Libertarian Leanings

The Boehner Plan

Commenting on an editorial in Investor's Business Daily, Ed Morrissey notes that by passing the Boehner Plan for raising the debt ceiling Republican House members would put the onus squarely on Senate Democrats to pass a plan of their own right on the eve of the deadline.

Passing Boehner 1.1 puts the onus back on the Democrats in the Senate to produce an alternative, which would be their very first vote on any plan in this crisis.  If they pass a Reid plan, then the entire issue goes to a conference committee and we end up with a compromise on the principles of the GOP.  If the Senate refuses to act at all, then it’s not the fault of Republicans when the deadline arrives.

Senate Democrats are inexplicably eager to take the fall.

Fifty-three Democratic senators have signed a letter to House Speaker John A. Boehner saying they intend to vote against his plan for an increase in the debt ceiling, virtually assuring its defeat in the Senate even as the speaker lines up Republican votes to pass it in the House on Thursday.

Votes are not final until they are cast. But if the Democrats hold to their promise in the letter, Mr. Boehner’s plan for a six-month increase in borrowing authority will not make it to President Obama’s desk.

“We heard that in your caucus you said the Senate will support your bill,” the senators say in the letter. “We are writing to tell you that we will not support it, and give you the reasons why.”

In the letter, the senators argue that a short-term extension of the debt ceiling would “put America at risk” and “could be nearly as disastrous as a default.”

Democrats object because a short-term extension would force them to talk about raising the debt ceiling once again, right before the November 2012 elections.  That would be the real disaster.  From my perspective, the Boehner Plan is nearly perfect.

It's The Re-election, Stupid

Barack Obama is not winning the debt ceiling debate.  I think he knows it.

With financial markets warily watching the Capitol Hill drama, Obama used his 15-minute address from the White House to urge “shared sacrifice” in tackling the debt, calling for deep cuts in federal spending to be coupled with higher taxes on the wealthy and on large corporations.

He slammed Boehner for calling for another vote on the issue next year, saying: “We know what we have to do to reduce our deficits; there’s no point in putting the economy at risk by kicking the can further down the road.”

The economy has not been Obama's friend.  Of course, in order to have a friend you have to be one, and Obama has not been a friend to the U.S. economy.  As some of us have noticed, promising tax hikes can have the same effect as imposing them when it comes to stifling economic growth.  Here again, as our debt ceiling debate inches along towards its deadline, Obama simply can't resist his class warfare rhetoric, which translates into a promise of higher taxes and the predictably slower economic growth.

But it really doesn't matter if Obama talks the economy into an extended recession, since there's no way it can turn around in time to help his re-election effort.  That means the worst outcome for Obama is to have to revisit the debt ceiling debate during the 2012 campaign season.  He is not winning the debate now, and his prospects for winning it next year aren't any better.  He needs to speak other things if he's to have even the slenderest hope of a second term.

Obama is desperate to have the debt ceiling can kicked just past the 2012 election.

Obama Backs Plan That Does Not Raise Debt Limit

Dueling deficit reduction plans are working their way through the US Congress.  In the Senate the "Gang of Six" offered a proposal that quickly gained Obama's backing, even though it doesn't address the debt limit.  It has something Obama can call tax increases.

President Barack Obama, in a last-ditch bid for a bipartisan "grand bargain" on the budget, threw his weight Tuesday behind a $3.7 trillion deficit-reduction plan unveiled by six Republican and Democratic senators.

The plan, which would span a decade, has scant chance of passing intact as the solution to the current debate over raising the government's borrowing limit. Some Republicans were wary of the plan's changes in tax rules. Democrats said it would be near impossible to draft legislative language and pass it quickly.

Still, some elements from the so-called Gang of Six senators could be incorporated into a final deal to shrink the deficit and raise the government's $14.29 trillion debt cap by Aug. 2. That's when the Treasury Department says the government will run out of cash to pay all its bills without an increase in borrowing authority.

Meanwhile the House passed "Cut, Cap, and Balance" legislation that Obama has threatened to veto.  It includes a provision to raise the debt ceiling, but it contains no tax increases, which makes it unpalatable for Obama.

WASHINGTON — Defying a veto threat, the Republican-controlled House voted Tuesday night to slice federal spending by $6 trillion and require a constitutional balanced budget amendment to be sent to the states in exchange for averting a threatened Aug. 2 government default.

Debate in the House was along predictable lines, and only nine Republicans opposed the bill and five Democrats supported it on final passage in the 234-190 vote.

...

"Let me be clear. This is the compromise. This is the best plan out there," said Rep. Jim Jordan, R-Ohio, head of a conservative group inside the House known as the Republican Study Committee.

The legislation, dubbed "Cut, Cap and Balance" by supporters, would make an estimated $111 billion in immediate reductions and ensure that overall spending declined in the future in relation to the overall size of the economy.

It also would require both houses of Congress to approve a balanced budget amendment to the Constitution and send it to the states for ratification.

The House vote has been said to be largely symbolic with no chance of passage in the Senate and a veto guarantee from President Obama if it does.  But it is legislation that has passed the House, and it raises the debt limit. 

The Senate plan is a proposal that does not address the debt limit.  The tax revenue, so attractive to Obama, would come from the elimination of deductions.  The plan would lower marginal rates, but the elimination of deductions would presumably raise a trillion dollars over the course of 10 years. 

The newly released framework relies heavily on the fiscal commission’s work, calling for deep cuts at government agencies, including the Pentagon; significant reductions to Medicare and Medicaid; and a plan to make Social Security solvent.

It also calls for raising more than $1 trillion over the next decade by reducing a variety of popular tax breaks and deductions, including breaks for home mortgage interest and employer-provided health care. While some of those savings would be dedicated to debt reduction, the rest would go toward lowering tax rates for everyone, with top individual and corporate rates dropping to at least 29 percent, down from 35 percent.

What we are likely looking at is House legislation vs. Senate smoke and mirrors.

The ticking clock is a major impediment to pursuing the Gang of Six strategy, which has yet to be drafted in legislative form or examined by congressional budget analysts. Opponents ripped into the sketchy details handed out at a morning briefing attended by about half the Senate, arguing that printed summaries identify nowhere near $3.7 trillion in savings.

The Senate plan gives Obama some cover.  He'll have a week's worth of posturing as he plays the part of the "adult in the room" guiding the unruly congressional children towards a sensible fiscal solution.  He might have some credibility if he had ever proposed a plan of his own plan, but neither he nor the congressional Democrats have come up with anything. 

I'd bet it's been Obama's plan all along to have this confrontation, hoping to ram through some massive last minute bill that no one will have time to read, and that will increase the reach of government.  The Senate plan could fill the bill with its unidentified spending cuts and its tax reform, all to be worked out under the pressure of another rapidly appoaching financial crisis. 

The House has called Obama's bluff.  Republicans have passed a measure that raises the debt limit.  Now let's see what Obama does with it.

Social Security and the Debt Limit

If, as Dick Durbin said, Social Security doesn't add one penny to the deficit — his words were,

It’s very hard, very difficult, when you get into the entitlements, but you can’t have a serious conversation about the future of our economy and our deficit without putting everything on the table. Social Security is a little different. It does not add a penny to the deficit.

Why would Barack Obama say,

"I cannot guarantee that those [Social Security] checks go out on August 3 if we haven't resolved this issue because there may simply not be the money in the coffers to do it."

if the debt limit isn't raised by August 2nd?

Quote Of The Day

In a column persuasively arguing that the Arab Spring uprisings are driven by economics rather than politics, Caroline Glick had this to say:

The current debt-ceiling negotiations between US President Barack Obama and the Republican Congressional leadership have made it apparent that Obama is ideologically committed to increasing government spending and taxes in the face of a weak economy. If Obama is reelected next year, the dire implications of four more years of his economic policies for the US and global economies cannot be overstated.

And the implications for Israel are even more dire.

Aside from remaining economically responsible, as Israel approaches the coming storms it is important for it to act with utmost caution politically. It must adopt policies that provide it with the most maneuver room and the greatest deterrent force.

First and foremost, this means that it is imperative that Israel not commit itself to any agreements with any Arab regime. In 1977 the Camp David Agreement with then Egyptian president Anwar Sadat in which Israel surrendered the strategically invaluable Sinai for a peace treaty seemed like a reasonable gamble. In 2011, a similar agreement with Assad or with the Palestinian Authority, (whose budget is largely financed from international aid), would be the height of strategic insanity.

Beyond that, with the rising double specter of Egyptian economic collapse and the rise of the Muslim Brotherhood to power, Israel must prepare for the prospect of war with Egypt. Recently it was reported that IDF Chief of General Staff Lt. Gen. Benny Gantz has opted to spread over several years Israel's military preparations for a return to hostilities with Egypt. Gantz's decision reportedly owes to his desire to avoid provoking Egypt with a rapid expansion of the IDF's order of battle.

Gantz's caution is understandable. But it is unacceptable. Given the escalating threats emanating from Egypt - not the least of which is the expanding security vacuum in the Sinai -- Israel must prepare for war now.

Obama: Americans Want Higher Taxes

At his press conference yesterday President Obama made the ridiculous claim that 80 percent of the American people support his demand for tax increases.  He's been after Republicans to raise taxes for him ever since he took office, his latest ploy being to build tax hikes into a deal to rasise the debt ceiling. 

President Obama on Friday kept up the pressure on Republicans to agree to revenue increases in a deal to raise the debt ceiling, claiming 80 percent of the public supports Democrats' demand for tax increases.

"The American people are sold," Obama said. "The problem is members of Congress are dug in ideologically."

Analysis by Aaron Blake of the Washington Post identified the opinion polls that Obama had both cherry-picked and misrepresented in order to justify his claim.

A Gallup poll this week showed that just 20 percent of Americans – including 26 percent of Republicans – say the deficit should be reduced solely through spending cuts. This leaves 80 percent of all Americans who don’t rule out tax increases. (Important note: Some were undecided and 4 percent said only to use tax increases, so the actual number who support using both spending cuts and tax increases is actually less than 70 percent.)

Quinnipiac University put those ruling out tax increases at 25 percent overall, including 48 percent of Republicans — much worse numbers for Obama’s argument. But for our argument’s sake, we’ll use the numbers more favorable to Obama.

For one thing it's quite a stretch to go from 20 percent who support only cuts to reduce the deficit, to 80 percent who favor higher taxes.  Even Gallup hadn't put that dramatic of a spin on the numbers, arriving instead at this conclusion, that Americans prefer spending cuts over tax increases:

Total: Only/Mostly with spending cuts	50
Total: Only/Mostly with tax increases	11

A Rasmussen poll bears out that result.  Earlier in the week Rasmussen asked the question, "As part of legislation to raise the debt ceiling, should congress and the president raise taxes?"  According to Rasmussen, 55% of voters said no.

Just 34% think a tax hike should be included in any legislation to raise the debt ceiling. A new Rasmussen Reports national telephone survey finds that 55% disagree and say it should not. (To see survey question wording, click here.)

There is a huge partisan divide on the question. Fifty-eight percent (58%) of Democrats want a tax hike in the deal while 82% of Republicans do not. Among those not affiliated with either major political party, 35% favor a tax hike and 51% are opposed.

It is interesting to note that independent voters are opposed by a margin of 51 to 35, yet in his press conference Obama claimed Americans are sold on higher taxes. 

Right about the time Obama was lecturing about how time is running out, House Republicans announced plans to vote on a proposal to raise the debt ceiling by $2.4 trillion, along with cuts in the same amount spread over ten years.  The Republican proposal does not include tax increases. 

It's hard to imagine Americans punishing Republicans if this legislation passes, raising the debt limit without imposing a tax hike.  But its not hard to imagine Americans punishing Obama if he vetoes this legislation and the debt ceiling is not raised.  Either way, we fervently hope that time is running out on this debacle of an Obama presidency.  He has been just awful. 

Obama would like nothing more than to ram through major tax legislation under the pressure of a U.S. default.  As with ObamaCare, we could find out what's in it after they pass it.  No thanks.

Obama: Eric, Don't Call My Bluff

And what was it that prompted Harry Reid to say that Republican House Majority Leader Eric Cantor "has shown that he shouldn't even be at the table" for the debt limit negotiations?

At Wednesday's White House meeting, Mr. Cantor, discouraged by what he said was the dwindling size of the spending cuts that had been agreed to by both parties, for the first time told the president he was willing to accept a smaller package of spending cuts and pass a shorter debt limit extension—not the full $2.4 trillion that was needed to extend the limit until after the 2012.

That's when Obama stalked from the room saying, "Eric, don't call my bluff." 

I think Cantor, and Congressional Republicans, should call Obama's bluff.  Congress and the White House can avert a crisis by passing a short term debt limit extension, and by doing so give themselves time to work out a real solution.  What we have here is Obama looking to score political points on the debt crisis, and throwing a tantrum because thing aren't going his way.

More:  Here's how Cantor told it.

At an impromptu news conference shortly after returning to the Capitol from a meeting at the White House, Cantor told reporters that Obama became angry when the No. 2 House Republican announced that he was willing to drop his insistence on only one vote on raising the country’s $14.3 trillion debt ceiling. Obama said at a news conference earlier this week that he would veto any short-term debt-limit proposal, a threat that the president renewed Wednesday, according to a Cantor spokesman.

“I asked the president, would that be something that he would consider,” Cantor told reporters. “Well, that’s when he got very agitated, seemingly, and said that he had sat here long enough and that no other president — Ronald Reagan wouldn’t sit here like this, and he’s reached the point where something’s got to give.”

“So he said, ‘You’ve either got to compromise on your dollar-for-dollar insistence, or you’ve got to compromise on the big deal,’ which means on raising taxes,” Cantor continued. “And he said to me, ‘Eric, don’t call my bluff.’ He said, ‘I’m going to the American people on this.’ Again, I was somewhat taken aback, because look, I was compromising.”

At that point, Cantor said, Obama “shoved back [from the table] and said, ‘I’ll see you tomorrow,’ and he walked out.”

A couple of anonymous Democratic aides laid the blame on Cantor, claiming he repeatedly interrupted Obama. 

Meanwhile the rest of the Democrats are taking aim at Cantor as if he has the authority, by himself, to approve the tax hikes they so dearly wish for.

Senate Democrats continued to train their rhetorical fire on Cantor at a news conference Thursday afternoon, arguing that the Virginia Republican has now become the main obstacle to a debt-limit agreement.

“It’s time for Leader Cantor to make some concessions,” Sen. Charles Schumer (D-N.Y.) said at a news conference with other Democratic leaders and Treasury Secretary Tim Geithner. “He’s the only one at the table who hasn’t yet. Speaker Boehner entertained the grand bargain President Obama offered. Even Leader McConnell has put a proposal on the table that at least recognizes the urgent need to avoid default.

“Leader Cantor has yet to make a constructive contribution to these discussions,” Schumer continued. “More than anything else, he is holding up an agreement at this point.”

Asked whether an agreement is possible with Cantor sitting at the negotiating table, Reid said the outlook was dim.

“Unless he changes and starts being someone who contributes to a solution, the answer is no,” Reid said. “He has not been constructive.”

Constructive must mean not suggesting anything that doesn't involve taxing people more heavily.

These Hazy Crazy Days

The Cause Of The Meltdown

Peter Wallison's column in today's Wall Street Journal sets the story straight on the financial meltdown.  It was not unregulated banks and Wall Street brokers who got us into this mess.  As Mr. Wallison rightly points out, at the root of crisis was the housing bubble, and the major culprits were — guess who:

Far from being a marginal player, Fannie Mae was the source of the decline in mortgage underwriting standards that eventually brought down the financial system. It led rather than followed Wall Street into risky lending.

Yes, Fannie and Freddie ,as facilitators of government housing policy, were instrumental.  Mr. Wallison is the Arthur F. Burns Fellow in Financial Policy Studies American Enterprise Institute.  His Journal column might be considered a reply to a remarkably dishonest piece by one Phil Angelides that made the pages of the Washington Post some time ago.  In that column Angelides said that the "real causes of our economic crisis" were Wall Street greed and excessive deregulation.  Translation:  The Bush administration was to blame.

The report of the Financial Crisis Inquiry Commission detailed the recklessness of the financial industry and the abject failures of policymakers and regulators that brought our economy to its knees in late 2008. The accuracy and facts of the commission’s investigative report have gone unchallenged since its release in January.

Where have we heard that before?  Oh, yes.  It's the Democratic partly line, the one about how President Obama inherited a mess from the Bush administration, but then heroically saved the nation (and the world, too) from a worse depression than the one we're in.  Mr. Angelides was chairman of the aforementioned Financial Crisis Inquiry Commission, so naturally he had good things to say about its work.  Said he: 

The accuracy and facts of the commission’s investigative report have gone unchallenged since its release in January.

In reality the report was immediately challenged by none other than Peter Wallison, who as a member of the commission wrote the dissenting statement in the Commission's report (see page 443).  His dissent says what most people already know.  If we are looking the single most significant cause we have to look at the housing bubble.

There are always many factors that could have caused an historical event; the difficult task is to discern which, among a welter of possible causes, were the significant ones—the ones without which history would have been different. Using this standard, I believe that the sine qua non of the fnancial crisis was U.S. government housing policy, which led to the creation of 27 million subprime and other risky loans—half of all mortgages in the United States—which were ready to default as soon as the massive 1997-2007 housing bubble began to deflate. If the U.S. government had not chosen this policy path—fostering the growth of a bubble of unprecedented size and an equally unprecedented number of weak and high risk residential mortgages—the great financial crisis of 2008 would never have occurred.

The financial crisis would never have happened without the housing bubble, and the housing bubble was created by U.S. government housing policy.  The odd thing about the Financial Crisis Inquiry Commission was that it was initiated and did all of its work after congress had already passed and the president had already signed the Dodd-Frank financial reform legislation which we were told was intended to prevent future crises.  Good luck.

The question I have been most frequently asked about the Financial Crisis Inquiry Commission (the “FCIC” or the “Commission”) is why Congress bothered to authorize it at all. Without waiting for the Commission’s insights into the causes of the financial crisis, Congress passed and the President signed the Dodd-Frank Act (DFA), far reaching and highly consequential regulatory legislation. Congress and the President acted without seeking to understand the true causes of the wrenching events of 2008, perhaps following the precept of the President’s chief of staf —“Never let a good crisis go to waste.” Although the FCIC’s work was not the full investigation to which the American people were entitled, it has served a useful purpose by focusing attention again on the financial crisis and whether—with some distance from it—we can draw a more accurate assessment than the media did with what is often called the “first draft of history.”

What, then, was the purpose of the Commission?  And who was Phil Angelides?  According to Wikipedia:

Philip Nicholas "Phil" Angelides ( /ˌændʒɨˈliːdɨs/ an-jə-lee-dees; born June 12, 1953 in Sacramento, California) is an American politician who was California State Treasurer and the unsuccessful Democratic nominee for Governor of California in the 2006 elections. Angelides currently serves as the Chair of the Apollo Alliance and of the Financial Crisis Inquiry Commission.

Well, there's some confidence inspiring information.  A former California State Treasurer is telling the rest of the country about managing finances.  Shortly after Mr. Angelides wrote his Washington Post column, Investors Business Daily responded with more insight:

Earlier this week, Phil Angelides, the Democratic hack who ran the Financial Crisis Inquiry Commission's sham investigation, felt compelled to write a column for the Washington Post to try to plug the holes in the dike before it can spring any more inconvenient facts.

He insists his final report proves the crisis was caused by "the recklessness of the financial industry," and that the history books should be closed on the subject — period, end of story. But Angelides' report is a 550-page cover-up.

For starters, it glosses over the affirmative-action quotas HUD used to drive Fannie and Freddie deep into the subprime market. And it fails to cite any of HUD's statements about its efforts to reduce underwriting rules at Fannie and Freddie.

The historical record is clear. Yet instead of documenting it for the public, which lost $14 trillion in the crisis, the Angelides Commission rewrites it.

What's more, the hundreds of "fair lending agreements" HUD strong-armed private mortgage bankers like Countrywide Financial into signing, aren't even mentioned in his artifice. The pledges, which committed bankers to targeting credit-poor minorities for loans, ensured a continuing flow of funds into riskier and riskier mortgages.

Also missing from the report: quantifiable evidence that the government was responsible for more than two-thirds of the 27 million subprime and other bad mortgages that were outstanding when the market crashed in 2007.

In his column, Angelides railed against "Wall Street's conflicts of interests," but his own are legion.

In fact, Angelides ran a dirty investigation. He fixed it so trial lawyers who donated more than $225,000 to his political campaigns in California could leverage banks for class-action settlements for union pension funds that invested in bad subprime securities.

As IBD first reported, Robbins Geller Rudman & Dowd — the country's dominant plaintiffs law firm for class-action securities lawsuits — ran the crisis inquiry through chief investigator Chris Seefer (a Robbins Geller partner) and FCIC commissioner Byron Georgiou (a Robbins Geller counselor).

Last September, months before the FCIC had closed its "investigation," Georgiou and Angelides spoke at a conference in Laguna Beach, Calif., hosted by Robbins Geller. Congressional investigators are probing whether the two violated ethics rules when they talked about their ongoing commission work.

Talk about unfair advantage: The commission essentially provided a massive discovery operation and service for trial lawyers at public expense.

Angelides dumped millions of pages of subpoenaed confidential bank documents on the FCIC website so his trial lawyer pals could get a multibillion-dollar payday.

Angelides and his cronies pinned the crisis on banks to justify more bank regulations, while protecting the real culprits — Democratic politicians who pressured banks to make "predatory" multicultural loans.

This is the Obama administration at work.  Nothing is done without somebody getting paid off somewhere, with the payoff aimed in such a way that a chunk of it will come back into Democratic party coffers.  With Obama invariably putting political advantage ahead of all other considerations, it's small wonder that the Great Recession drags on.  The recession will not end until Obama leaves the White House.  Let's make it sooner rather than later.

We Need New Taxpayers

According to Marco Rubio, "We Don't Need New Taxes, We Need New Taxpayers." He went on to give it some perspective.

"So, I looked at it because ultimately this is a serious issue. So, let's explore this with an open mind. Let's not be doctrinaire, let's not be blindly ideological. Let's look at this from a common sense perspective, this idea that all these millionaires and billionaires, if they just paid more taxes, these problems would be solved. Let's analyze it. This is all about math.

"And here's the fact: the fact is it doesn't solve the problem. First of all, if you taxed these people at 100 percent, basically next year you said, 'Look, every penny you make next year the government's going to take it from you,' it still doesn't solve the debt. Not only does that not solve the debt problem, but I looked at a host of other -- a great publication that came out today from the Joint Economics Committee, our colleague Sen. DeMint chairs it. And it kind of outlines some of the tax increases being proposed by our colleagues in the Democratic Party and the president to solve the debt problem. And you add them all up, you add all of these things up -- the jet airplanes, the oil companies, all of the other things they talk about -- you put them all together in one big batch, and you know what it does? It basically deals with nine days and 23 hours worth of deficit spending. Nine days and 23 hours of deficit spending. That's how much it solves. So all this talk about going after people that make all this money, it buys you nine days and 23 hours. Let's round it off. Let's give them the benefit of the doubt. It buys them 10 days of deficit spending reduction. That's what all this stuff rounds up to.

...

"And so my view on all this is I want to know how many jobs these tax increases the president proposes will create because if they're not creating jobs and they're not creating new taxpayers, they're not solving the problem." 

For ten years the Democrats have been railing against the Bush tax cuts and for what?  Ten days worth of deficit spending reductions.  This perfectly captures the uselessness of the Democrats on economic issues.  (My emphasis in the excerpt above.)