When asked about gas prices at the pump, and whether they could go any lower, Sen. McCain said he didn't think so because "You've got a finite supply, basically, and a cartel controlling it."
This is exactly wrong. There is no finite supply, or if there is we are 100 years away from it. I don't know who has put this thought into the senator's mind, but it is a bad thought in terms of energy and a bad thought in terms of the politics of this campaign.
Look, we have the Bakken fields, the outer continental shelf and all the offshore drilling opportunities, ANWR, and so forth. There's probably over a trillion barrels worth of reserves out there. And Republicans in the Senate are trying to move a deregulated drilling bill through the process. McCain should be backing this and talking about it.
Democrats are out there pushing cap-and-trade, which would jack up gasoline and oil energy prices, damage the economy, and create a massive central-planning exercise. The Democratic Congress has done nothing to alleviate the oil shortage. They're captured by the greenies. They should be blamed.
This is a real turnaround issue for the Republicans and Mr. McCain. But McCain's not going there.
This is what angers me so much about Republicans today. With the exception of a few, most Republicans (1) don't recognize opportunity when it bites them on the rear, and (2) are absolutely terrible at communicating conservative ideals [perhaps because (3) so many of them are not conservatives but just average ideologically expedient politicians].
As Kudlow says, more domestic drilling, and creating refineries to turn the oil into fuel (and plastics for that matter) should be a slam-dunk issue for McCain and Republicans.
The WSJ summarizes the heart of the problem -- obstructionism.
Anyone wondering why U.S. energy policy is so dysfunctional need only review Congress's recent antics. Members have debated ideas ranging from suing OPEC to the Senate's carbon tax-and-regulation monstrosity, to a windfall profits tax on oil companies, to new punishments for "price gouging" – everything except expanding domestic energy supplies.
Amid $135 oil, it ought to be an easy, bipartisan victory to lift the political restrictions on energy exploration and production. Record-high fuel costs are hitting consumers and business like a huge tax increase. Yet the U.S. remains one of the only countries in the world that chooses as a matter of policy to lock up its natural resources. The Chinese think we're insane and self-destructive, while the Saudis laugh all the way to the bank.
There are two separate moratoria on offshore drilling: One is a ban that Congress has attached to every budget since 1982, and the other is a 1990 executive order that President Bush has waived in only a few cases. Republicans made failing attempts to overcome both when they ran Congress, but current Democratic leaders and their green masters remain adamantly opposed. The new political opportunity amid record prices is to convince enough rank-and-file Democrats that they'll suffer at the polls if they don't break with this antiexploration ideology.
While energy "independence" is an impossible dream, there's no doubt the U.S. has vast undeveloped fossil-fuel deposits. A tiny corner of the Arctic National Wildlife Refuge contains an estimated 10.4 billion barrels of oil and would be the largest producing oil field in the Northern Hemisphere. Yet the Senate blocked that development as recently as last month. The Outer Continental Shelf is estimated to contain some 86 billion barrels of oil, plus 420 trillion cubic feet of natural gas. Yet of the shelf's 1.76 billion acres, 85% is off-limits and 97% is undeveloped.
Engineers recently perfected refining solid shale rock into diesel or gas, which may amount to the largest oil supply in the world – perhaps as much as 1.8 trillion barrels in the American West. That's enough to meet current U.S. oil demand for more than two centuries. Yet as late as 2007, Democrats attached a rider to the energy bill that prohibits leasing the federal interior lands that contain at least 80% of America's oil shale. The key vote was cast by liberal Senator Ken Salazar from Colorado, of all places.
These supply guesses are probably conservative, because the only way to know for sure is to drill exploratory wells. Yet most of Alaska and offshore are cut off even from modern seismic testing. Many areas haven't been examined since the 1960s, when exploration technology was far more primitive. This has led to the believe-it-or-not situation in which the Chinese are prepping to drill in Cuban waters less than 60 miles off the Florida coast. American companies are banned from drilling in American waters nearby.
Yes, we know, increased drilling is no energy cure-all; new projects take about a decade to come on line. Then again, more than a few experts say that new production could affect price as the market perceives a new U.S. seriousness to increase supplies. Part of today's futures speculation is based on the assumption that supplies will remain tight for years to come, even as Chinese and Indian demand surges.
Nor would merely repealing the exploration bans be enough. Between 2000 and 2007, the drilling of exploratory oil wells climbed 138%, but over the same period domestic crude oil production decreased 12.4% and fell to the lowest levels since 1947. Refineries for gasoline are stretched to the limit, but multiple regulatory barriers impede new construction or even expansions at existing facilities. Then there is the inevitable lawsuit downpour from the environmental lobby.
Democrats are going to have to grow up. The oil-rich areas they want to leave untouched are accessible with minimal environmental disturbance, thanks to modern technology. Hurricanes Katrina and Rita flattened terminals across the Gulf of Mexico but didn't cause a single oil spill. As for anticarbon theology, oil will be indispensable over the next half-century and probably longer, like it or not. Airplanes will never fly on woodchips, and you won't be able to charge your car with a windmill for some time, if ever.
Public anger over fuel prices could hardly come at a worse time for the GOP, since voters tend to blame a flagging economy on the party that occupies the White House. But the opportunity is to offer a reform alternative to Barack Obama and the high-price energy status quo he embraces. It looks like the public is increasingly ready for . . . change. In a May Gallup poll, 57% favored "allowing drilling in U.S. coastal and wilderness areas now off limits." Just 20% blamed the increase in gas prices on Big Oil, like Mr. Obama does.
Recent weeks have seen some GOP stirrings on Capitol Hill, but John McCain has so far refused to jettison his green posturings, such as his belief in carbon caps and his animus against offshore development. A good reason for a rethink would be $4 gas. At present, it is charitable to call Mr. McCain's energy ideas incoherent, and it may cost him the election.
Great editorial by Dan Henninger:
One thing Brazil and the U.S. have in common is the price of oil: It is priced in dollars, and everyone in the world now knows what the price is. Another commonality is that each country has vast oil reserves in waters off their coastlines.
Here we may draw a line in the waves between the serious and the unserious.
Brazil discovered only yesterday (November) that billions of barrels of oil sit in difficult water beneath a swath of the Santos Basin, 180 miles offshore from Rio de Janeiro and Sao Paulo. The U.S. has known for decades that at least 8.5 billion proven barrels of oil sit off its Pacific, Atlantic and Gulf coasts, with the Interior Department estimating 86 billion barrels of undiscovered oil resources.
When Brazil made this find last November, did its legislature announce that, for fear of oil spills hitting Rio's beaches or altering the climate, it would forgo exploiting these fields?
Of course it didn't. Guilherme Estrella, director of exploration and production for the Brazilian oil company Petrobras, said, "It's an extraordinary position for Brazil to be in." Indeed it is.
Read the rest.
Every War Is a Choice
By DAVID B. RIVKIN JR. and LEE A. CASEY
June 12, 2008; Page A15
Claims that the Iraq War was a reckless "war of choice" – rather than a prudent war of "necessity" – are a standard element of the anti-Bush narrative. The latest critic to make this claim is former White House spokesman Scott McClellan.
But a close look at American history shows that this distinction makes little sense. All wars are wars of choice, because it is almost always possible not to fight. The real question is whether the price of peace outweighs the costs of war.
Although the U.S. has resorted to armed force hundreds of times, it had engaged in only 10 major conflicts before 9/11, including the Revolutionary War, the War of 1812, the Mexican War, the Civil War, the Spanish-American War, World War I, World War II, the Korean War, the Vietnam War and the first Gulf War. In each instance, American leaders chose to go to war because they believed national interests were at stake. However, in only three of these conflicts was the nation's existence even arguably threatened. And, even in each of these instances, options other than war were available.
The Revolutionary War was necessary, but only if the goal was American independence. Otherwise, colonial grievances could have been compromised. In 1776, Admiral Lord Richard Howe arrived in New York Harbor with a British Army and offers of pardon for most patriot leaders. As George Washington reported to Congress, Admiral Howe had "great powers" to negotiate a settlement. Indeed, as late as 1778, the British government offered to meet all colonial demands short of independence. America's leaders, however, chose to fight on instead. By then, independence was the very point.
Likewise, the Civil War was a war of choice. In 1861, Abraham Lincoln chose to confront secession with force. The seceding states had not invaded the north, and the abolition of slavery was not – at this point – a war aim. Lincoln chose to fight because he genuinely believed in the Union's constitutional indivisibility, and that the future of democracy rested on its survival, especially on vindicating the proposition that constitutional government was impossible if part of the country could simply opt-out after losing an election. However, there would still have been a United States if the South had gone, and many serious people thought the South would prevail. Britain's William Gladstone spoke for many when he said, early in the war, that "We may anticipate with certainty the success of the Southern States." Lincoln bet differently.
At the beginning of World War II, when Japan actually attacked Pearl Harbor, the country could nevertheless have chosen not to fight. It was perhaps politically unthinkable, but America would not have ceased to exist if it had abandoned its position as a great power in the Far East. The principal U.S. territory there – the Philippine Islands – was a colonial conquest from Spain; its other interests were economic and, of course, ideological. Was containment possible? Fortunately, Franklin Roosevelt did not explore that possibility.
Similarly, American engagement against Nazi Germany was also a matter of choice. Hitler declared war on the U.S. but had not invaded any U.S. territory. Should Roosevelt have explored a peaceful settlement and then, again, sought to contain an Axis Europe? Was his later demand for "unconditional surrender" necessary, or did it prolong the war? Some Americans – in ways eerily reminiscent of today's efforts to decouple the Iraq war from the war in Afghanistan – argued at the time that the European campaign against Hitler was a distraction from the Pacific war against Japan.
Of course, it would have been morally unacceptable, and not in the national interest, to pursue any of these opportunities for peace – but they did exist. The question then, and now, is not whether war was unavoidable, but whether force is legally and morally justified in light of the circumstances.
In 2003, President Bush chose to confront Saddam Hussein – who indisputably was hostile to the U.S., who had used weapons of mass destruction in the past, and who had given aid to terrorist groups (though not directly to Osama bin Laden). The president may well have acted on faulty intelligence – as the Senate Select Committee on Intelligence now claims – but he did not ignore or suppress intelligence proving that Saddam wasn't a threat after all. Rather, he acted on available intelligence and in light of Iraq's past record.
Going to war may have been a choice others wouldn't have made. But it was no more a war of choice than any of our other wars.
-- Messrs. Rivkin and Casey, Washington attorneys, served in the Justice Department under Presidents Ronald Reagan and George H.W. Bush.
[UK Telegraph] The actress Scarlett Johansson has revealed that she has regular email contact with presidential hopeful Barack Obama in which she offers advice and consoles him after difficult debates.
The Hollywood starlet said she had been communicating with the Democratic candidate for months and was "amazed" that he always found the time to reply.
"You'd imagine that someone like the senator who is constantly travelling and constantly 'on' - how can he return these personal emails?" she told the Politico website.
Wow, she is as naive as she is pretty apparently... I mean to other men. Not me.
I have to go now. My wife is asking me a question...
Which do you remember? the "Party of corruption" or Tony Rezko? Likely the former (what Nancy Pelosi termed Republicans in the Democrat's sweep of the House). Why would most Americans remember one more than the other? Because when it's a Democratic presidential candidate involved there's always a few free passes first. We'll see how the AngeloGate goes.
Blatant hypocrisy is something even the left leaning media has a tough time swallowing. And hypocrisy is hiring an advisor from the very company one was demonizing just days before. Obama said Jim Johnson, who resigned hours ago from conducting Obama's VP search, didn't work for him. For whom did he work then, senator, as he was helping you choose your VP?
WSJ Countrywide Financial Corp. makes mortgage loans through a vast network of offices, brokers and call centers. But a few customers have gotten their loans a special way: through Countrywide Chief Executive Angelo Mozilo.
These borrowers, known internally as "friends of Angelo" or FoA, include two former CEOs of Fannie Mae, the biggest buyer of Countrywide's mortgages, say people familiar with the matter.
One was James Johnson, a longtime Democratic Party power and an adviser to Sen. Barack Obama's campaign, who this past week was named to a panel that is vetting running-mate possibilities for the presumed nominee. Another was Franklin Raines, a onetime Clinton administration budget director, who left Fannie Mae amid an accounting scandal in 2004.
There is nothing illegal about a mortgage firm treating some borrowers better than others. But if Fannie Mae officials received special treatment, that could cause a political problem for the government-sponsored, shareholder-owned company.
The Wall Street Journal editors pile on, justifiably so:
Barack Obama may have come up with a creative way to solve the housing recession: Let everyone buy property at a discount the way he did from Tony Rezko, and give everyone in America a discount mortgage the way Angelo Mozilo of Countrywide did for Fannie Mae's Jim Johnson. Team Obama's real estate and mortgage transactions are certainly a change from business as usual. They suggest old-fashioned back-scratching below even current Beltway standards.
A former CEO of mortgage financing giant Fannie Mae, Mr. Johnson is now vetting Vice Presidential candidates for Mr. Obama. But he is also a textbook case for poor disclosure as regulators sifted through the wreckage of Fannie's $10 billion accounting scandal. Despite an exhaustive federal inquiry, Mr. Johnson managed to avoid disclosing one very special perk: below-market interest-rate mortgages from Countrywide Financial, arranged by Countrywide CEO Angelo Mozilo. Journal reporters Glenn Simpson and James Hagerty broke the story this weekend.
Fannie Mae tells us that Mr. Johnson did not inform the company's board of these sweetheart mortgage deals, nor did his CEO successor Franklin Raines, who also received such loans. We can understand why. Fannie bought mortgages from loan originator Countrywide, and then packaged them into securities for sale or kept the loans and profited from the interest. Mr. Mozilo told Dow Jones in 1995 that he was "working very closely . . . with Jim Johnson of Fannie Mae to come up with a rational method of making the process more efficient by the use of credit scoring."
Since Fannie was buying Countrywide's loans, under terms set by Mr. Johnson and later Mr. Raines – or by people in their employ – the fact that Fannie's CEO had a separate personal financial relationship with Countrywide was an obvious conflict of interest. The company's code of conduct required prior approval of such arrangements. Neither Mr. Johnson nor Mr. Raines sought such approval, according to Fannie.
Even if they had received waivers from the board to enjoy these perks, conscientious board members would then have wanted to disclose the waivers to investors. Post-Enron, the Sarbanes-Oxley law requires such disclosures. But even in the late-1990s, when the Friends of Angelo loans began, board members would likely have raised red flags.
Former SEC Chairman Harvey Pitt tells us that "the best way to deal with issues like this is not to have these kinds of relationships. From both the Countrywide and the Fannie perspective, it is simply bad policy to permit loans to 'friends' on more favorable terms than others similarly situated would be able to get."
One question is whether Messrs. Johnson and Raines were using their position to pad their own incomes that were already fabulous thanks to an implicit taxpayer subsidy. (See the table nearby.) But the bigger issue is whether they steered Fannie policy into giving Mr. Mozilo and Countrywide favorable pricing, which means they helped to facilitate the mortgage boom and bust that Countrywide did so much to promote. A further federal probe would seem to be warranted, and we assume Barney Frank and his fellow mortgage moralists will want to dig into this palm-greasing from Capitol Hill.
The irony here is that Mr. Obama has denounced Mr. Mozilo as part of his populist case against corporate excess, calling Mr. Mozilo and a colleague in March "the folks who are responsible for infecting the economy and helping to create a home foreclosure crisis." Obama campaign manager David Plouffe also said in March that "If we're really going to crack down on the practices that caused the credit and housing crises, we're going to need a leader who doesn't owe these industries any favors." But now this protector of the working class has entrusted his first big task as Presidential nominee to the very man who received "favors" in return for enriching Mr. Mozilo.
Yesterday, ABC News asked Mr. Obama whether he should have more carefully vetted Mr. Johnson and Eric Holder, who is working with Mr. Johnson on veep vetting.
Correspondent Sunlen Miller noted Mr. Johnson's loans from Countrywide and Mr. Holder's involvement as Deputy Attorney General in the Clinton Administration in the pardon of fugitive Marc Rich. Said Mr. Obama: "Everybody, you know, who is tangentially related to our campaign, I think, is going to have a whole host of relationships – I would have to hire the vetter to vet the vetters."
Vetting Mr. Johnson's finances would have been time well spent, judging by a May 2006 report from Fannie Mae's regulator, the Office of Federal Housing Enterprise Oversight (Ofheo). Even if Mr. Obama considers the advisers helping him select a running mate "tangentially related" to his campaign, he might have thought twice about any relationship with Mr. Johnson.
Addressing the company's too smooth (and fraudulent) reported earnings growth in the late 1990s and early 2000s, Ofheo reported: "Those achievements were illusions deliberately and systematically created by the Enterprise's senior management with the aid of inappropriate accounting and improper earnings management . . . By deliberately and intentionally manipulating accounting to hit earnings targets, senior management maximized the bonuses and other executive compensation they received, at the expense of shareholders."
The regulator described how, despite an internal Fannie analysis that valued Mr. Johnson's 1998 compensation at almost $21 million, the summary compensation table in the firm's 1999 proxy suggested his pay was no more than $7 million. Ofheo found that Fannie had actually drafted talking points to deflect such media questions as: "He's trying to hide how much he's made, isn't he?" and "Gimme a break. He's hiding his compensation."
To this list we would add one more, directed at Mr. Obama: Is this what you mean by bringing change to Washington?
I read these headlines and I just am dumbfounded.
Windfall profits tax? Regulated CEO pay? How does one propose we do that, exactly? Or, better yet, we can just cap prices, let we tried back in the 1970s so unsuccessfully. Somewhere Karl Marx is howling with laughter.
Once more, arrogant politicos wish to legislate what is good for us, rather than letting us decide. How does one subjectively judge what is a "windfall profit" or salary versus what is not? (To be fair to McCain, the lesser of two evils on your wallet to be sure, at least he acknowledges that our current corporate tax rate - second highest in the world - is damaging our economy.)
The truth is they're not econ-ignorant. I don't think they really believe this, because anyone who's ever taken Eco 101, or lived through the 70s, understands that when you cap prices, whether CEO pay or a commodity like oil, you create artifical shortages. There's simply no incentive to produce more.
Rather, and I think this is especially true of McCain in part to live up to his "maverick" identity, these guys know that a large segment of the voting population goes along with what sounds good, what is populist. It's far easier to say "hate CEOs!" than to explain economics.
But facts are stubborn things:
"Though the market is surely not flawless, and government interferences often have praiseworthy goals, good intentions are not enough. Any government that sets out to repair what it sees as a defect in the market mechanism runs the risk of causing even more serious damage elsewhere... In case after case where legal price ceilings are imposed, virtually the same series of consequences ensues. . . . A persistent shortage develops because quantity demanded exceeds quantity supplied. . . . An illegal, or 'black,' market often arises to supply the commodity. . . . Investment in the industry generally dries up. Because price ceilings reduce the monetary returns that investors can legally earn, less capital will be invested in industries that are subject to price controls."
-- Alan S. Blinder, former member of the Council of Economic Advisers and Vice Chairman of the Federal Reserve.
Blinder, by the way, was praised by none other than President Bill Clinton as "a brilliant contributor to our efforts to improve the economy."
Do people really believe this populist crap? And why stop there? What about you, reading this blog? Why not have McCain or Obama decide through presidential fiat or Congressional law when you, personally, have made enough money?
John Hinderaker, over at Power Line Blog, wonders, what of a windfall profit for authors:
Barack Obama said yesterday that he wants to impose a "windfall profits tax" on American oil companies. This is a stupid idea, unless you want to reduce the supply of oil and thereby increase prices even further.
But it did cause me to wonder why we don't have a windfall profits tax on authors. Think about it: it takes as much work to write a 300-page book that sells 1,000 copies as to write one that sells 1,000,000. Yet the former author is paid almost nothing, while the author who happens to write a best-seller gets rich. Where is the fairness in that? Besides, the oil companies need their profits to make huge capital investments in oil drilling equipment, ocean platforms, pipelines, and so on. What capital investment does an author need his windfall profits in order to make? A new pencil? An author could easily pay extra taxes on his windfall profits and have plenty of capital left over for his next book.
A windfall profits tax on authors seems like a no-brainer. Coincidentally, Barack Obama's 2007 income of around $4.2 million came almost entirely from book royalties. Now, that's what I call a windfall! If authors' windfall profits are taxed at 90%, Obama can write a check to the Treasury for around $3.2 million. What do you say, Barack? Why not a windfall profits tax on authors?
Pretty audacious. Obama is a guy who just a few weeks ago told a Wesleyan commencement that he hopes those graduating students do not "take your diploma, walk off this stage, and chase only after the big house and the nice suits and all the other things that our money culture says you should buy." No, Obama said, don't do that because "our individual salvation depends on collective salvation."
$4.2 million windfall profit book deal. Do as I say, not as I do, eh Obama?
The only difference between Karl Marx and Barack Obama is that Marx actually practiced what he preached. At least he was an honest communist.
Check out this post, too, by Hinderaker.
What we need, of course, is oil companies with bigger profits, not smaller. Then we need them to invest those profits in drilling for more oil in places like ANWR and the coastal shelf, as well as developing shale oil reserves. The problem with America's oil companies is not that they're big, the problem is that they are tiny, as this chart shows; click to enlarge:
Our oil companies control tiny amounts of petroleum (relative to the world's big players) because they are shackled by Congress, which prohibits them by law from accessing America's abundant petroleum reserves. If you want gasoline prices to come down, write, call and email your Congressman and Senators and tell them to allow the oil companies to do what only they can do: bring us more oil.
Two great posts from the Weekly Standard:
1) When Will Murtha Apologize?
Yesterday Lieutenant Andrew Grayson became the sixth U.S. soldier [of eight] exonerated of any wrongdoing in an incident at Haditha in 2005. Grayson is the first Marine tried for his alleged transgressions; two others will face trial later this year... So far it's at least six servicemen slandered by Murtha, without an apology. He seems to be holding out hope that at least one American soldier is found guilty of being a cold-blooded killer.
Read the rest.
2) Jay Rockefeller's Amnesia, which takes the senator to task for grotesque political expedience. Namely, that Rockefeller's "bipartisan" (80% Democrat) committee all but calls Bush a liar for pre-war intelligence, yet oddly fails to mention that Rockefeller himself often sold the war using the same arguments as Bush!
Like when Jay Rockefeller called it an "imminent threat" on October 10, 2002? The Bush administration made the case that the Iraqi threat must be addressed before it was imminent. Rockefeller disagreed.
[Rockefeller said:] "There has been some debate over how "imminent" a threat Iraq poses. I do believe that Iraq poses an imminent threat, but I also believe that after September 11, that question is increasingly outdated."
It's also worth pointing out that the Jay Rockefeller who today accuses the Bush administration of inventing the threat posed by Iraq-al Qaeda collaboration once saw "a substantial connection" between the two and warned about the consequences of leaving Iraq to pass its WMD to Osama bin Laden. On February 5, 2003, Rockefeller said: "The fact that Zarqawi certainly is related to the death of the U.S. aid officer and that he is very close to bin Laden puts at rest, in fairly dramatic terms, that there is at least a substantial connection between Saddam and al Qaeda."
And here's what he said one week earlier, in an interview with the Charleston Gazette: "If you go pre-emptive, do you cause Hussein to strike where he might not have? He is not a martyr, not a Wahabbi, not a Muslim radical. He does not seek martyrdom. But he is getting older," Rockefeller told the paper. "Maybe he is seeking a legacy by attacking Israel or using al-Qaeda cells around the world."
Rockefeller and his colleagues also accuse the Bush administration of exaggerating WMD claims. It's worth recalling that Rockefeller called Iraq an "imminent threat" in his floor speech supporting the resolution which would authorize the war.
And it's worth noting that he told his colleagues that "there is unmistakable evidence that Saddam Hussein is working aggressively to develop nuclear weapons and will likely have nuclear weapons within the next five years." And: "Saddam's existing biological and chemical weapons capabilities pose a very real threat to America, now." And: "We cannot know for certain that Saddam will use the weapons of mass destruction he currently possesses, or that he will use them against us. But we do know Saddam has the capability."
Unmistakable evidence. Existing biological and chemical weapons capabilities. We do know Saddam has the capability.
What are the chances any of these claims from Rockefeller will make the news stories about his committee's new "report?"
And while we're on the subject, be sure to check out this post by the US Chamber of Commerce, and the sheer complexity of the failed Warner-Lieberman energy bill. It's more proof positive that the only action from Congress that can help our problems is inaction.
The Big Chill, by Pete DuPont, explains how the (fortunately) defeated Warner-Lieberman climate bill would have been a trifecta of bad economics.
The Senate's global warming bill began by capping greenhouse gas emissions and reducing them each year, from 5.8 billion metric tons in 2015 to 1.7 billion in 2050. A Heritage Foundation study calculates that such reductions would cost more than 600,000 jobs a year through 2028 (900,000 in both 2016 and 2017), and the Environmental Protection Agency estimates the annual economic losses at $1 trillion to $2.8 trillion by 2050. Electricity prices would rise about 44% by 2030, and gasoline prices by more than 50 cents a gallon. Existing coal-fired plants, which provide about half of our electricity, would be shut down, requiring nuclear generation capacity would have to expand by more than 150%, to 1,982 billion kilowatt-hours from the current 782 billion, by 2050. That is a good idea--nuclear plants are virtually pollution-free--but doubling the number of them has zero chance of happening in a country that has not started construction of a new nuclear plant since 1977.
Then comes modern socialism: The government would offer "allowance" permits to emit greenhouse gasses. Initially about half the permits would be auctioned off to businesses, which Sen. Barbara Boxer (D., Calif.) says would raise about $3.3 trillion by 2050--money the federal government would give away to favorite constituencies. There would be $190 billion for "environmental" job training, $228 billion for federal "wildlife adaptation" and $237 billion to the states for similar efforts. There would be billions for international aid, domestic mass transit, energy research and so on.
The permits that wouldn't be auctioned off would be given by the government to the states, foreign countries, Indian tribes, carbon-heavy industries, utilities, oil refineries and so forth to help them meet their global warming challenges. To make all this work, the bill would create massive new federal bureaucracies, beginning with a Climate Change Credit Corp., which would invest government money in private businesses, and a Carbon Market Efficiency Board, which could change the rules and alter the government demands on businesses.
Finally would come protectionism: A new climate change agency would have the authority to determine whether other countries are taking proper action to prevent climate change, and to restrict their imports into America if not. Sen. Joseph Lieberman (I., Conn.) tells us if a foreign company "enjoys a price advantage over an American competitor" whose country has no cap-and-trade system, "we will impose a fee" on the foreign company's imports "to equalize the price." Sen. Sherrod Brown (D., Ohio) wants to impose trade sanctions on countries that do not cap their emissions. Should Barack Obama become president, his protectionism will become our policy; add to that this global warming bill and rampant protectionism will be with us once again, as it was in 1930.
Great editorial from the Orange County Register. Read the whole thing. Right now.
Editorial: We dodge a bullet on carbon cap-and-trade
Senate kills a potentially disastrous bill, but possibly worse legislation could be coming
The nation avoided global warming-related devastation last week. The Senate killed a grandiose scheme to clamp down on emissions of CO2, a benign, necessary, natural atmospheric gas. However, something similar, if not worse, will be back next year.
The devastation wouldn't have been the 1- or 2-degree temperature increases that may have occurred over the next century, which may noteven be related to CO2. The real devastation would have been gasoline prices increasing $1.40 per gallon by 2050, millions of jobs lost or shipped overseas, an effective $3,700-a-year tax on families, a 33-percent increase in home energy costs by 2020, and, says the Heritage Foundation, the equivalent economic cost of 35 Hurricane Katrinas every year for two decades.
Those would be certain results of the failed Climate Security Act's vastly expanded government controls to extract trillions of dollars from productive companies and redistribute the money to politically favored interests, say the bill's opponents.
What's uncertain is whether the trouble and expense would have bought anything. Even if CO2 emissions are returned to the level of horse-and-buggy days, an increase of 0.013 degree Celsius mightbe avoided over the next century, says climatologist Patrick Michaels. That's if CO2 increases temperature, which many scientists doubt. So, why go down this path?
"Controlling carbon is a bureaucrat's dream," MIT climate scientist Richard Lindzen said. "If you control carbon, you control life."
Global warming is the perfect big-government issue. First, it's predicated entirely on predicted disasters based on arbitrary data fed into computers. What's fed changes continuously. That's why a few years ago sea levels were predicted to rise 20 feet, but now only 20 inches or less. Garbage in, garbage out.
Second, global warming is unscientific because it can't be disproved. When temperatures slightly dropped over the past decade, then were predicted even by alarmists to drop more over the next decade despite ever-rising CO2, rather than admit their theory is wrong, the story line changed. Now we're told the entirely unpredicted 20-year cooling is only temporary. If temperatures go up, it proves global warming. If they go down, voila!It proves global warming.
Third, global warming is blamed for what has happened since the beginning of time. Climates always change. This ensures permanent government involvement. Fourth, if government imposes costly, Draconian solutions, and temperatures rise, it only means more Draconian solutions are needed. If temperatures drop, it only means Draconian solutions must continue.
Last week we saw how political support is mustered for such an unintuitive idea. Hundreds of billions of dollars never collected by the government before would be doled out to favored interests, after government pocketed its share. The failed bill would have given $51 billion to so-called energy-efficient manufacturers, $68 billion to automakers making government-smiled-upon cars and $150 billion to owners and operators of favored energy producers.
Disguised as a "cap-and-trade" plan, it would have made CO2 emitters pay to do what they've always done for free. Deceptively passed off as a market-based plan, cap-and-trade is really a hidden tax.
Senate Majority Leader Harry Reid assured us, "Gas prices will not go up. They will go down." In the end, the obvious connection to ever-higher gas prices politically killed the Climate Security Act. Next year another version is certain to return with a president inclined to sign it. We had a preview of the future last week. It's grim, costly and authoritarian.
Why Obama Must Go to Iraq
By PETE HEGSETH
Earlier this year, I spent five days in Iraq, walking the same streets in Baghdad where I had served two years earlier as an infantry platoon leader in the 101st Airborne Division.
The visit reinforced for me not only the immense complexity of the war – so often lost in our domestic political debate – but also the importance of taking the time to visit Iraq to talk with the soldiers and Marines serving on the front lines in order to grasp the changing dynamics of a fluid battlefield.
It is for this reason that the failure of Sen. Barack Obama to travel to Iraq over the past two and a half years is worrisome, and a legitimate issue in this presidential election.
Since his election to the United States Senate in 2004, Mr. Obama has traveled to Iraq just once – in January 2006. This was more than a year before Gen. David Petraeus took command and the surge began. It was also several months before Prime Minister Nouri al-Maliki's government came into office. Although Mr. Obama frequently criticizes the Iraqi leader on the campaign trail, he has never actually met him.
Mr. Obama's conduct is strikingly different from that of Sen. John McCain, who has been to Iraq eight times since 2003 – including three times since surge forces began to arrive in Baghdad. The senior senator from Arizona has made it his mission to truly understand what is happening on the ground, in all its messy reality.
Mr. Obama has dismissed the value of such trips, suggesting they are stage-managed productions designated to obfuscate, not illuminate, the truth. This has become an all-too-common sentiment within the Democratic Party leadership, especially since the surge began to transform conditions on the ground for the better. Senate Majority Leader Harry Reid has denied that there is any value in visiting the troops in Iraq, and has never done so.
In fairness, there are a number of Democrats who visit Iraq frequently – namely Sens. Joe Biden, who has made eight Iraq trips, and Jack Reed, with 10 trips. Mr. Obama's absence and cynicism stands in stark contrast to their serious approach. It is especially problematic given his intention to become our next commander in chief.
As anyone who has spent time on the ground in Iraq – speaking with troops of all ranks and backgrounds – can tell you, it is hardly a mission impossible to get them out to speak bluntly and openly about the problems they face.
Indeed, Mr. McCain's own frequent and vociferous criticisms of former Defense Secretary Donald Rumsfeld and his warnings, as early as 2003, that the Bush administration was pursuing a flawed strategy in Iraq, were directly informed by his firsthand interactions during his trips to Iraq. Troops and commanders warned him that we lacked sufficient forces to defeat al Qaeda and Iranian-backed militias, and they were correct.
In turn, Mr. McCain's early advocacy for the surge and his prescient conviction that it would succeed were rooted not only in his extensive knowledge of military affairs, but in his close consultations with troops serving in the theater. They recognized that the new strategy was succeeding far before the mainstream media in the U.S. was willing to acknowledge these gains.
That Mr. Obama apparently doubts his ability to distinguish spin from reality, and to draw bad news out of subordinates, does not bode well for his possible future as our nation's chief executive. As I'm sure he will discover, if he wins the White House, these are among the most important skills for a president to possess.
Even more astonishing than Mr. Obama's absence from Iraq, however, is the fact that he has apparently never sought out a single one-on-one meeting with Gen. Petraeus. The general has made repeated trips back to Washington, but Mr. Obama has shown no interest in meeting privately with him. It's enough to make you wonder who exactly Mr. Obama listens to when it comes to Iraq?
Mr. Obama frequently decries the danger of "dogmatists" and "ideologues" in public policy, yet he himself has proven consistently uninterested in putting himself in situations where he might be confronted with the hard complexities of this war. It suggests a dangerous degree of detachment and overconfidence in his own judgment.
After all, Mr. Obama was among those in January 2007 who stridently opposed the surge and confidently predicted its failure – even going so far as to vote against funding our soldiers in the field unless the Bush administration abandoned this new approach. It is now clear that Mr. Obama's judgment on the surge was spectacularly wrong.
Yet rather than admit his mistake, Mr. Obama has instead tried to downplay or disparage the gains our troops have achieved in the past 12 months, clinging to a set of talking points that increasingly seem as divorced from reality as some in the Bush administration were at the darkest moments of the war.
Mr. Obama continues to insist that "Iraq's political leaders have made no progress in resolving the political differences at the heart of their civil war" – despite the passage of numerous pieces of benchmark legislation by the Iraqi Parliament and unequivocal evidence of grassroots reconciliation across the country.
Mr. Obama also continues to claim that America has "simply thrown U.S. troops at the problem, and it has not worked" – despite the dramatic reduction in violence in precisely those areas of Iraq where American forces have surged, and since handed over to Iraqi Security Forces.
And of course, Mr. Obama persists in his pledge to withdraw all combat forces from Iraq, on a fixed timeline, beginning the moment he enters office – regardless of the recommendations of our commanders on the ground, regardless of conditions on the ground, and regardless, in short, of reality.
America is longing for an informed and principled debate about the future of Iraq. However, such a debate seems unlikely if the Democratic nominee for president won't take the time to truly understand the dynamics on the ground, let alone meet with commanders.
The time for talking points is over. Too much is at stake. When will Mr. Obama finally return to Iraq and see the situation for himself?
Mr. Hegseth, chairman of Vets for Freedom, served in Iraq with the 101st Airborne Division and returned as an embedded reporter.
Okay,I have to admit that Charles Krauthammer gets me to rethink my thought that energy wonks who want to raise taxes on gas are nuts. Krauthammer cites some strong economic arguments... Having said that, Krauthammer can't really believe that the government (at least the Democrats) would ever lower regulation of the energy industry or use gas tax proceeds to offset other taxes. I think that's a pipe dream.
On top of that, it's simply against the conservative viewpoint that the government should see fit to tell other people what's "good" for them by artifically legislating what kind of car they should drive or how they should consume.
So now we know: The price point is $4.
At $3 a gallon, Americans just grin and bear it, suck it up and, while complaining profusely, keep driving like crazy. At $4, it is a world transformed. Americans become rational creatures. Mass transit ridership is at a 50-year high. Driving is down 4 percent. (Any U.S. decline is something close to a miracle.) Hybrids and compacts are flying off the lots. SUV sales are in free fall.
The wholesale flight from gas guzzlers is stunning in its swiftness, but utterly predictable. Everything has a price point. Remember that "love affair" with SUVs? Love, it seems, has its price too.
America's sudden change in car-buying habits makes suitable mockery of that absurd debate Congress put on last December on fuel efficiency standards. At stake was precisely what miles-per-gallon average would every car company's fleet have to meet by precisely what date.
It was one out-of-a-hat number (35 mpg) compounded by another (by 2020). It involved, as always, dozens of regulations, loopholes and throws at a dartboard. And we already knew from past history what the fleet average number does. When oil is cheap and everybody wants a gas guzzler, fuel efficiency standards force manufacturers to make cars that nobody wants to buy. When gas prices go through the roof, this agent of inefficiency becomes an utter redundancy.
At $4 a gallon, the fleet composition is changing spontaneously and overnight, not over the 13 years mandated by Congress. (Even Stalin had the modesty to restrict himself to five-year plans.) Just Tuesday, GM announced that it would shutter four SUV and truck plants, add a third shift to its compact and midsize sedan plants in Ohio and Michigan, and green-light for 2010 the Chevy Volt, an electric hybrid.
Some things, like renal physiology, are difficult. Some things, like Arab-Israeli peace, are impossible. And some things are preternaturally simple. You want more fuel-efficient cars? Don't regulate. Don't mandate. Don't scold. Don't appeal to the better angels of our nature. Do one thing: Hike the cost of gas until you find the price point.
Unfortunately, instead of hiking the price ourselves by means of a gasoline tax that could be instantly refunded to the American people in the form of lower payroll taxes, we let the Saudis, Venezuelans, Russians and Iranians do the taxing for us -- and pocket the money that the tax would have recycled back to the American worker.
This is insanity. For 25 years and with utter futility (starting with "The Oil-Bust Panic," the New Republic, February 1983), I have been advocating the cure: a U.S. energy tax as a way to curtail consumption and keep the money at home. On this page in May 2004 (and again in November 2005), I called for "the government -- through a tax -- to establish a new floor for gasoline," by fully taxing any drop in price below a certain benchmark. The point was to suppress demand and to keep the savings (from any subsequent world price drop) at home in the U.S. Treasury rather than going abroad. At the time, oil was $41 a barrel. It is now $123.
But instead of doing the obvious -- tax the damn thing -- we go through spasms of destructive alternatives, such as efficiency standards, ethanol mandates and now a crazy carbon cap-and-trade system the Senate is debating this week. These are infinitely complex mandates for inefficiency and invitations to corruption. But they have a singular virtue: They hide the cost to the American consumer.
Want to wean us off oil? Be open and honest. The British are paying $8 a gallon for petrol. Goldman Sachs is predicting we will be paying $6 by next year. Why have the extra $2 (above the current $4) go abroad? Have it go to the U.S. Treasury as a gasoline tax and be recycled back into lower payroll taxes.
Announce a schedule of gas tax hikes of 50 cents every six months for the next two years. And put a tax floor under $4 gasoline, so that as high gas prices transform the U.S. auto fleet, change driving habits and thus hugely reduce U.S. demand -- and bring down world crude oil prices -- the American consumer and the American economy reap all of the benefit.
Herewith concludes my annual exercise in futility. By the time I write next year's edition, you'll be paying for gas in bullion.
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