Big Government

Mueller is over. What next?

by

The Mueller hearings were a huge disappointment to the Democrats, who were counting on scandal and impeachment to substitute for governing. Two leaders, Schiff and Nadler, seem unwilling to give up and try legislating. Schiff, who seems to most devoted to the Russia Hoax, has a darker side.

Schiff is the first Democrat since 1932 to represent the region.

He was an eloquent booster of McCain-Feingold campaign-finance legislation, seeking to put limits on some of the very expenditures that swamped his own race against former Rep. James Rogan, whom he beat by three percentage points.

(Limiting expenditures is a point Colbert needled him on. Colbert: “Isn’t that the equivalent of sleeping with a prostitute and then strangling her to hide your shame?” Schiff: “Well … I wouldn’t want to say it like that.”)

Rogan, of course was the target of massive Democrat fund raising to punish the House prosecutor for the Clinton impeachment.

That fawning “The Hill” tongue bath did not provide much for the “darker side.”

Nadler, another Clinton defender, has shed 60 pounds since his gastric bypass but he still looks about 100 pounds overweight. He is a little less strident than Schiff in public.

Where do they go from here ?

They get no help from Andrew McCarthy who demolishes their arguments.

Mueller’s anti-Trump staffers knew they were never going to be able to drive Trump from office by indicting him. The only plausible way to drive him from office was to prioritize, over all else, making the report public. Then, perhaps Congress would use it to impeach. At the very least, the 448 pages of uncharged conduct would wound Trump politically, helping lead to his defeat in 2020 — an enticing thought for someone who had, say, attended the Hillary Clinton “victory” party and expressed adulatory “awe” for acting AG (and fellow Obama holdover) Sally Yates when she insubordinately refused to enforce Trump’s border security order.

Of course, it wouldn’t be enough to get the report to Congress. The challenge was to get it there with the obstruction case still viable even though prosecutors knew they couldn’t get away with recommending an obstruction indictment. How to accomplish this? By pretending that the OLC guidance prevented prosecutors from even making a charging decision.

This resulted in the Ted Lieu question and Mueller’s answer which he had to retract after the break.

It is becoming more and more apparent that Mueller’s ‘assistant” prosecutor, Andrew Weissmann is the lead conspirator in the coup.

Weissmann is distinguished by his abysmal record as a corrupt prosecutor in several cases.

A lawyer representing whistleblowers referred Andrew Weissman to the Department of Justice’s Inspector General (IG) for “corrupt legal practices”.

Weissman is Special Counsel Robert Mueller’s lead investigator in the Russia-Trump probe. He is the former U.S. attorney for the Eastern District of New York. That was Loretta Lynch’s territory. He rose through the ranks under Mueller’s stewardship.

In 2015, civil rights attorney David Schoen referred Weisman to the IG for his handling of a case targeting the Columbo crime family. Schoen said he is not a member of a political party and there is no political motivation.

Weissman was the lead attorney in the Persico trial and he withheld exculpatory evidence, a Brady violation. Schoen said he decided to revisit the nearly two-decade-long cases based on new witness information and “recent evidence that has come to light in the last several months.”

Weissman never told the defense that a prosecution witness, Gregory Scarpa Sr., was also working for years as an FBI informant. The underworld witness was nicknamed ‘Hannibal’ and the “Grim Reaper’ and committed over 100 murders.

The judge described AUSA Weissmann’s conduct as the “myopic withholding of information” and “reprehensible and subject, perhaps, to appropriate disciplinary measures,” according to the opinion obtained by investigative reporter Sara Carter.

He further distinguished himself with a rare Unanimous Supreme Court decision reversing his conviction of Arthur Anderson in the Enron case.

With a brief, pointed and unanimous opinion, the Supreme Court on Tuesday overturned Arthur Andersen’s conviction for shredding Enron accounting documents as that company was collapsing in one of the nation’s biggest corporate scandals.

The court held that the trial judge’s instructions to the jury failed to require the necessary proof that Andersen knew its actions were wrong.

But the decision represents little more than a Pyrrhic victory for Andersen, which lost its clients after being indicted on obstruction of justice charges and has no chance of returning as a viable enterprise. The accounting firm has shrunk from 28,000 employees in the United States to a skeleton crew of 200, who are attending to the final details of closing down the partnership.

28,000 people lost their jobs. The prosecutor who hid evidence was Weissmann.

In the interview with Devin Nunes, Maria Bartiromo asks the ultimate question: “who was the mastermind” behind all of these intelligence operations?

Read more

Worthwhile Reading

by

Haven’t posted one of these for while, so here are a few links I found interesting…

Tom Wolfe on the space race as a combat of individual champions in the ancient style.

Zoning rules as an enemy of shade.

Sarah Hoyt on the human tendency to assume that the conditions of the past still apply.  (Even the purely imagined and stereotypical conditions of the past, in some cases, I’d add)

Interesting ‘blog’ by Holly (Maths Geek).  (Actually a Twitter feed…people who are on Twitter would IMO do well to mirror all content onto a traditional blog unless they are willing to have their work at the mercy of Jack Dorsey and his minions)

Despite all the concern and hype about Russian hacking, China’s spying and influence within our borders are rising.  See also this case of a former GE engineer and a businessman charged with stealing turbine technology, with the “financial and other support” of the Chinese government.  Additionally, see my post So, really want to talk about foreign intervention?

Re-Privatizing Fannie and Freddie: It’s Déjà Vu All Over Again

by

Privatization reform of Fannie Mae and Freddie Mac, a hot topic on and off since their founding eight and five decades ago respectively, is heating up once again after more than a decade of temporary conservatorship. All past reform efforts have failed. What should we have learned?

  • Private markets operate on one set of incentives and accountability, government on an entirely different set. Each has its problems and imperfect solutions.
  • Private markets may inappropriately discriminate against qualified borrowers, for example, whereas public programs may fail to adequately discriminate.
  • Public enterprises created to jump-start or complement private markets often miss the mark, with unintended consequences.
  • Politicians much prefer to deliver subsidies through taxes (in this case tax exempt debt substituting for taxable equity) rather than expenditures especially since the Budget Control Act of 1974 and implicit off-budget credit guarantees that delay the reckoning.
  • In spite of good intentions and design to get the best of both, privatized hybrid public-private systems inevitably embody the worst: public risk for private profit. Lacking both market and public discipline, they cause systemic failure that “nobody could have seen coming.”
  • Political reform reflexively blames private market failure, doubling down on unaccountable and ineffective bureaucratic methods while providing opaque bailouts through greater tax and credit subsidies.
  • Political reform starts with what is, not what should be, repeating the cycle.

U.S. secondary markets evolved entirely in response to anachronistic political forces. FHA was created in 1936 to stimulate new construction jobs subsequent to a huge housing construction boom. Fannie Mae was created two years later to prop up flagging demand for FHA mortgages. Ginnie Mae was created in 1968 to liquidate Fannie Mae after prior privatization attempts failed to reduce official government debt, but the residual $1 billion secondary market facility with minimal shares outstanding as a result of a mandatory user purchase program was instead privatized. When that entity turned down tax exempt pass-through securitization to circumvent the myriad laws and regulations preventing the development of a national securities market, Ginnie Mae stepped in. Rather than liquidate, the privatized Fannie turned to funding conventional mortgages for their mortgage banker clients. To protect their turf, portfolio lending savings and loans then demanded their own secondary market facility, Freddie Mac. It later privatized mainly to provide management incentives comparable to Fannie, particularly stock options.

They then morphed into massive public directed credit institutions, with profits from government subsidies privatized but otherwise lacking the benefits of market efficiency and discipline. About half of F&F subsidies were captured by shareholders, managers and politicians (my estimates), an invitation to affordable housing proponents to share in this booty. Several 2018 Democratic presidential candidates have proposed upping these goals.

U.S. mortgage markets were characterized by cut-throat competition decades before the advent of government sponsored enterprises (GSEs): the indiscriminant lending and private market securitization during the sub-prime lending bubble of 2004 to 2007 suggests that is still the case.

What the private market can’t deliver are the tax and credit subsidies – worth tens of billions annually that result from federal backing to support fixed rate mortgage interest rate and affordable housing credit risks. Any re-privatized hybrid system that promises to mimic the market, e.g., by requiring that it actuarially price a government credit guarantee as the market oriented Milken Institute and others recommend and to impose market capital requirements and risk regulations directly conflicts with these goals and is doomed to failure. Regulatory restrictions will remain malleable because politics has and will continue to trump bureaucracy. Nor will the market discipline this regulated too-big-to-fail public mission duopoly, having correctly inferred an implicit guarantee in the past for the GSEs, disclosures, regulations and legislation notwithstanding.

There is a better “public/private” policy option to deliver these subsidies. Long term fixed rate FHA insured mortgage loans have since 1970 been funded almost exclusively with Ginnie Mae securities. Investors take the interest rate risk, HUD takes the credit risks and all ancillary functions are delegated to a competitive private marketplace. FHA, a government sponsored mutual insurance fund with de facto public backing since incorporated into and regulated by HUD insures each mortgage. The un-capitalized Ginnie Mae de jure security guarantee covers only timeliness of FHA payments, but de facto acts as a guarantor of FHA mortgage securities.

While FHA has failed actuarially in part due to overly ambitious political goals and its focus on borrowers who may not have qualified for a conventional loan – bailouts have been opaque with minimal or no budget transfers, investor losses or market disruption. It survived the sub-prime lending debacle relatively unscathed. This system hasn’t failed systemically because it separates the private and public functions into different entities, minimizing public risk for private profit incentive conflicts.

A federal guarantor for conventional mortgage securities modeled after Ginnie Mae (something Ginnie Mae proposed in the late 1970s but I opposed on grounds that it would displace the private savings and loan system of the time) should replace F&F, with the existing infrastructure auctioned to the highest bidder .

Properly designed, a federal guarantor wouldn’t experience any loss except in catastrophic circumstances. The original Fannie Mae and particularly Freddie Mac secondary market system that left credit risk primarily with multiple state regulated private mortgage insurer’s (pmi’s), experienced negligible credit losses until the market collapse of 2008, after which F&F credit losses of about $300 billion were ten times total pmi industry losses, due to loss severity far exceeding insurance limits. A federal guarantor should be limited to pools of fixed rate mortgages with deeper pmi coverage to reduce exposure, and ideally partially re-insured with private mortgage pool insurers to further capitalize and diversify risk.

The tax and credit subsidies all go to uniformly lower rates. Deeper affordability subsidies in pursuit of federal home ownership affordability goals were previously provided by HUD’s Section 235 homeowner program targeted to individual FHA mortgage borrower needs, the right approach for achieving this goal. But after years of default losses, Congress shut it down in 1989 rather than increase the budget to reflect the true cost. Following the law of unintended consequences, the affordable housing goals were then dramatically expanded in the Federal Housing Enterprises Regulatory Reform Act of 1992, a precursor to their subsequent failure.

The debate over the desirability and magnitude of homeownership subsidies remains unresolved. This proposal shifts it to the political arena.

Kevin Villani

—-

Kevin Villani, chief economist of HUD during the Carter and Reagan Administrations and Freddie Mac from 1982 to 1985, is the author of  Occupy Pennsylvania Avenue  on the political origins of the sub-prime lending bubble and aftermath.

Fear of Freedom?

by

Stuart Schneiderman links to an article by a therapist who has a lot of experience working with millennials…

On any given day, a handful of millennials will come into my office and express their most pressing concerns: “I’m worried I’ll never make enough money to retire.” “I feel like a failure.” “I don’t know if I’m setting up my adult life the right way.”

But the complaint they bring up the most? “I have too many choices and I can’t decide what to do. What if I make the wrong choice?”

Now, I think that ‘generational’ explanations of social phenomena should be taken with multiple carloads of salt:  individual differences are IMO much more significant than generational differences.  And the people this therapist has been working with are not just millennials, but San Francisco area millennials.  Still, this pushback against having too many choices is unpleasantly reminiscent of the young German who was quoted as saying, shortly before the outbreak of World War II: “We Germans are so happy.  We are free of freedom.”

To the extent that this phenomenon is real and is general, I would suspect several factors of being implicated. Specifically:

***The focus on “self-esteem building”, which seems to have the effect of producing people whose self-esteem is brittle and cannot withstand failure or contradiction.

***The trend toward child-raising in organized group settings…usually for-profit organized group settings…which may tend to create more orientation toward group conformity and less individuality than the more traditional “artisanal” at-home child raising.

***Increasing years of schooling, which can delay growing up.  Peter Drucker observed that when you’re in school, it’s all about you, unlike the working world where it’s all about doing things that are of value to others.  (FWIW, Drucker also said he observed striking levels of immaturity in many medical students because of this factor.)

Anecdotal evidence only, but I have observed that people with many years of education–specifically, people with graduate degrees–are often reluctant to try new approaches to things.  Whether it’s an MBA or a Masters in Computer Science, they often want to stick close to the paradigms they were given in the classroom.  It would be interesting for someone to systematically study the relationship between education and mental rigidity.

***Finally, there is general social change and disorganization.  Stuart writes:  “Back in the day, when society was organized and where people understood their duties and obligations, these decisions were far less difficult and far less onerous”…the decisions were less onerous, but of course many people felt constrained–and often were constrained–in ways they did not want to be.

Someone writing in an aviation magazine observed that “if you do anything with your airplane that is not consistent with the Pilot’s Operating Handbook, then you are a test pilot.”  In a society, the equivalent of the POH is the aggregate of laws, customs, and implicit expectations that guide behavior.  There is no doubt that any society’s POH needs constant updating, and sometime major changes–but when major changes do occur, they will be disorienting to many people, and it seems that a nontrivial number of them will react by wishing for more constraints.

Some people thrive as test pilots–either of aircraft or in a societal setting–but many do not, including many people who would be perfectly adequate or even excellent pilots in a more-defined setting.

One of the major problems we have in America today is that so many of the people who have taken it upon themselves to totally rewrite the societal POH are people who are lacking in practical experience, historical knowledge, and ‘skin in the game.’  To continue the aviation analogy, it is as if a POH was rewritten by people who had no background in aeronautical engineering, no experience or minimal experience in flying aircraft, and (in many cases) absolutely no intent of either flying or flying in those aircraft being operated in conformity with their documents.

What proportion of the people in a society can lose belief in the value of individual freedom before they destroy that freedom for everyone, including those who do value it, and how close are we to that point?

 

 

Bernie Sanders Won the Debate

by

(WSJ: Bernie Sanders Won the Debate)
 
—-

The 20 candidates in the Democratic debates on June 26 & 27 accepted Sanders’s fundamental vision of Democratic Socialism.

Bernie Sanders’s June 12 speech at George Washington University proposing “a 21st Century Economic Bill of Rights (EBR)” to “a decent job that pays a living wage; quality health care; complete (higher) education; affordable housing; a clean environment; and a secure retirement” all “regardless of his or her income” started a competition among the current democratic candidates for the 2020 Democratic nomination with promises of free stuff. This new Democratic socialism makes two promises:

“It is free to the masses.”

“If you like your democratic system of government, you can keep it.”

This isn’t new and isn’t true.

The ideological Cold War between the socialist totalitarian countries and the capitalist social democracies ended with the economic and political bankruptcy of virtually all of the former. The latter expanded their welfare states by taxing the economic fruits of capitalism, contracting when going too far, with symptoms including declining investment and innovation and rising public deficits and debt burdens. The proposed EBR to expand the welfare state to socialist extremes while maintaining democracy will erode both living standards and liberty.

The Unintended Consequences of the Economic Bill of Rights

The market system is based upon individuals responding to incentives, mostly embodied in market prices. Contemporary economists have done Nobel-worthy research demonstrating that individuals don’t always respond rationally. But the EBR promising free or cheap stuff well below cost with wages and income determined well above productivity is incompatible with a market economy and individual liberty. It would severely distort work and consumption incentives: already declining labor force participation would collapse and productivity stagnation would worsen. Costs of health care, education and housing would rise. The Green New Deal environmental proposal would cost up to $100 trillion while providing negligible environmental benefit. Private household saving would shrink further with the right to a secure retirement.

States that raise income taxes on high net worth businesses and/or firms face an exodus of both. Individuals and firms similarly shift their tax residence outside the U.S. reducing U.S. domestic innovation. Trade deficits widen. The cost of the EBR exceeds the revenue from these types of taxes by orders of magnitude. The progressive states are already voting themselves into bankruptcy, anticipating a federal bailout.

Modern Monetary Theory: Old Fashioned Money Printing

To avoid the political consequences of massive middle class taxation, the Modern Monetary Theory (MMT) promoted by a Sanders campaign economic advisor proposes debt financing. Wall Street prognosticators forecast the end of the debt supercycle in 2011 and the collapse of the international monetary system in 2014, going code red. But the debt supercycle has continued, so proponents of the MMT assume that interest rates will remain low indefinitely so the cost can be financed with no long term consequence, whether bought by domestic or foreign creditors or the Federal Reserve.

They may be right about America’s creditors continuing to accept debt in the near term, but excessive debt always ends, suddenly and badly: the longer it goes on the bigger the bust. As the world’s reserve currency the debt can’t simply be inflated away. The consequences of a U.S. international default, no matter how delivered, would be catastrophic.

Democratic Socialism and Individual Freedom

The socialist EBR is the responsibility of the administrative state, which requires totalitarian political power to deliver. What, then, do democratic socialists mean by “democracy”?

The ancient Greek city-states began experimenting with democracy (literally, “people power” in Greek) about 2500 years ago, limited to males selected on merit. After about a century of experimentation, Greek philosophers concluded that democracy was a form of mob tyranny that undermined individual freedom and the rule of law. United States exceptionalism is rooted in the U.S. Constitution, an experiment in a representative federal republic held in check by a limited list of enumerated powers to protect individual freedoms and prevent mob rule.

The extension of voting rights to former slaves and over a half century later to women was overdue. The 14th Amendment was necessary to restrict the ability of Southern states from inhibiting their voting rights but has since been interpreted to give the federal government virtual total supremacy. The direct election of Senators in the 17th Amendment of 1912 further expanded populist democracy.

Marx promised democracy and universal suffrage. Trotsky promised a peoples democracy, as did Mao. The current progressive platform on voting rights; opposing voter registration, supporting immigration of dependents with voting rights rather than working rights, eliminating the Electoral College, reducing the voting age to 16 years old, registering prisoners, and drive-by voter registration would complete the transition from a representative republic to a peoples democracy.

Kevin Villani

—-

Kevin Villani, chief economist at Freddie Mac from 1982 to 1985, is a principal of University Financial Associates. He has held senior government positions, has been affiliated with nine universities, and served as CFO and director of several companies. He recently published  Occupy Pennsylvania Avenue  on the political origins of the sub-prime lending bubble and aftermath.