Monday, March 22, 2010

I Blame You!

A friend of mine from Iran once said "we get the politicians that we deserve."

I used to think that this only applied to banana republics and Islamic Theocracies, but now I realize that it is also true in the United States.

Over the last year I have continuously blamed the Obama Administration for its fiscally and economically destructive policies, but now I Blame You! I Blame the growing segment of the American who have made this "change" possible with their:

Belief that they can have something for nothing, such as granting "free" health care to millions while simultaneously reducing the national debt.

Belief that they are entitled to the hard earned wealth of their fellow Americans, rather than seek to raise themselves up through their own labor.

Notionthat politicians can arbitrarily bend reality to their whims, such as mandating "affordable housing" in the United States and "democracy" in other nations.

Woeful ignorance of the values, visions, traditions and institutions that made the United States the freest, most peaceful and prosperous nation in the history of the world. You foolishly are squandering away the cultural, economic and political patrimony bequeathed to us by the founding fathers.

Any politician who spoke honestly and intelligently to you about the need to cut spending and raise taxes would not get elected. Only with you the ascendancy of Obama and other politicians who promise the impossible and heap debt on future generations was possible.

Sunday, March 21, 2010

Wicked Retahded!

From a budgetary standpoint, the health care plans offered to public workers in Massachusetts were wicked retahded! That's what you get when the government colludes with public sector unions over how to pilfer and redistribute the wealth of tax payers.

Runaway health costs are rocking municipal budgets

But there’s no will or willingness to roll back benefits granted in palmier times

By Sean P. Murphy
Globe Staff / February 28, 2010

Elizabeth Debski spent eight years as Everett’s city planner, before losing her job in 2006 when a newly elected mayor installed his own team.

But Debski did not leave City Hall empty-handed. In addition to her pension, Debski, at 42, walked away with city-subsidized health care insurance for life. If she lives into her 80s, as actuarial charts predict, taxpayers could pay more than $1 million in all for her family’s health care benefits.

That’s not to say Debski manipulated the system. She simply took what she was owed under a municipal health care system whose generous benefits and colossal inefficiencies are crippling cities and towns across Massachusetts.

A six-month review by the Globe found that municipal health plans, which cover employees, retirees, and elected officials, provide benefit levels largely unheard of in the private sector. Copays are much lower. Some communities do not force retirees onto Medicare at age 65. Many citizens on elected boards - some after serving as few as six years - receive coverage for life, too.

As medical costs across the board rose over the past decade, municipal health care expenses exploded, draining local budgets and forcing major cuts in services, higher property tax bills, and billions in new debt.

“It has got to be dealt with,’’ said Richard Fortucci , the chief financial officer in Lynn. “Or we will all go bankrupt.’’

The cost of municipal health care more than doubled from fiscal 2001 to 2008, adding more than $1 billion in all to city and town budgets, according to state Department of Revenue data. A Globe survey of 25 communities found that they now devote, on average, 14 percent of their budgets to health care, up from 8 percent a decade ago. Somerville, for one, spends $20 million more annually than it did 10 years ago, now devoting almost 20 percent of its budget to health care.

So far, with powerful labor unions resistant to giving away hard-won benefits and a lack of political will in the state Legislature to force changes, efforts to overhaul the system have fallen short.

To be sure, many municipal employees, elected officials, and retirees are paying a greater percentage of their health premiums than ever. Still, almost all of the increase in municipal health care costs in the past 10 years has been shouldered by taxpayers, who are subsidizing plans that are often superior to their own.

“It’s a nice deal,’’ said Debski, now a part-time planner in Malden.

She could get insurance through her husband’s employer but doesn’t, for a simple reason: The municipal plan is far more generous and costs less.

“The system was there,’’ she said. “I find it hard to believe that anyone wouldn’t take what the system offered.’’Continued...

A crippling cost

The consequences of failing to face this crisis are on display in many cities and towns, nowhere more vividly than in Lawrence.

In that city, on Feb. 1, children were momentarily trapped in a burning apartment building, down the street from a fire station. But the city had recently shuttered the station, to help close a $24 million budget gap, and firefighters had to race from another location. The children escaped, but the fire chief warned the city it may not be so lucky next time.

Meanwhile, Lawrence, one of the poorest municipalities in Massachusetts, continues to pay among the highest rates in the state for health care benefits. The city’s health care kitty, which it uses to pay for coverage, is currently $4 million in the red.

Health care costs are not the only budget-buster for cities and towns, of course, but their rise has led not just to fewer firefighters in Lawrence but diminished services across the state.

Library hours have been cut in Wayland and Hull. Wakefield has deferred road and sidewalk repairs. Malden has introduced fees for trash pickup. Class sizes have increased in Chelsea. Major layoffs have hit, among others, Boston, New Bedford, Worcester, and Brockton - with officials in all those communities citing rising health care costs as a major factor. Revere last year closed City Hall on Fridays, to save cash.

“What am I going to do next, put a padlock on the police station and tell people to call the State Police instead?’’ asked Mayor Thomas G. Ambrosino of Revere, who, like other mayors, is covered by municipal insurance.

Communities, under a 30-year-old initiative known as Proposition 2 1/2, can raise their tax levy each year by no more than 2.5 percent. In Revere, health care costs are rising at close to 10 percent a year. This fiscal year, the rise in health care expenses alone is projected to consume all of Revere’s $1.5 million allowable tax increase - and then some.

With health costs soaring year after year, communities must ask taxpayers for more money even while providing fewer services. Indeed, local officials say, Proposition 2 1/2 overrides - loathed at kitchen tables - are often attributable, at least in part, to skyrocketing health expenses.

Voters in Weston passed a $1.1 million override in 2006, primarily because of health care costs, which had risen by more than 80 percent in four years.

It proved to be a temporary fix. By 2009 Weston needed more money to cover health care increases, said Donna S. VanderClock, town manager. The town avoided another override after unionized employees agreed to join the state’s health care system, saving about $1.7 million in the first year, VanderClock said.

Beyond the immediate costs, huge liabilities loom. Communities have promised current and future retirees billions in health care subsidies, a burden taxpayers will bear long into the future.

Lynn owes current and future retirees an estimated $450 million in benefits over the course of their lives - five times as much as it takes in annually in taxes, according to estimates by city actuaries. Brookline’s unfunded liability for health care is $320 million; Boston’s is $5.7 billion.
Though some communities, such as Wellesley, Needham, and Boston, have begun putting aside interest-earning money every year to help meet those obligations, the vast majority of municipalities have not. Local officials say they can barely afford to pay today’s health care bills, let alone tomorrow’s.

“We have an unfunded liability of more than $600 million and with no plan to address it,’’ said John Condon, Brockton’s chief financial officer. “Even if we wanted to address it, we don’t have the money for it.’’

‘Very, very rich plans’

Jane Teal said she only wanted to help her hometown when she ran successfully for Lynn City Council in 1995. She served for six years, then stepped down, eventually moving to Florida with her husband. Today, Lynn taxpayers are paying $22,600 a year for the couple’s health care.

“It never crossed my mind that I would get insurance when I ran for office,’’ she said. “But I am glad to have it.’’

Six former city councilors are insured by Everett, plus 12 current ones. In Kingston, 10 part-time elected officials receive town-subsidized health coverage, including four Planning Board members, three Health Board members, and a sewer commissioner, all of whom typically attend two meetings a month.

“That’s the way it’s been done for a long time in Kingston,’’ said Dennis Randall, vice chairman of the Board of Selectmen. “But in tough times, everything should be under review.’’

The extension of benefits to local elected officials is one vivid example of how generous many municipal health care plans are. In fact, national data show that state and local government pay significantly more for health benefits than private employers.

Municipal health care plans were once deemed affordable and have helped cities and towns attract workers to the public sector, where salaries have often been lower. Today, however, they stand out for their comparatively low cost to subscribers and favorable terms.

Taxpayers now underwrite as much as 89 percent of active employees’ premiums in some of the state’s largest cities, while private-sector employers often cover less than 70 percent, local and state data show. As health care expenses have climbed for everyone, taxpayers - already paying a generous share of municipal benefits - have been hit especially hard as those benefits have grown more costly.

The insurance plans many cities and towns offer to employees, retirees, and elected officials also require minimal out-of-pocket expenses, with copayments for office appointments as low as $5. Most have copays for emergency room visits of $25 or less.

By comparison, private-sector copays for office visits are typically at least $20, sometimes more, with $75 copays standard for emergency room visits, according to a survey of Massachusetts employers by the state Division of Health Care Finance and Policy. Unlike most municipal plans, private-sector plans also often force subscribers to pay thousands annually in deductibles before insurers pay anything.

In addition, cities and towns are among the last employers to offer costly indemnity plans, which provide virtually unrestricted medical care. Though phased out in much of the private sector, indemnity plans live on in about a third of Bay State municipalities, according to a 2008 survey by the Massachusetts Municipal Association.

Even with family HMO plans, which typically limit access within a defined network of providers, municipal premiums are, in some cases, 30 percent higher than in the private sector, according to a Globe survey of communities and state data.

Though cities and towns have some control over what benefits they provide, they are limited by state law: Not only does the law subject health benefits to local collective bargaining, the state also imposes certain mandates on municipalities. Communities that offer health care to active workers, for example, must also offer coverage to retirees.

The generous terms of municipal plans compound the problem, because they create incentives for higher use: Low out-of-pocket costs - particularly the minimal copays - encourage subscribers to use more medical services, thus driving up the overall expense to communities.

“When a group uses a high number of services, high premiums result,’’ said Brian Pagliaro, senior vice president of Tufts Health Plan.

Among the communities that pay the highest family premiums are Framingham, which spends $34,075 per family; Waltham, at $30,100; and Everett, at $26,000.

“The municipal plans are rich plans,’’ said Mayor Joseph A. Curtatone of Somerville. “They are very, very rich plans.’’

A boon for retirees

For taxpayers, there is no relief in sight, and for one simple reason: Municipal health benefits are especially good in retirement, and the number of retirees has grown by a steady 2.5 percent per year since 2001, in part because of longer life expectancies.

Under state law, any municipal employee with 10 years service is eligible, in retirement, to get health care benefits for life from age 55, a benefit typically worth hundreds of thousands of dollars per person. (People such as Debski, who have 20 years public service - she worked 12 years in Salem before going to Everett - can immediately qualify if they are terminated, regardless of their age.)

Most municipalities also grant spouses generous health care benefits.

In some cases, retirees and spouses live decades beyond the date of retirement, the Globe found in a review of thousands of pages of municipal retirement records. The widow of a Lynn police officer who retired on disability in his 30s in 1953 is still receiving city-subsidized insurance - 57 years later.

Less than one-quarter of private-sector retirees nationally receive any health care benefits from their former employers, said Roland McDevitt, director of health care research for the consulting firm Towers Watson.

Some cities and towns do not even compel retirees to use Medicare for nonemergency care once they reach 65, in effect leaving millions of dollars in federal subsidies on the table. Instead, retirees choose to stick with the more generous, and more costly, municipal plans.

Communities, under a state law passed in 1991, can force employees to enroll with Medicare, but only if the change is approved by the city council or town meeting. In some places, that has proven politically difficult, given the clout of active and retired municipal workers.

Boston, Lowell, and Lawrence are among those that have yet to adopt the provision. In Boston alone, there are more than 1,500 retirees who are eligible for Medicare but do not take it, costing the city almost $5 million, according to city estimates.

“Getting into Medicare is a tough vote,’’ said Condon, of Brockton. “People don’t like change. And in Brockton, we have more than 700 retirees on the voting rolls.’’

Other municipal retirees don’t sign up for Medicare simply because they are not eligible. Most police, firefighters, and teachers retire before age 65, and are thus too young to be covered by the federal system. That means cities and towns pay as much to insure them - at least until they reach 65 - as they do to insure active employees.

Even when retirees are on Medicare, it is still expensive for municipalities, because state mandates require communities to help cover drug costs and other expenses not paid by the program. By contrast, private-sector retirees are typically on their own.

“In the private sector, when you turn 65, most employers say, ‘Good luck on Medicare,’ ’’ said McDevitt, the national health care consultant. “And that’s it.’’

Tomorrow: How cities, towns, and the state have tried and often failed to solve the problem.

Sean Murphy can be reached at

© Copyright 2010 Globe Newspaper Company.

Will We Have Flaming Saganaki?

According to the Congressional Budget Office:

"Under the President’s budget, debt held by the public would grow from $7.5 trillion (53 percent of GDP) at the end of 2009 to $20.3 trillion (90 percent of GDP) at the end of 2020. As a result, net interest would more than quadruple between 2010 and 2020 in nominal dollars (without an adjustment for inflation); it would expand from 1.4 percent of GDP in 2010 to 4.1 percent in 2020."

So, my only question is "once our debt level reaches Greece's, will we have flaming saganaki?"

Obama's Shell Game (part II)

If you don't believe Representative Ryan (R - WI) check out what CNN has to say about the shell game the Obama is playing to hide the true costs of his budget busting health care reform plan . To view the whole article scroll to the bottom of this post and click on the link. Otherwise check out these excerpts:

It's not an easy trick to reduce deficits and yet borrow more money. CBO does it because it has to. By law, the CBO is required to use "cash" or "unified budget" accounting. Under that system, the CBO projects all the new revenues and new expenses from the legislation it's requested to "score." If the extra revenues exceed the additional outlays, the bill is deemed to reduce deficits. That's the case with the health-care bill. The rub is that the measure gets a large portion of its revenues from new Social Security and Medicare taxes -- plus levies it collects upfront to pay for a long-term care entitlement program.

Counting those taxes as deficit reducers presents two problems. First, the extra revenues are mainly needed to pay for higher benefits in the future. Second, they cannot be used to fund the lavish subsidies, tax credits for small employers, and other spending the bill mandates. "The law is clear," says Donald Moran, a former Reagan Administration budget official who runs a Washington, DC-based health-care consulting and research firm. "Revenues from those entitlement taxes must go into their trust funds. That money is not available to pay for the spending commitments of the health-care bill."

So let's use the definition of "deficits" that most Americans follow in their own budgets: Any time you increase spending -- on buying a two-story colonial or taking a vacation at Club Med -- and you need to borrow to pay for it, you're running a deficit. For families, the best way to measure those deficits is the amount it adds to what they owe on their credit cards, car loans or home equity lines.

Now apply the same standards to the health-care bill. If it really reduces deficits, it should lower the federal debt. It does the opposite. How? First, it doesn't raise nearly enough revenues to pay for itself. Second, it vastly understates future costs.

Let's start with the second issue. A law dating from 1987 sets strict limits on total physician payments for Medicare. The main mechanism for restraining costs is a formula that lowers the fees Medicare pays for everything from angioplasties to checkups. But since 2002, Congress has been postponing those cuts and allowing modest increases in reimbursements instead. The official budget assumes that Congress made the cuts every year, and hence starts with a far lower spending number. But that's fiction. Each year, Congress passes what it calls the "Doc Fix," which today requires spending about $25 billion a year more than the budget projects.

The House included the "Doc Fix" in the bill it presented in July, but not the Senate. And now it's reappeared -- but in a different piece of legislation. The administration estimates that the Doc Fix will cost $371 billion over 10 years. Yet the CBO doesn't talk about that cost when it comes to health care -- because it can't. It's not in the bill it's scoring.

"The bill has many changes in Medicare, but this is the only one Obama wants to do separately," says James Capretta, who served in the Office of Management and Budget under President George W. Bush. "It's an attempt to hold the official cost below $1 trillion, when it's really far higher."

The White House is also counting on three sources of revenue that, in fact, cannot be used to pay for the bill's spending: A new entitlement, Social Security taxes, and higher Medicare levies. The new entitlement is the Community Living Assistance Services and Supports program, or CLASS Act. The CLASS Act is a long-term care plan for people who can't perform basic daily tasks such as feeding themselves. Over the next 10 years, the CLASS Act mainly collects payroll contributions from new enrollees, and pays only small amounts in benefits.

But the program needs all of that money to cover the costs it will accrue when those new enrollees start needing home-nursing services. In fact, it will almost certainly need a lot more. The American Academy of Actuaries warns that the program will be insolvent by 2021. The HHS actuaries conclude that it faces "significant risk of failure." In October, Kent Conrad, D-N.D., chairman of the Senate Budget Committee, called the CLASS Act "a Ponzi scheme of the first order, the kind of thing that Bernie Madoff would have been proud of."

But remember, the CBO counts new revenues, even if they're owed later for another purpose, towards "deficit reduction." Hence, using the CBO report, the administration is, in effect, touting the $70 billion the CLASS Act raises between 2010 and 2019 as money that's available to spend on subsidies for premiums and coverage for the uninsured.

So how much must the government borrow to pay for reform? That's the true measure of future deficits. Let's start with the CBO's "deficit reduction" estimate of $118 billion.

First, we'll subtract the Doc Fix of $371 billion, which Obama does not pay for and must be borrowed. That wipes out all of the theoretical decline in the deficit and leaves a shortfall of $253 billion.

Then we'll subtract the tax revenues that are owed for entitlements, and therefore excluded from paying for the bill: $70 billion from the CLASS Act, $52 billion for Social Security, and $113 billion for Medicare. That subtotal: $235 billion.

So the full amount that must be borrowed by 2019 is $488 billion. (That's 39% of the total cost, composed of the $875 billion official estimate plus the Doc Fix of $371 billion, for a total of $1.25 trillion.) Add in interest, which is excluded from the official CBO cost, and the total amount approaches $600 billion. So the U.S. will need to borrow an additional $600 billion to pay for a new medical system -- one that won't be up and running until 2014.

Only by using the crazy math of health care can a bill both "lower deficits" and enormously raise debt. America's struggling households know what real deficit reduction looks like, and this isn't it.

Obama's Shell Game (part I)

I am truly disgusted at the shell game that the Obama Administration is playing to hide the true costs of their health care plan. In the past I may have disagreed with him, but I still believed that he was presenting his plans in good faith. But, a quick look at the budgetary tricks used to put forth the claim that this plan will save tax payer money reveals that without a doubt Obama is a bold faced liar.

Representative Paul Ryan (R - WI) outlined the more egregious budgetary gimmicks during a recent hearing. To view the clip scroll down to the bottom of this post and click on the link.

Among Obama's tricks were to calculate:

-A half a trillion dollar tax increase, coupled with a half a trillion dollar cut in Medicare. It is highly doubtful that the Obama Administration is capable of achieving the former and even willing to risk the political costs of pursuing the latter.

-These cuts will occur over 10 years to pay for 6 years of funding for Obamacare. A budget gimmick appalling even by our already low standards.

-53 billion in higher social security tax revenues and counts them as offsets. In other words raiding one broke bank to pay for another.

-Reducing doctor reimbursement for Medicare, an act that if undertaken will put cause even more doctors to refuse to partake in this program.

Ryan best sums it up in the following phrase "Hiding spending does not reduce spending. And so when you take a look at all of this it just doesn't add up. Adding more to the unsustainable fiscal situation that we have...."

Where are the Pakistani Kings? (part II)

In the previous post we discussed the impact of an immigrant group's level of education and training (and not national origin) in determining their economic and social output. The vast majority of research that seeks to ascertain the costs and benefits provided by immigrants, focus on the 1st generation. This is clearly a limited and short sighted approach, because the effect of each individual spans several generations via the economic and social costs and contributions of their offspring to the United States. Conventional wisdom dictated that a multi-generational analysis was not necessary, because the offsprings of immigrants would thoroughly assimilate and economically advance according to their individual merits, as demonstrated by the stellar rise of the children and grandchildren of so many poor immigrants.

In his book "Heaven's Gate," the Harvard economist George Borjas presents strong evidence that "many of the cultural and economic differences that exist among immigrant groups - as well as between immigrants and natives - are transmitted to their children, so that the diversity found among today's immigrants becomes the diversity found among tomorrow's ethnic groups." (pg 126) Or to put it simply "there is a strong positive correlation between the socioeconomic outcomes experiences by ethnic groups in the immigrant generation and the outcomes experienced by their children and grandchildren." (pg 128)

For example, in 1970 a 1st generation worker from Mexico earned -27.6 % less that the average native worker and in 1998 their children earned -19.7 % less. In contrast a 1st generation immigrant from Germany earned 21.9 % more and their children earned 17.6 % more than the average American worker. On average 67% of the wage differences between native and immigrant workers were transmitted to the second generation. So, although we are witnessing a regression towards the means, it's at a much slower rate than previously anticipated.

Borjas also found a surprisingly strong correlation between the literacy rate of the first generation and the number of years of schooling that the third generation achieved. Interestingly, but not surprisingly, the education level of the first generation had a strong bearing on the income level, incarceration rate and use of welfare of the third generation. However, there are many cases that defy predictive logic. For example, only 12% of first generation immigrants from the Dominican Republic utilize welfare, whereas nearly 40% of the second generation does. And (in 1970) the wages of first generation Greek immigrants was -3.9% less than those of native born Americans, however the second generation enjoyed wages 31.8% greater than that of their American counterparts.

It's also worth noting that in the period of 1940 - 1970 the inter-generational correlation in income between the 1st and 2nd generation was 0.45 and between 1970 - 1998 the correlation increased to 0.69; in other words the rate of assimilation has decreased over time. Of course this is the predictable outcome of the shift of governmental and educational elites away from an ideology of assimilation towards one of multiculturalism. And also noteworthy is the fact that the level of assimilation and achievement of immigrants who resided in neighborhoods with lower demographic concentrations of their compatriots were generally superior to those who resided in heavily immigrant neighborhoods.

So, what are the policy implications can we draw from the work of Borjas? The starting point is to embrace intellectual honesty and put facts before feelings and economics before feel good narratives. Next we must acknowledge that the skill and educational level of each immigrant offers benefits or imposes costs for three generations or more. From there we can analyze the success rate of the third generation to determine the relative success or failure of our initial immigration policy. And as stated in part I of this post, the issue is not the race of origin of the immigrant, it's what segment of the population they represent. So, the very high rate of welfare use among second generation immigrants from the Dominican Republic implies that we need to encourage a very different segment of the said nation to immigrate to the United States, particularly individuals with a higher rate of educational and professional achievement. And to facilitate greater assimilation and achievement we should encourage a smaller and more diverse influx of immigrants, rather than a large population with an over-representation of several key nations. But, in this age of political correctness, intellectual honesty is a scarce resource, so don't expect real change anytime soon.

Wednesday, March 17, 2010

Talking Points vs Realty

Talking Points vs. Realty

By Thomas Sowell

In a swindle that would make Bernie Madoff look like an amateur, Barack Obama has gotten a substantial segment of the population to believe that he can add millions of people to the government-insured rolls without increasing the already record-breaking federal deficit.

Those who think in terms of talking points, instead of realities, can point to the fact that the Congressional Budget Office has concurred with budget numbers that the Obama administration has presented.

Anyone who is so old-fashioned as to stop and think, instead of being swept along by rhetoric, can understand that a budget — any budget — is not a record of hard facts but a projection of future financial plans. A budget tells us what will happen if everything works out according to plan.

The Congressional Budget Office can only deal with the numbers that Congress supplies. Those numbers may well be consistent with each other, even if they are wholly inconsistent with anything that is likely to happen in the real world.

The Obama health care plan can be financed without increasing the federal deficit — if the administration takes hundreds of billions of dollars from Medicare. But Medicare itself does not have enough money to pay its own way over time.

However money is juggled in the short run, the government's financial liabilities are increased by adding this huge new entitlement of government-provided insurance. The fact that these new financial liabilities can be kept out of the official federal deficit projection, by claiming that they will be paid for with money taken from Medicare, changes nothing in the real world.

I can say that I can afford to buy a Rolls Royce, without going into debt, by using my inheritance from a rich uncle. But, in the real world, the question would arise immediately whether I in fact have a rich uncle, not to mention whether this hypothetical rich uncle would be likely to leave me enough money to buy a Rolls Royce.


Every weekday publishes what many in the media and Washington consider "must-reading". HUNDREDS of columnists and cartoonists regularly appear. Sign up for the daily update. It's free. Just click here.

In politics, however, you can say all sorts of things that have no relationship with reality. If you have a mainstream media that sees no evil, hears no evil and speaks no evil — when it comes to Barack Obama — you can say that you will pay for a vast expansion of government-provided insurance by taking money from the Medicare budget and using other gimmicks.

Whether this administration, or any future administration, will in fact take enough money from Medicare to pay for this new massive entitlement is a question that only the future can answer, regardless of what today's budget projection says.

On paper, you can treat Medicare like the hypothetical rich uncle who is going to leave me enough money to buy a Rolls Royce. But only on paper. In real life, you can't get blood from a turnip, and you can't keep on getting money from a Medicare program that is itself running out of money.

An even more transparent gimmick is collecting money for the new Obama health care program for the first ten years but delaying the payments of its benefits for four years. By collecting money for 10 years and spending it for only 6 years, you can make the program look self-supporting, but only on paper and only in the short run.

This is a game you can play just once, during the first decade. After that, you are going to be collecting money for 10 years and paying out money for 10 years. That is when you discover that your uncle doesn't have enough money to support himself, much less leave you an inheritance to pay for a Rolls Royce.

But a postponed revelation is not part of the official federal deficit today. And that provides a talking point, in order to soothe people who take talking points seriously.

Fraud has been at the heart of this medical care takeover plan from day one. The succession of wholly arbitrary deadlines for rushing this massive legislation through, before anyone has time to read it all, serves no other purpose than to keep its specifics from being scrutinized — or even recognized — before it becomes a fait accompli and "the law of the land."

Would you buy a used car under these conditions, even if it was a Rolls Royce?

Saturday, March 13, 2010

Where are the Pakistani Kings? (part I)

Pictured Above: 2005 riot in Birmingham, UK
between Pakistani and Afro-Caribbean gangs.

Growing up first in West Rogers Park and then the North Shore, I am well acquainted with Chicago's sizable Desi Community (Indians, Pakistanis and Bangladeshis). From my experience Desis are generally hard working, law abiding and oriented towards education and achievement. So, I was quite surprised to read in British newspapers about the proliferation of South Asian gangs and drug traffickers in England, as well as some pretty serious race riots between South Asian and Afro-Caribbean youth. Many of the Indian and Pakistani Muslims that I became acquainted with in Chicago were religious, but not once did I encounter a hint of the radical Islam that plagues England. This prompted me to ask myself "Where are the Pakistani Kings, where are the Gujarati Gangsters in America? Why in Chicago are there so many Pakistani doctors and pharmacists and so few drug dealers? Why does welfare dependency plague many Pakistanis in England, whereas their rate of welfare use in the United States is significantly lower than that of native born whites?"

During a discussion with a British friend of mine, he informed me that the majority of England's Latin American immigrants were highly educated professionals. And he was quite surprised to learn about the Latin Kings and the many other Hispanic gangs that plague some Chicago neighborhoods. It then dawned on me - the issue is not where an immigrant is from, it's which segment of the population they represent. The reason why crime and welfare use is far higher in England's South Asian population is because a large number of the Desis that immigrate to England are uneducated and deeply traditional, whereas many of the Desis that immigrate to the United are highly educated and modern. Also, the comparatively lower rate of South Asian immigration to the United States coupled with their relative lack of geographic concentration creates a socio-economic environment that is conducive to healthy assimilation. In contrast the high demographic and geographic concentration of Muslim South Asians in England allows for a cultural isolation that hinders assimilation and breeds social pathology, such as gangs and radical Islam.

These lessons are highly applicable to issues of immigration and ethnicity in the United States. Unfortunately, most people draw the wrong conclusions from troubling statistics regarding Latinos, such as: a high school drop out rate that hovers at 46%, an incarceration rate that is 2.45 times greater that that of whites and a poverty rate that is 2.48 times higher. On one hand a disgusting racist fringe incorrectly attribute these statistics to innate pathology in Hispanic people and their culture, on the other hand, most progressives incorrectly emphasize racism and discrimination as the primary causes of social pathology. Both are wrong. The cause is neither race nor racism, it's the generally low education and skill level among Latin American immigrants, as demonstrated by the fact that 60.2% of Mexican immigrants to the United States lacked a high school diploma. The socio-economic performance for high school dropouts of all races is abysmal in a post-industrial United States. But, much to their credit, the crime rate among 1st generation Mexican immigrants is actually lower than that of native born Americans. However the level of arrest, incarceration and welfare use surges in the second generation.

Based on their erroneous interpretation of the said statistics, both the racist fringe of the right and most progressives offer flawed solutions. Racists seek to bar non-whites in general and Latinos in particular from immigrating to the United States. Conversely, progressives believe that a regimen of government programs, including affirmative action is the key to raising socio-economic outcomes among Hispanics. The simple answer eludes both extremes: if we want higher socio-economic outcomes, without investing billions of dollars, our criteria for selecting immigrants should be based far more on their education and skill level. A college graduate is a college graduate and a dropout is a dropout, whether they were born in Madison, Michoacan or Madras. And policy makers should take heed: the education and skill level of the 1st generation influences the performance of generation to come.

Thursday, March 11, 2010

American Treasure: The Blues

One of America's greatest cultural treasures is The Blues.

It's a testament to the human spirit how America's most oppressed, abused and downtrodden population, rural African-Americans of the south, created some of the greatest works of art that this country has ever known. Furthermore, the Blues is the progenitor of and inspiration for Jazz, Rock and Rap music.

Here is my collection of blues artists. Enjoy!

Sunday, March 7, 2010

Abolish the Right and the Left?!?

Ask most people what their political persuasion is and they will typically respond "right or left" or "conservative or liberal." I have come to view these terms as extremely reductive labels that tell me little about one's beliefs. Often two people can have identical policy positions, but for very different reasons. To have a clearer understand of politics it's necessary to outline and enumerate philosophical and economic categories and determine were we fall in the believe spectrum. Often these different categories combine to produce seemingly contradictory positions, such as Ron Paul's simultaneously opposition to federal measures that outlaw abortion and his pro-life stance.

1. Conservative Affect vrs Liberal Affect: Liberals are commonly assumed to be more open minded than conservatives, yet many have conservative affects, in other words they are resistant to challenges to their beliefs or policies. For example, social security clearly is clearly unsustainable in its present form, yet most progressives howl in protest when even modest reforms are proposed and rarely offer alternatives. And whether we agree with their positions or not, the greatest challenges to the status quo in public education comes from so called conservatives. The paradox of progressive close mindedness is most pronounced in issues of race, gender and ethnicity. When the former president of Harvard Lawrence Summers presented the question that perhaps there may be some non-social reasons why women have a less pronounced presence in the sciences, rather than spark intelligent debate and research, he was immediately called upon to resign by progressive staff.

In general, those who are most oriented towards a liberal affect are best able to deal with a crisis that challenges the status quo. It's important to note that increasing the degree to which we implement a current policy, does not indicate an inclination towards change. Progressives who believe that the only solution to California's fiscal implosion is to increase the tax burden (which is ranked 6th highest in the nation) are certainly not demonstrating an inclination towards open-mindedness and innovation.

2. Fiscal Orientation vrs Fiscal Indifference: The clearest litmus test for where you fall on this spectrum is your take on expanding the federal government's role in health care. Believe it or not, I would like to see the government offer a public option to help increase the quantity and quality of health care that poor, uninsured Americans enjoy. However, we simply cannot ignore the fact that without enacting dramatic cuts in the budget, this path would greatly increase our already massive national debt. Yet, many progressives act with little or no concern towards fiscal reality. A fiscally oriented progressive would realize that at this point in history we have to choose between: universal health care, social security or cap-and-trade and directing our military towards futile nation building. To simultaneously pursue all four is a supreme act of hubris that truly threatens the future of our republic.

3. Economic Statist vrs Market Oriented: Do you believe that foundation for America's unparalleled prosperity is the energy, innovation and inventions of entrepreneurs like Bill Gates? Do you believe that a generally free economic environment is conducive towards creativity and growth, in spite of the malfeasance of some corporations? Or, is your 1st impulse that the private sector should be curtailed and directed by a benign state?

Do you believe that over the long run, a society increases its general wealth and welfare when the allocation of capital and labor is determined by the state or by a free market? Are the short term benefits of state intervention is generally outweighed by the long term costs via market distortions and a misallocation of capital?

Note: a free market orientation does not mean that we reject the presence of clear and basic rules to ensure transparency, contracts, reasonable environmental and labor standards and a safety net. And it generally does not mean that we are inclined or averse towards a strong social safety net; that is an entirely different philosophical category.

4. Individual Choice vrs Sheltered Individuals: Do you generally believe that greater good comes from maximizing the opportunity of individuals to make their own economic choices (that you may deem unwise) or the state should shield individuals from their folly?

The litmus test is if you believe that the individuals who chose to undertake high(er) interest home loans are "victims of predatory lending" and such loans should not be available to them.

Do you believe that it's an individual right to determine if (given other available options) it's in their interest to work in Walmart or in order to prevent them from making this "bad choice," we must eliminate it as an option?

And does facing the consquences of their choices encourage individuals and society as a whole to evolve towards more socially and economically sound behaviors?

5. Centralization of State Power vrs Self Governance: Is greater good achieved by having the federal government promote uniform social and economic mandates across the nation or allow diverse communities to work together to forge their own solutions to their social and economic concerns? Do you share Jefferson's belief that states and municipalities are the "laboratories of democracy," in other words the nation as a whole can learn from the successes and failures oof policies undertaken by different communities?

The increasingly uncommon orientation towards self governance often produces seemingly contradictory positions. For example, as someone who is market oriented and believes in maximizing individual choice, I believe that excluding Walmart from your community is overall an unwise decision. However, as someone who strongly believes in the rights of communities to shape their economic and social destinies, I believe it's their right to make this unwise choice.

And although I fully support the rights of gays to marry, having the federal government impose uniform social standards on communities with diverse values and visions is an unwise path. Such actions are a recipe for alienation, conflict and an erosion of popular involvement in local politics and civil society.

And those who now use the federal government to promote their social agendas should be aware that the direction of political and social winds may one day change and an expanded interventionist state may be used to impose policies on their communities that they would find deeply distasteful.

Although it's far from a perfect solution, allowing individuals to "vote with their feet" and move to communities that reflect their social and economic values is a compromise that maintains the integrity of our union. Rather than seek to use the federal government to impose my values on other communities, I choose to live in a community that reflects my values. In practical terms this means that I would only live in a city that chooses to respect the rights of gays to marry and those who are deeply offended by this are welcome to move to communities that reflect their more traditional vision of social life.

6. Constitutionally Oriented vrs Constitutional Sophistry: To put it simply, does one seek to enact laws and policies inspired by the spirit of and conforming to the letter of the constitution or do they engage in sophistry and mental gymnastics to justify political agendas that clearly do not conform to the fundamentals of the constitution? This does not mean that we the people do not have the right to enact dramatic change to the laws of the land, it simply means that when we do so by proposing, debating and voting on new amendments. In terms of policies, the end result may be the same, however when policy shifts through this means, we will limit the ability of politicians to arbitrarily and capriciously impose their will on the people. And of course we will seriously erode the checks and balances that the founding fathers placed on the three branches of government to protect the people from tyranny.

Adhering to the spirit and the letter of the constitution can be a frustrating path, because it slows the speed and extent to which we can pursue our desired policies. For example, I (reluctantly) admit that it makes economic sense for the federal government to mandate that all citizens purchase health insurance, but I am quite certain that this is in violation of the constitution. And even though it may be economically beneficial to have the federal government mandate that banks increase their loans to the public, nowhere in the constitution is this power granted to the federal government. And although I have zero tolerance for Al-Qaeda terrorists, I believe that it is a violation of the constitution to indefinitely hold enemy combatants without trying them, be it through a military or civilian court. Curtailing the ability of the federal government to react rapidly and resolutely to social and economic problems is a small price to pay for maintaining safeguards against the arbitrary and tyrannical expression of political power.

So next time someone asks you if you are "right wing" or "left wing," "liberal" or "conservative," walk away because the conversation will be as informative as a box of chocolate chip cookies.

How Do You Eat An Octopus?

Health care is truly a massive beast with countless tentacles simultaneously flailing about. Many of these appendages do need to be reformed. The fundamental problem with the health care bills that are being put forth is that they are asking us to swallow this octopus whole, rather than carve it up, consume and digest it bite by bite. In other words, senators are being asked to vote for or against a myriad of good and bad proposals contained in a nearly 2,000 page bill that few if any have read. The result is a general lack of focused, intelligent debate from both sides and a public that's even more in the dark.

Why not break up the bill into individual proposals and discuss, debate and vote on each one? For example, we could separately debate and vote on measures that sought to: create a more efficient medical records system, prevent individuals from being denied medical insurance due to pre-existing-conditions, enact reasonable tort reform, create a more competitive insurance market, address fraud in the medicaid system, expand coverage to the uninsured, promote preventative care, just to name a few. Rather than swallow 2,000 pages whole without understanding their implications, senators and concerned citizens would be given the opportunity to read and better understand (let's say) 50 pages that dealt with prescription drug reform. And to ensure transparency, it would be ideal if it were detailed which lobbyists supported, opposed or (dare I say) even authored which proposals.

Proposals that made sense would be voted for and those that did not would be voted down. With the current labyrinth like package of proposals we cannot be sure which Republicans are "mean spirited obstructionists" and which Democrats are "power hungry partisans." But, once we break down this beast into its individual components there will be no excuse for Republicans to vote against reform because "there are too many bad apples in the barrel." And equally, there will be no excuse for Democrats to push through bad, individual initiatives in order to "break the status quo and push forward needed reform." Of course this means that the process will take too long for an increasingly impatient public, prone to sound bites and generalizations rather than intelligent debate. But, when reshaping 16% of the economy and the health care of millions of Americans, isn't it better to take your time and do it right? Isn't it better to eat your octopus one bite at a time?

Wednesday, March 3, 2010

We Need Home Repair Reform Now!

Health care and house repair are distinct markets, but many of the same economic principles holds true. Virtually everyone property owner has home owner's insurance. And to the best of my knowledge, no employers provides home owner's insurance. The vast majority of these individuals opt for high deductible insurance that in practice only covers catastrophic or serious damage. In other words they choose insurance that would cover serious fire damage, but very few would opt for insurance that covered the cost of a broken window or busted toilet. Why? Because they know that such insurance would require a very high premium. And if they used it for minor repairs, the insurance companies would jack their premiums through the roof.

Let's imagine what would happen if the majority of people chose to utilize home owner's insurance in the manner that they utilize health insurance.

To start off with, if they demanded that their employers provide "affordable home owner's insurance," far fewer individuals would shop around for the most economical insurance plans. And fewer individuals would seek plans that met their unique needs, they would simply accept the packages provided by their employers. The result would be a drop in competition and cost consciousness, which would certainly result in a net increase in the cost of insurance.

And let's imagine if home owner's demanded that their insurance had a low co-payment to "make home repairs more affordable." What would the economic implications be? We know that this would increase aggregate demand for home repairs. For example, I now only address essential repairs, neglecting the cracks on my ceiling and the chipping paint of my porch because of fiscal constraints. But, if there was a co-payment of only $250, I (and most people) would immediately undertake a myriad of non-essential repairs. Anyone who has taken Economics 101 can tell you that an aggregate increase in demand drives up the cost of repairs.

Now, most consumers of home repair services carefully shop around, getting multiple quotes for (let's say) a paint job, which creates competitive pressure that helps control aggregate costs. Now imagine if getting your home painted only entailed a $500 co-payment; what would the economic effects be? To start off very few consumers would waste their time shopping around for the most cost effective painter, which would result in a market wide increase in the cost of painting. And now imagine that you could only choose a painter from a list of craftsmen who were affiliated with your insurance company, the end result would be less competition and less incentives to control costs.

Faced with rising costs, fewer people would be able to afford basic home repair, which would prompt the welfare state to provide free house repair or subsidized home owner's insurance to millions of Americans. This would diminish or eliminate incentives to shop around or limit their home repair to vital procedures, which would only add to the already existing price inflation. Under normal conditions, when prices begin to rise beyond the capacity of consumers, demand drops, which puts pressure on producers to lower costs through innovation, improved organization and even lower profit margins, creating a cost equilibrium. But, state subsidies disables this dynamic, preventing demand from dropping and shielding producers from pressures to lower costs, while maintaining quality.

And while many Americans truly could not afford quality home repair, there would be many others who could afford it, but would succumb to the perverse incentives and choose to rely on the grandiosity of the state. Furthermore, guarantees of home care would allow many individuals to elude the consequences of their irresponsible behavior. Why should I insulate my water pipes; if they burst the government will pay for it? Why I should I routinely change my heating filters; if my furnace burns out, the government will pay for it? And imagine if contractors could not turn away uninsured home owners with these serious repair issues? Repairmen would certainly pass on the cost to responsible, insured home owners. And the government would further pass on the costs in the form of higher taxes on productive citizens. All the while, progressives would blame "greedy repairmen" and "greedy insurance companies" for rising costs and declare the need for "home repair reform." Perhaps this reform could accomplish the noble goal of providing all Americans home owner's insurance, however there is no way that it could curb cost inflation without imposing a regimen of rationing. Any politician who makes the claim that all three goods can simultaneously be reached is a charlatan selling snake oil that we can believe in.

How Free Health Care Got So Expensive

August 19, 2009

By Steven Malanga

Recently I was listening to a radio program in which the host explained that in a few states health insurance policies issued by Blue Cross/Blue Shield were available at extremely reasonable prices, about $100 a month. The very first caller into the program demanded to know exactly what the annual deductible was in plans like this. When the host said $3,000 to $5,000 the caller responded, that isn’t health insurance but catastrophic insurance. It’s too expensive and that’s why we need health care reform from Washington, he continued.

And there lies one of the problems with the health insurance reform debate. State government mandates and favorable tax treatment in Washington have so distorted the market for health insurance that a generation of Americans now look on medical coverage as something very different from other kinds of insurance that we buy. While we will pay several hundred bucks out of our own pockets to have a plumber come repair a leaky pipe, we’ll balk at deductibles and a $50 co-pay for a doctor’s visit. We’ve been schooled in this attitude by politicians who have mandated that health insurance do things that we’d never expect from other kinds of insurance, and by consumer advocates who will demand our legislators do something about a health insurance company that doesn’t cover some optional procedure that has nothing to do with life and death.

It’s worth keeping these differences between types of insurance in mind now that it’s becoming clear that a solid majority of Americans do not want health reform that involves an even more expansive role for government. That’s why the so-called ‘public option’ of a government health insurance entity competing with private insurance is rapidly losing favor in Washington. That’s good because a public option won’t restore sanity to the health insurance market. What will, is getting get rid of the rules, mandates and tax exemptions that treat health insurance different from other coverages.

Consider auto insurance, which is typically required of us by states, and home insurance, which mortgage lenders demand. Both give us protection from financial ruin at more reasonable prices than health insurance because our options are greater and the scope of the coverage narrower. When we buy home insurance we are essentially purchasing security against a catastrophic event that could cost us our investment in our home and possibly ruin us financially. We don’t expect this insurance to cover everything that goes wrong on the property. Instead, we accept that we will pay out of our own pockets the tradesmen who come and install our new water heater, fix our electrical short-circuits and repave our driveway. Many of us haven’t gotten a health care bill in years equal to what we paid the plumber for his last visit because the cost of a home insurance policy that covered every leak and crumbling piece of pavement would be prohibitive.

There are significant other ways that government mandates treat health insurance differently, at great cost to all of us. Consider this scenario: You don’t have home insurance and a big storm comes through and knocks over a tree into your roof. You can’t just phone up an insurer, buy coverage and then submit a claim, even if you face financial ruin by not having the coverage. But that’s more or less what you can do in health insurance under so-called guaranteed issue rules, in which someone who hasn’t purchased insurance and gets sick can’t be turned down for coverage. Needless to say, states that have guaranteed issued, like New Jersey and New York, have the highest health insurance premiums in the country because healthy people know they can run the risk of not buying insurance until they get sick. Insanely, the health reform package now on the table in Washington would create a federal version of guaranteed issue.

In auto insurance, some states have given us our own private version of tort reform to keep premium prices low. In these states, a driver can opt out of the litigation lottery when he purchases auto insurance by promising not to sue for pain and suffering if he’s hit and injured by another driver. By doing this a policy holder can save hundreds of dollars a year on premiums. And yet for some reason the same option, that is, allowing us to buy a health insurance policy where we agree not to sue a health provider for pain and suffering if a treatment goes wrong, is not available, even though I imagine the cost savings would be enormous.

Government regulators also require us to buy so much more health insurance. In auto coverage, for instance, states will generally mandate that we have certain minimum coverage to compensate anyone we may crash into, but otherwise regulators will leave us alone to decide which options (towing, collision) we want to buy. By contrast, states will require buyers of individual and small group health policies to load up on mandatory coverage, including options that many people don’t want to pay for, like fertility treatments. Politicians will often claim that they demand these coverages because they are looking out for our own good, but that’s a difficult case to make persuasively when mandates help make insurance unaffordable for many people.

Still, now that the public mood is turning away from health reform that involves significant new government initiatives, a few voices are starting to argue for an alternate system which gets back to treating health insurance like other forms of coverage. In a much discussed piece in the Wall Street Journal, Whole Foods CEO John Mackey explained how his company was able to offer coverage to its retail employees with a high yearly deductible ($2,500) that protects employees from steep health care bills but also encourages employees to spend their own health dollars wisely. In an industry where many workers don’t have health insurance and profit margins at many businesses are small, Whole Foods has been able to provide coverage using the same model that Blue Cross/Blue Shield plans offer individuals in a few states. Yet the company has been threatened with boycotts for suggesting that health reform should follow the same sensible model.

A few states are also leading the way. Washington State has rescinded guaranteed issue rules. Colorado, Georgia, New Hampshire and Nevada are among the states which allow the kind of high-deductible policies I described in the first paragraph for individuals needing coverage.

There’s resistance, of course, mostly from politicians and advocates who keep trying to convince us that somehow it’s un-American to have to pay a health care bill out of our own pocket. But the reality is that until we take more control of buying our own health care, our insurance costs will continue to spiral upward.

©2010 RealClearMarkets

aRE Wee aNy smaRtur Now?

Tuesday, March 2, 2010

Hebrew Hillbilly!

Pictured Above: Jewish Country Singer & Texan Politician, Kinky Friedman

When I ask my friends what kind of music they like, they usually respond "anything but country," as if it was a self evident truth that nothing of artistic and cultural merit could be produced within that genre. But, in the past few months I have come across some really wonderful old country, folk and blue grass music. I am sure that between my conservative philosophy and my taste in music some of my friends will refer to me as the "Hebrew Hillbilly." To check out my collection of country and folk music, click here:

Monday, March 1, 2010

Lessons from Fannie Mae

I came across an article from 2003 in which Fannie Mae boasted about spending trillions to provide mortgages to millions of people who could not obtain mortgages under standard lending criteria. We later came to learn that many of these individuals could not afford, or more precisely could not manage the mortgages that were granted to them based on social rather than market logic. Seven years and $110.6 billion dollars later, it is all too clear that Fannie Mae's & Freddie Mac's abandonment of sound economic principles was a major factor in the creation and destruction of history's largest financial bubble.

The only way that Fannie Mae could ensure equal outcomes (rather than equal opportunities) for targeted groups was to lower lending standards and predictably much higher default rates ensued. Paradoxically and predictably, the artificially increased demand via massive government subsidies made housing even less affordable, i.e. inflated prices.

Of course it seems heartless and even illogical to let market forces, rather than planning inspired by noble principles like "fairness, equity & affordability" determine the volume and allocation of mortgages (or other goods and services). This is especially true when a system of (somewhat) free choice produces inequitable outcomes. But, the inescapable logic of the markets are: if individuals and institutions are unwilling to risk their own capital on someone or something, they're probably not the best bets.
Of course progressives like Barny Frank were ardent idealists when it came to allocating public funds to expand the availability of mortgages to home seekers with sub-par credit. But, I am betting that he would have behaved as a "heartless capitalist" if he was asked to risk his own capital. The same goes for subsidies to "green companies." Of course I very much want to see renewable energy resources replace fossil fuels, but I am skeptical of placing public funds in companies that private investors are leery of investing in. They are basically saying that given their knowledge of the practices and products of that particular company, they do not foresee it becoming profitable. Of course there are narrow, short term investors who will not invest in ventures that do not generate immediate returns, but there are also a surprising number of investors oriented towards long term profits. And if those investors caught wind of a green company with real potential for future profit, quicker than you can say "buy low," they would begin investing their private capital in that company.
In itself the profit of a company or an investor does not represent a social good, however it does reflect the feasibility and desirability of a good or service. Apple Computers became wildly profitable only when it began producing products that were desirable (meet a real need) and feasible (affordable enough to facilitate wide spread use among consumers). Like computer and internet firms before it, green companies will only take off once they develop technologies that make the use of their products affordable relative to other options.

No amount of subsidies can make a product or service take off until market realitities allows them to organically do so. Paradoxically, subsidies may actually reduce incentives for a company to innovate and create feasible and desirable products. Why should they? Their financial well being is more contingent upon the good will of politicians than the value of their goods and services. And subsidies often serve as a mechanism to maintain the dominance of established players in a market rather than allow for new, more innovative companies to enter and compete in that market.

In no way do I believe that markets are perfect or always rational, but with few exceptions they are better allocators of capital and labor than politicians are. While markets and politicians are both prone to errors, markets are self correcting entities, whereas politics is the art of amassing wealth and power until voters discover the extent of your errors.

Fannie Mae passes halfway point in $2 trillion American Dream Commitment

March 18 , 2003

On the third anniversary of its "American Dream Commitment(R)," Fannie Mae and its lender partners already have fulfilled over half of its ten-year pledge to provide $2 trillion in home financing for 18 million historically underserved families, Fannie Mae Chairman and CEO Franklin D. Raines announced today.

To date, Fannie Mae has provided more than $1.3 trillion for nearly 12 million targeted families, completing two-thirds of the American Dream Commitment in about 30 percent of the time, and leading the market in serving minorities and the nation's affordable housing needs.

Joining with representatives from 11 leading mortgage lenders and Fannie Mae partners, Raines applauded the mortgage finance industry for its extraordinary efforts to reach and serve "emerging markets" of historically underserved families and communities, deliver Fannie Mae's $2 trillion in targeted capital, and extend the benefits of the nation's housing boom.

Lender partners participating in today's announcement include: Bank of America; Bank One Corporation; Charter One Bank; Countrywide Financial Corporation; Doral Financial Corporation; First Horizon Home Loan Corporation; Fleet Boston Bank; Huntington Mortgage Company; Irwin Mortgage; J.P. Morgan Chase & Co.; and Standard Mortgage Corporation.

"Together, America's top lenders and Fannie Mae have made terrific progress in bringing the nation's housing boom to overlooked Americans and addressing the gaps in housing opportunity," Raines said. "Fannie Mae applauds our lender partners for helping us surpass the halfway mark in our $2 trillion commitment to underserved families so quickly. Together, we lead the market in serving Americans of color and modest means."

Fannie Mae launched the American Dream Commitment in March 2000 to narrow homeownership gaps, increase the availability of affordable rental housing, and strengthen communities.

The plan included $420 billion to provide minority home financing and in 2002 Fannie Mae boosted that pledge to $700 billion in an effort to help advance the Bush Administration's minority homeownership proposals.

The Commitment consists of a six-point plan: Mortgage Consumer Rights Agenda; National Minority Homeownership Initiative; Opportunity for All Strategy; America's Living Communities Plan; eHomeownership; and Affordable Rental Housing Leadership Initiative.

Highlights of Fannie Mae's 2002 American Dream Commitment report include:

Fannie Mae provided over $1.3 trillion for nearly 12 million families since 2000, including:

•$670 billion for almost 5.5 million families in 2002
•$67 billion for households headed by women
•$190 billion for families in city neighborhoods
Fannie Mae met its voluntary commitment to lead the market in serving minority Americans. Last year, the company provided $136 billion for almost 1 million minority families, which:

•served 213,000 African-American families with $24 billion in financing;
•served 394,000 Hispanic families with $51 billion in financing;
•served 2,488 Native Americans living on tribal and trust lands with more than $217 million in financing;
•served 375,000 other minorities with $61 billion in financing; and
•led to Fannie Mae partnering with lenders and community groups to finance $8.2 billion through our efforts to facilitate Community Reinvestment Act-targeted business.
In addition, Fannie Mae met or exceeded HUD affordable goals for the 9th consecutive year, with almost 52 percent of business serving low- and moderate-income families; almost 33 percent serving underserved areas; and over 21 percent serving very low-income families.

Fannie Mae reported progress in protecting consumers' rights in mortgage finance. The company launched an initiative with lender partners in 19 communities last year to help victims of predatory lending refinance into safer, cheaper loans.

"Fannie Mae is a national leader in the fight against predatory lending and has established a powerful corporate anti-predatory lending policy," said Raines. "The company believes that rejecting loans with predatory features, supporting the adoption of a strong, federal anti-predatory lending law, and providing good capital through good lenders to drive out the bad will ensure that borrowers aren't victimized by unscrupulous predatory lending practices."

Further progress was also reported in The National Minority Homeownership Initiative and the Opportunity for All Strategy.

"Over the next decade, minorities and immigrants are expected to fuel the growth in the mortgage market, making up more than 60 percent of first-time home buyers," said Raines. "We are committed to working with lenders, mortgage brokers, nonprofit housing partners, and others to address the unique financing needs of these emerging home buyers."

The company continues to develop the eHomeownership and Home Counselor Online™ solutions and is committed to an e-commerce environment to drive down the cost of mortgage credit and increase the availability and accessibility of home loan financing to home buyers. Since it first went live in 2001 on, more than 1,100 housing counselors have registered to use the application.

Source: Fannie Mae

Blowing Bubbles...

Pictured above: a young lady inspired by the federal reserve.

A major factor in the great recession was government policies that encouraged the unsustainable inflation of housing prices and a sudden and inevitable market correction via the bursting of the bubble. As painful as market corrections are, they are essential in reestablishing the long term health of an economy. So, it is troubling that the federal government is spending trillions of dollars to inflate housing prices beyond that which supply-and-demand dictates.

Top TARP Cop Warns: The Bubble Is Back

Feb 3rd 2010 @ 8:00AM

By Alyssa Katz

With home prices continuing to plummet every month, it may be hard to believe. But it's now officially government policy to keep those home values as high as possible. And Neil Barofsky, the Special Inspector General of the Troubled Asset Relief Program, doesn't like it one bit.

In his latest quarterly report to Congress, Barofsky accuses the Obama administration of recklessly reinflating the real estate bubble in an attempt to keep the housing market going and prevent the collapse of financial institutions.

SIGTARP -- not a Bond villain but Barofsky's shorthand title -- sums up all the sundry spending in one handy place. The Federal Reserve has been buying mortgage-backed securities and other mortgage-related debt in enormous volume, projected to reach $1.2 trillion by the time the effort expires at the end of March. Treasury is spending hundreds of billions more to capitalize Fannie Mae and Freddie Mac, so the agencies can continue to finance home mortgages. Congress has extended the $8,000 tax credit for first-time homebuyers and added a $6,500 credit for existing owners buying new homes. And while Treasury's $75 billion Home Affordable Modification Program is designed to forestall foreclosure for homeowners, its direct (and intended) effect is to keep home prices high.

Combine all that spending to boost home prices with a still-bloated financial industry – too big to fail, expecting to get bailed out, and rewarding executives with huge bonuses in exchange for taking big risks – and, warns Barofsky, the U.S. financial system is headed for The Great Crisis, Part II. "Even if TARP saved our financial system from driving off a cliff back in 2008, absent meaningful reform, we are still driving on the same winding mountain road, but this time in a faster car," cautions the report.

It's old news that the feds are reinflating the bubble by propping up prices -- I wrote about it while George W. Bush was still president. But it's still a big deal to have a critic as influential as Barofsky. He is a prosecutor - a former assistant attorney general in New York specializing in mortgage fraud. When he says price inflation is not just a waste of resources but a dangerous development, we'd all do well to listen.