The Outrage Is Beginning

Mr. President - Pay Attention To The Person On The Street!  

I do not live in a sheltered environment.  Nearly everyone I speak to has a comment about the government spending program.  While there is some debate as to whether spending will stimulate anything (I don't think so, but I could be wrong), everyone uniformly criticizes the plan to subsidize mortgage payments so people can stay in houses they can't afford.  There is sheer outrage when discussing the mortgage bailout plan.  

Most of us work hard and play by the rules.  We spend our money wisely.  We bought houses that we could afford with 30 year fixed mortgages (well, most of the people I know).  We didn't move up into the $1,000,000 - $2,000,000 McMansions because we knew the monthly payments ate up too much of our monthly income.  We bought on credit, but we paid the credit back.  Now, we want to punish people like us for living responsibly and reward those that took a risk and failed.  Instead of making them pay for thier mistakes,  our governement is making us pay for our neighbor's mortgage.  This goes beyond a liberal-socialist wealth redistribution plan.  It is pure stupidity.  It turns my stomach.  It is the stuff that foments rebellion.  It is acts like those that will be cited as one of the reasons for the Second Boston Tea Party.  

Not only is it morally wrong - and even liberals have morals (I know, I was a knee-jerk liberal in my younger days) - but it is being funded with money we don't have.  Ultimately the $275,000,000,000 mortgage subsidy plan will cost much more, and will be funded either with a substantial increase in taxes paid by those who worked hard, saved and played by the rules, or will be funded by the cruelest tax of all - the devaluation of the dollar.  We know this; we understand this.  Don't let it happen.  Taking my money to line your friends pockets is not only undemocratic, but it will lead to the downfall of our form of government.  You are starting a rebellion Mr. President.  Let's have some change we can believe.

Does Anyone Really Know The True Cost of the Mortgage Bailout?

How much is Obama's mortgage bailout plan anyway?  The New York Times and Wall Street Journal report the plan costs $275 billion; the Washington Post claims just $75 billion (links to articles below).  That is a huge spread people!  Does anyone really know the true cost?  If they do, are they telling us?  

What do we get for that money anyway?  Our tax dollars are being used to let people keep property they bought when they borrowed money they couldn't repay.  Instead letting these borrowers work themselves out of their own debt (like selling property they can't afford or filing for bankruptcy), the government is appropriating OUR money to keep these people in the life style they can't afford.  

Obama claims the program will  support real estate prices.  Haven't we learned that government interference with the free market doesn't work.  Real estate prices were unrealistically high (caused by an increase in the monetary supply through credit expansion) and now must fall to true pricing levels.  Prices are determined by supply and effective demand.  The market is bigger than the government.  Supporting artificially high prices does what exactly?  It may postpone the inevitable fall in prices, but it will not stop the decline.  Does anyone know what they are doing?

http://www.nytimes.com/2009/02/19/business/19housing.html?hp

http://online.wsj.com/article/SB123496582087411241.html

http://www.washingtonpost.com/wp-dyn/content/article/2009/02/18/AR2009021801081.html?hpid%3Dtopnews⊂=new

Taxation With Representation Is Not So Good Either

Taxation without representation was the outcry that rallied our nation into rebellion.  With good reason the people of the colonies were outraged.  King George and the Parliament were unresponsive to the needs of the colonists and viewed them as nothing more than a source of revenue.  As noble as our forefather’s intentions were when we formed this great nation, we have drifted so far afield that it is hard to distinguish our form of government from King George’s government from which we rebelled.  Our representative in Congress – the so called “elected officials” – have spent the last century consolidating their power and weakening the effectiveness of our representation.  Today, most if not all the Senators and Representatives are beholden not to the people who elected them, but to the special interests and lobbyists who finance their campaigns.  More importantly, and this is the root of the problem, our representation to the federal government is diluted every year.

 To understand the problem we need to look at the founders’ vision of what a representative democracy would look like.  What better place to look than the Constitution itself.  Article I, Section 2 provides, in relevant part:

 The Number of Representatives shall not exceed one for every thirty Thousand, but each State shall have at Least one Representative

 Read that again.  One representative for every 30,000 inhabitants.  The average size of today’s Congressional district is about 650,000, and the size ranges from a low of 495,000 to a high of over 900,000.  So much for one person, one vote!  The Founding Fathers envisioned that the number of representatives would increase every year in proportion to the population.  While 30,000 may be too small a number (which would result in a Congress of over 10,000 representatives), there is no question that 435 representatives – a number fixed by Congress in 1911, is wholly inadequate to provide effective and responsive representation today.  Interestingly, the Bill of Rights (the first 10 amendments to the Constitution) originally had 12 articles, the first of which gradually increased the size of the House of Representatives to one representative to not more than 50,000 persons.  The framers of the Constitution recognized that the size of the House should increase with the population.  In fact, until Congress usurped the power from the people and fixed the number of representatives, the size of congress increased every 10 years.  By 1911, there was approximately 1 representative for every 175,000 people.   

 There are many reasons for fixing (not apportioning) the number of representatives based on population.  One of the most important is to enable the citizens to have themselves represented by someone who is responsive to their interests.  While there would be many more members of congress, the primary result would be representatives that are more responsive to their population.  Lobbyists and special interests would have a much more difficult time influencing legislation.  Campaigns would be more democratic, as it would lower the entry barriers to running for office.  It is much easier (less costly and less time consuming) to campaign for the votes for 50,000 than it is to campaign for the votes of 700,000.  There would almost assuredly be a less homogeneous view of opinions, and perhaps more than just 2 political parties.  A more diversified representative population would likely result in more consideration put into spending bills.  It is easy to tax the masses who you don’t know, but difficult to escape scrutiny if the number of people you represent is only the size of a couple towns that you live in. 

 Ineffective representation results in an unresponsive government that taxes its citizens.  There are many benefits to increasing the size of the House (which decreases the representative to population ratio and increases the individual influence), but not all can be addressed at this time in this blog post, so I will leave now and raise other topics later.  (Some of the other topics that can help regain power to the people relate to the method of taxation (repeal the Federal income tax and other direct taxes, and make the US Government tax the states in proportion to the population; Repeal the 16^th amendment and require that Senators be appointed by the State Legislatures; explicitly repeal the power of the Federal Reserve to appropriate funds without specific congressional approval.)  Just imagine a government that does not engage in wasteful spending that only benefits one powerful politician's district, or where taxation and appropriation are truly debated.  It is a lot harder to convince 6000 people to pull the wool over America's eyes than it is 435!

They Still Don't Get It

Wall Street bankers just don't get it.  The ill-guided stimulus spending bill contained a provision limiting salaries of the top 25 earners at banks that receive TARP funds (federal bail out money).  These banks are complaining that it is unworkable and will result in the loss of their best and brightest talent.  The New York Times quoted an unnamed HR executive at one of these corporate welfare recipients

 "To be put in a situation where you're limiting performance-based compensation is the dumbest thing you can do," said the senior executive at the investment bank. "Everything that shareholder advocates have been seeking for years is thrown out the window."

Another consultant was postulated of a coming brain drain.

What Wall Street doesn’t get is that they are insolvent and they can’t keep paying the salaries and bonuses in the manner they have when they are broke.  It would be one thing if they didn’t take taxpayer funds to do what they did, but when the government provides our money to help them, the recipients are obligated to spend the funds wisely.  Excessive compensation is not wise. 

Frankly, letting the banks fail is a sound choice, but our government doesn’t have the fortitude to let the banks fail.  Instead, we are keeping them on life support with TARP money.  If we are in essence supporting these banks, all the employees should be put on the government service pay schedule.  Especially the executives.  Limiting the salary and bonuses of only the top 25 earners is a gift.

Finally, a brain drain at these banks is not such a bad idea.  It these highly prized geniuses that created the opaque investment vehicles, gamed credit default swaps, and made loans to people who couldn’t repay the obligations, who got us into this mess to begin with.