The Republicans are proposing substantial tax cuts in the discretionary spending portion of the budget. Meanwhile, the Democrats demagogue the spending cuts as dangerously cutting programs for the sick, elderly, and the poor.
From FY2008 – FY2010, federal spending on projects increased roughly 25%. Such a dramatic enlargement of the budget deficit is bordering on criminal. There was no actual money to do so, and now the Republicans are being vilified for trying to go back to the point at which the Democrats, ignoring all financial reality, substantially overspent taxpayer money.
How can we be blaming those people who are, for the first time, showing us all of the worldly irresponsible actions and promises that have been created over the last two years? The reality is that during that time, the Democrats have made outrageous promises to the sick, elderly, and poor that they had no hope of being able to carry out.
The point is clear. The blame needs to squarely rest upon the tax-and-spend liberals, not the people who are trying to actualize fiscal responsibility by cutting back to previous and more reasonable spending levels. The politicians who enacted reckless legislation with money that was not theirs should be held accountable to the fullest extent.
The WSJ had a nice little piece last month on the failures of HAMP. I concur — we need to cut this program out immediately
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Proposing cuts to housing programs has never been politically popular, so maybe it’s a sign of the times that Ohio’s Jim Jordan and other Republicans are floating a bill to terminate the Obama Administration’s Home Affordable Modification Program, or Hamp. Or maybe, just maybe, this latest waste of taxpayer money is so egregious that the bill’s sponsors figure even Democrats can get on board. Let us hope.
Hamp was launched in 2009 to reward mortgage servicers for modifying contracts and borrowers for staying current on their payments. The goal was to help three to four million homeowners avoid foreclosure. Yet two years later, the number of applications cancelled has exceeded those approved, and some homeowners have been forced into foreclosure while awaiting a decision.
Hamp was flawed from its inception. If the last few decades of public housing policy have taught anything, it’s that programs to keep people in homes they can’t afford is a bad idea—and, in any case, bureaucrats are terrible managers. Treasury administered Hamp but contracted day-to-day oversight to Fannie Mae and Freddie Mac. The launch was rushed and the rules for loan modifications were repeatedly changed.
One year into the program, more than one million borrowers had entered trial modifications, swamping mortgage servicers. Seventy-eight percent of borrowers were already in default before starting the trial, according to Treasury data released last week. Many loans weren’t viable from the beginning and wouldn’t benefit even from the low interest rates facilitated by the Federal Reserve.
The numbers bear that out. According to Treasury data, 792,529 trial and permanent Hamphome loan modifications have been cancelled, compared to 521,630 homeowners who have had their mortgages “permanently modified.” Applications for Hamp modifications are now slowing markedly. The Congressional Oversight Panel estimated last month that on current trendsHamp will prevent at most 700,000 to 800,000 foreclosures.
Meantime, private mortgage servicers—who can price risk more accurately—have outstrippedHamp. The Hope Now coalition estimates that last year non-Hamp modifications totaled about 1.2 million loans. That’s about double what Hamp has done over the same period. Treasury claims that Hamp redefault rates are less than those of the private sector, but that is hard to verify because borrowers who drop out of Hamp in the trial period aren’t counted in the redefault statistics.
The Obama Administration nonetheless keeps hawking Hamp, and last month Treasury’s Timothy Massad told Congress that “helping over 500,000 people enter into permanent modification, people who would otherwise be thrown out of their homes” are “dollars well spent.”Hamp is funded through the Troubled Asset Relief Program and has spent $840 million of the $29.9 billion allocated to the Making Home Affordable Program, most of which is for Hamp.
That’s not persuasive to Neil Barofsky, the special inspector general for Tarp, who last month noted Treasury’s “astonishing silence” and refusal to “provide an estimate, goal, or projection of the total number of permanent modifications it expects to complete and maintain.” It’s hard to know if money is “well spent” if you don’t know what defines success.
If you measure success by the housing market, Hamp has failed miserably. According to RealtyTrac, 2.9 million homes received foreclosure filings in 2010, up from 2.8 million in 2009 and 2.3 million in 2008. The bellwether Case-Shiller home price index is falling again. Hamp is one more artificial prop to a housing market that will recover faster if foreclosures are allowed to proceed more rapidly and the homes are resold. By all means give Hamp the hook.
One of my favorite elected officials, House Majority Leader Eric Cantor, wrote an Op-Ed for his local newspaper in Virginia. Cantor addresses the fundamental and necessary economic premise that cutting spending will grow the economy.
America is at a tipping point, and Republicans have begun to take action.
Last week, the House passed unprecedented legislation reducing discretionary spending this fiscal year by more than $100 billion. In addition, we made clear that our long-term budget, to be unveiled in the spring, will address the entitlement crisis that threatens to bankrupt our country — a long overdue move that politicians for too long have kicked down the road. This show of fiscal restraint represents not merely a clean break with Congress’ free-spending past, but a rededication to economic growth and a laser-like focus on job creation.
It’s important to recognize the link between cutting spending and growing the economy. Like the gardenerpruning the tree, we do not cut for the sake of cutting, but out of necessity. It’s the only way to restore economic health and free up the private capital necessary for new growth. Put simply, less government spending equals more private sector jobs.
Economic growth is generated when businesses weigh their risks against their potential reward (returns after taxes) and make a decision that an investment is worthwhile. That investment can take the form of a capital investment or an investment in additional labor (jobs). Especially in this increasingly interconnected world, businesses will logically move their investments to wherever they can achieve the greatest returns without assuming too much additional risk.
For many years, America offered unparalleled opportunity for businesses to grow and succeed. Investors could find in the United States comparatively low taxes, a consistent regulatory environment and a stable currency. Tens of millions of jobs were created as America served as the global driver of growth and prosperity.
Yet today many doubt whether America can still power the world economy forward. Uncertainty over our deteriorating fiscal situation and increasingly burdensome regulatory structure has made job creators and investors think twice about deploying their capital in the United States.
As the federal government continues to borrow nearly 40 cents for every dollar it spends, America’s $14 trillion debt hangs over the economy like a dark cloud waiting to unleash a violent storm of higher taxes, inflation and higher borrowing costs. The very businesses and investors we need to grow our economy are waiting to see if this cloud will pass.
The more local and national business owners I meet with, the more obvious it becomes that our businesses are innovative and poised to grow; government just has to stop making it harder for them to compete.
As part of our larger effort, Republicans are reviewing and cutting job-impeding regulations that stifle job growth. Next week, we will repeal the onerous 1099 reporting requirement to provide small businesses with much-needed relief. Additionally, we are focused on other ways to grow the economy, including tax reform and implementing job-creating trade agreements.
Will the administration and the Senate join us in getting our fiscal house in order? Or will they continue to add entitlements and borrow and spend at unsustainable levels? If only they would unite with us, confidence can be restored in America and capital investment can return.
But if they don’t walk us back from the precipice, businesses will see only weaker prospects for profit and growth on our shores — and turn instead to other countries they deem safer. What does this mean for America? It means we would be a lot more like Europe. Our graduates and work force would have less opportunity to find work. Our prospective entrepreneurs would have less incentive to pursue their ideas. Unemployment would be permanently higher and growth would be permanently weaker.
During his recent speech to the Chamber of Commerce, President Barack Obama insisted that in response to his policies, businesses have a “responsibility” to hire more workers and support the U.S. economy. But that’s not how it works in market-based economies. There is no magic hiring wand.
If the president genuinely wants to create jobs, he should take a cue from Virginia. Gov. Bob McDonnell has turned a $1.8 billion deficit into a $403 million surplus, cut $4.2 billion out of the 2011 and 2012 budgets — and he has done so without raising taxes.
America needs to show the world that we are serious about slashing our debt. By cutting $100 billion off the president’s proposed budget and taking the lead in reforming entitlements, House Republicans have demonstrated that we are more than ready to help make the tough choices necessary to move us in the right direction. Moving forward, we will use every tool at our disposal to remove barriers to economic growth so that people can get back to work and we can start to get our fiscal house in order.
Continuing on the housing theme, I wanted to share with you an article written on February 7 by Robbie Whelan of the WSJ. Mr. Whelan has a good run-down on the current housing and lending situation as well as the accurate status of HAMP (Home Affordable Modification Program).
As the federal government’s flagship mortgage-modification program comes under scrutiny for failing to meet its goal of helping three to four million troubled homeowners, state-level efforts to boost modifications appear to be picking up momentum.
The Treasury reported Monday that the government’s Home Affordable Modification Program, or HAMP, had provided permanent help to 521,630 homeowners since the program began in spring 2009.
By comparison, over the same period, banks negotiating directly with borrowers have made about two million permanent loan modifications outside the government’s program. These modifications continued to rise in recent months even as the number of HAMP modifications trailed off.
Critics of HAMP say the program has made little impact on the housing market and should be ended. Last week, House Republicans introduced a bill to end the effort, calling it a “colossal failure.” The administration defends the program.
“I think we’ve got to remember that HAMP has achieved over a half-million modifications. These are people that make $50,000 a year, so to sort of write it off and say, ‘Well, it’s a failure,’ I think is not really appropriate,” said Tim Massad, an acting assistant Treasury secretary, in a hearing on Capitol Hill last week.
Banks say they are doing more of their own modifications—and fewer HAMP mods—because eligibility requirements for HAMP are more stringent. Once a borrower is deemed ineligible for the government program, a modification worked out directly with the bank sometimes is the best option.
But also having a big impact are state mandates requiring banks and loan-servicing companies to hold mediation sessions with borrowers prior to foreclosing, said lawyers for delinquent borrowers and judges handling foreclosure cases.
About 20 states encourage some type of foreclosure mediation program to allow borrowers and lenders to hammer out a settlement, according to the Center for American Progress, a liberal Washington think tank. Three of those states—New York, Florida and Connecticut—and a handful of cities make mediation mandatory.
In Florida, Fannie Mae has begun testing a foreclosure-prevention program to get banks to meet with troubled borrowers to negotiate mortgage modifications and other alternatives before filing foreclosure documents in court.
“If they’re looking at mounting legal costs and risks to foreclose, then the workout process might seem like the best option,” said Alan M. White, a professor of law at Valparaiso University in Indiana, who has written extensively on the mortgage crisis. “Banks have got states preventing you from foreclosing…dismissing cases and ordering mediation, those are just two tools that state judges have.”
Others say banks are more willing to modify loan terms—which generally means reducing interest rates, forgoing late fees and extending the terms of loans—because it’s starting to be cheaper than completing a foreclosure. In some cases, in some states, that process can take years and thousands of dollars in legal fees to complete.
Among the banks to ramp up modifications isWells Fargo & Co., which plans to hold 20 large-scale mediation sessions across the country this year. More than 150,000 borrowers who have missed payments, or have been in modification negotiations, have or will be invited to come to hotels and convention centers for rapid-fire meetings the bank hopes will result in loan modifications.
That’s what happened to Patricia Yador, 53, of West Orange, N.J. at a “home preservation workshop” held at the Marriott hotel in downtown Brooklyn last Tuesday. Wells Fargo, her mortgage servicer, agreed after a mediation conference to knock more than 2 percentage points off the interest rate on her $300,000 mortgage.
That cut her monthly payments from $3,257 to $2,833.
“These are tears of joy because [before] they always turned me down,” said Ms. Yador, who has owned her home for 17 years and lives on $2,100 in disability and pension payments since she stopped working as a hospital accounts manager about three years ago.
Ms. Yador was one of 30,000 borrowers that Wells Fargo invited to participate in the modification fair in the New York-New Jersey area. Borrowers like Ms. Yador, who end up in a non-HAMP modification, are far more common than those who go through the government program. Of the roughly 600,000 loan modifications made by Wells Fargo since January, 2009, 86% have been done outside of HAMP, and 14% through HAMP.
HAMP offers servicers financial incentives to reduce loans to 31% or less of a borrower’s income, but it also has stringent requirements for eligibility. Borrowers who have lost their jobs or who have expensive medical conditions or other debts often are rejected by HAMP.
A Wells Fargo spokesman said the modification fairs are driven by the bank’s desire to do right by its customers. But others say the stepped up efforts are in response to ratcheted-up pressure from the states.
For the last two years in Philadelphia, where foreclosures are handled by judge, courts have moved to a system where they automatically schedule a “conciliation conference” within 30 to 45 days of each foreclosure filing.
Servicers are required to send a representative in person or by telephone to these conferences. If they fail to do so, the case can be postponed. The courts also keep mediators and pro bono housing lawyers on hand to serve borrowers.
“Yes, we are asserting pressure, but it’s almost as if they want the pressure,” said Annette Rizzo, a judge with the Court of Common Pleas in Philadelphia. “The banks always say that reaching out to homeowners, it’s a black hole. It’s so hard to connect with them. That’s what we offer, to connect with them.”
About 75% of eligible, struggling homeowners show up for and participate in mediation sessions in Philadelphia court rooms, and they have produced about a 35% success rate for about 14,000 loans according to an evaluation of the program to be released next month. Programs in Staten Island, NY and Bloomington, Indiana, have produced similarly high participation rates.
To be sure, not every mediation or modification results in significant savings for homeowners and it’s not clear how these modification will perform over time.
In the third quarter, modifications done in the HAMP program reduced monthly payments by an average of $585, almost double the $332 reduction in payments for modifications done outside the HAMP program. Those loans with modifications that reduced payments by 10% or more were almost twice as likely to be current than those loans with modifications that reduced payments by less than 10%.
Unless you’re in favor of a fully nationalized health-care system, the president’s health-care reform law is a massive mistake. It will amplify all the big drivers of overconsumption and excessive pricing: “Why not, it’s free?” reimbursement; “The more I do, the more I get” provider payment; and all the defensive medicine the trial bar’s ingenuity can generate.
All claims made for it were false. It will add trillions to the federal deficit. It will lead to a de facto government takeover of health care faster than most people realize, and as millions of Americans are added to the Medicaid rolls and millions more employees (including, watch for this, workers of bankrupt state governments) are dumped into the new exchanges.
Many of us governors are hoping for either a judicial or legislative rescue from this impending disaster, and recent court decisions suggest there’s a chance of that. But we can’t count on a miracle—that’s only permitted in Washington policy making. We have no choice but to prepare for the very real possibility that the law takes effect in 2014.
For state governments, the bill presents huge new costs, as we are required to enroll 15 million to 20 million more people in our Medicaid systems. In Indiana, our independent actuaries have pegged the price to state taxpayers at $2.6 billion to $3 billion over the next 10 years. This is a huge burden for our state, and yet another incremental expenditure the law’s authors declined to account for truthfully.
Perhaps worse, the law expects to conscript the states as its agents in its takeover of health care. It assumes that we will set up and operate its new insurance “exchanges” for it, using our current welfare apparatuses to do the numbingly complex work of figuring out who is eligible for its subsidies, how much each person or family is eligible for, redetermining this eligibility regularly, and more. Then, we are supposed to oversee all the insurance plans in the exchanges for compliance with Washington’s dictates about terms and prices.
The default option if any state declines to participate is for the federal government to operate an exchange directly. Which got me thinking: If the new law is not repealed by 2013, what could be done to reshape it in the direction of freedom and genuine cost control?
I have written to Kathleen Sebelius, secretary of Health and Services (HHS), saying that if her department wants Indiana to run its program for it, we will do so under the following conditions:
• We are given the flexibility to decide which insurers are permitted to offer their products.
• All the law’s expensive benefit mandates are waived, so that our citizens aren’t forced to buy benefits they don’t need and have a range of choice that includes more affordable plans.
• The law’s provisions discriminating against consumer-driven plans, such as health savings accounts, are waived.
• We are given the freedom to move Medicaid beneficiaries into the exchange, or to utilize new approaches to the traditional program, instead of herding hundreds of thousands more people into today’s broken Medicaid system.
• Our state is reimbursed the true, full cost of the administrative burden to be imposed upon us, based on the estimate of an auditor independent of HHS.
• A trustworthy projection is commissioned, by a research organization independent of the department, of how many people are likely to wind up in the exchange, given the large incentives for employers to save money by off-loading their workers.
Obviously, this is a very different system than the one the legislation intends. Health care would be much more affordable, minus all the mandates, and plus the consumer consciousness that comes with health savings accounts and their kin. Customer choice would be dramatically enhanced by the state’s ability to allow more insurers to participate and offer consumer-driven plans. Through greater flexibility in the management of Medicaid, the state might be able to reduce substantially the hidden tax increase that forced expansion of the program will impose.
Most fundamentally, the system we are proposing requires Washington to abandon most of the command-and-control aspects of the law as written. It steers away from nanny-state paternalism by assuming, recognizing and reinforcing the dignity of all our citizens and their right to make health care’s highly personal decisions for themselves.
So why would Ms. Sebelius and HHS agree to this de facto rewrite of their treasured accomplishment? A glance at the recent fiasco of high-risk pools provides the answer. When a majority of states, including Indiana, declined to participate in setting up these pools, which cover those with high-cost, existing conditions, the task fell to HHS. As widely reported, it went poorly, with costs far above predictions and only a tiny fraction of the expected population signing up.
If the feds can’t manage this little project, what should we expect if they attempt it on a scale hundreds of times larger and more complex? If it were only Indiana asking, I have no doubt that HHS would ignore us. But Indiana is not alone. So far, 21 states—including Pennsylvania, Texas and Louisiana—have signed the same letter. We represent more than 115 million Americans. Washington’s attempt to set up eligibility and exchange bureaucracies in all these places would invite a first-rate operational catastrophe.
If there’s to be a train wreck, we governors would rather be spectators than conductors. But if the federal government is willing to reroute the train to a different, more productive track, we are here to help.
Mr. Daniels, a Republican, is the governor of Indiana.
Something about Bernanke’s speech today at the National Press Club regarding QE2 struck me.
Administrative support for quantitative easing is just another blatant example of political hypocrisy. The rationale behind quantitative easing – that it would spur investment – was vilified by the Democrat leadership when the same strategy was applied to “tax cuts for the wealthy”.
Bernanke, Geitner, the Fed, and the liberal members of Congress all support and push QE2. They argue that purchasing huge amounts of Treasury securities will reduce long term interest rates. The effect will be stimulative because this action forces the other potential buyers to do something else with their money – invest in higher risk and more economically stimulative activity.
Yet aren’t these the same people who were against tax cuts for the highest-income earners? Their argument then was that those higher income earners would not put their tax savings for economic stimulative use. Though this is not correct (as a CPA financial and tax advisor to that very segment of the population, I can assure you that large portions of tax savings are invested), the hypocrisy here is quite staggering.
The supporters of QE2 praise lower interest rates but not lower tax margins? They laud investment as a key strategy for economic recovery – but only when it is artifically and unconventionally controlled by the government? This dichotomy is both calculated and conniving and ultimately endangers the economic future of this country.
Well, this might be the best Chris Christie-tells-off-pubic-employees video yet. In part because in this case the poor policeman doesn’t come off as arrogant, and also because Christie does his best to level with the guy and respect him. But that doesn’t keep Christie from flinching when it comes to leveling with the guy. Money quote: ““Here’s the thing: You’re getting a paycheck. And there are 9% of the people in the state of New Jersey who are not.”:
Suppose that every day, ten men go out for beer and the bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something likethis:
The first four men (the poorest) would pay nothing.
The fifth would pay $1.
The sixth would pay $3.
The seventh would pay $7.
The eighth would pay $12.
The ninth would pay $18.
The tenth man (the richest) would pay $59.
So, that’s what they decided to do.
The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve. “Since you are all such good customers,” he said, “I’m going to reduce the cost of your daily beer by $20.”Drinks for the ten now cost just $80.
The group still wanted to pay their bill the way we pay our taxes so the first four men were unaffected. They would still drink for free. But what about the other six men – the paying customers? How could they divide the $20 windfall so that everyone would get his ‘fair share?’
They realized that $20 divided by six is $3.33. But if they subtracted that from everybody’s share, then the fifth man and the sixth man would each end up being paid to drink his beer. So, the bar owner suggested that it would be fair to reduce each man’s bill by roughly the same amount, and he proceeded to work out the amounts each should pay.
And so:
The fifth man, like the first four, now paid nothing (100% savings).
The sixth now paid $2 instead of $3 (33%savings).
The seventh now pay $5 instead of $7 (28%savings).
The eighth now paid $9 instead of $12 (25% savings).
The ninth now paid $14 instead of $18 (22% savings).
The tenth now paid $49 instead of $59 (16% savings).
Each of the six was better off than before. And the first four continued to drink for free. But once outside the restaurant, the men began to compare their savings.”I only got a dollar out of the $20,”declared the sixth man. He pointed to the tenth man,” but he got $10! “Yeah, that’s right,” exclaimed the fifth man. “I only saved a dollar, too. It’s unfair that he got ten times more than I!” “That’s true!!” shouted the seventh man. “Why should he get $10 back when I got only two? The wealthy get all the breaks!”
“Wait a minute,” yelled the first four men in unison. “We didn’t get anything at all. The system exploits the poor!” The nine men surrounded the tenth and beat him up. The next night the tenth man didn’t show up for drinks, so the nine sat down and had beers without him. But when it came time to pay the bill, they discovered something important. They didn’t have enough money between all of them for even half of the bill!
Even though this anecdote has been around for awhile, it is a great example of how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.
For those who understand, no explanation is needed. For those who do not understand, no explanation is possible.
The criterion for charitable giving in recent years has become based on emotion rather than responsibility. An glaring example of this trend is the millions of dollars blindly poured into US and UN charities in response to the Haitian earthquake disaster. Never mind that most of these organizations are racked with corruption. Those who support their continued existence are implicitly liable for compounding the misery that still exists in Haiti nearly a year later.
The recent fraudulent elections – held just a month ago – have perpetuated another cycle of abuse. But where is the current outrage about the results among those who purport to care about the misfortune of the Haitian people? It’s easy to for Americans to donate to a faceless organization and feel good about helping, yet ignorant generosity has unintended consequences.
The government of Haiti and the organizations that prop it up are racked with dishonest leaders; the monetary contributions that flow from misguided donors only serve to feed their corruption. Haitians must strive to purge the body politic – but this can only be achieved by severing the financial support systems currently in place.
Mary O’Grady’s recent article in the WSJ highlights the graft running rampant in the import business being conducted at Port-au-Prince. Yet the US and UN have turned a blind eye to the devastating effects the extortionists have on the business and economic growth. Is it any wonder then, that the response to reports of election fraud by the Clintons, Valenzula, or the UN have been equally and exceedingly lackluster?
Examining the state of the Haiti recovery effort, one can only conclude that by and large, the US and UN aid organizations are in collusion with the current depraved governing body in Haiti. Billions of dollars in contributions have only lined the pockets of the leadership while keeping the Haitian people in involuntary squalor.
I have proudly not contributed to Haiti because I believe in the idea of responsible giving. Sadly, the consequences of Haitian donations have been severe. Starving the Haitian government of monetary aid is the only opportunity to cripple their fraudulent behavior, weaken their power, and give dignity and hope back to the Haitian people. People who truly wish to aid and not exploit those whom they seek to help would do well to know the history and politics of the organizations and their leaders before they contribute.
If you haven’t seen this fun video on basic economics, take a 7:32 break and enjoy. It’s Hayek vs Keynes, cleverly rapped to give the fun overview of the battle of two influential economists. My link below includes the video and the lyrics. (Go Hayek!)
