Saturday, December 13, 2008
By INVESTOR'S BUSINESS DAILY | Posted Tuesday, December 09, 2008 4:20 PM PT
Leadership: The media had a frenzy Tuesday with the "stunning" news that Illinois Democratic Gov. Rod Blagojevich had been arrested on corruption charges. The only thing stunning is it doesn't happen more often.
Read More: Election 2008
Blagojevich and his top aide, John Harris, were both arrested early Tuesday by the FBI on federal corruption charges. Among the more serious allegations is that Blagojevich tried to put Barack Obama's vacant Senate seat up for sale.
Blagojevich was reportedly caught on a wiretap explaining that a Senate seat "is a f***ing valuable thing, you just don't give it away for nothing."
The Illinois governor also reportedly tried to get the Chicago Tribune editorial board to tone down its criticism of him in exchange for state help with selling Wrigley Field, which is owned by the newspaper's parent, Tribune Co.
The mind boggles at such cupidity and outright criminality. Yet this wasn't the only news having to do with political corruption in recent days and weeks. Indeed, our political system is brimming with scandals, large and small.
Take last week, when a virtually unknown GOP challenger, Anh Cao, upset Louisiana Democratic Rep. William Jefferson in an election. Jefferson held a safe, gerrymandered district. Yet his constituents threw him out. Why? He'd been accused of accepting bribes, and federal agents later found thousands of dollars of suspicious cash stashed in his home freezer.
Fact is, America's political culture is in deep crisis. Hardly a day goes by without hearing about someone at the state or local level implicated in some sort of corrupt behavior. Literally dozens of our nation's 535 congressmen and women have been accused or found guilty of misconduct or misdeeds of various stripes.
Examples abound: Rep. Charles Rangel (taxes). Sen. Larry Craig ("wide stance" in a public bathroom). Sen. Chris Dodd (sweetheart mortgage deal, contributions from Fannie Mae and Freddie Mac). Rep. Alcee Hastings (impeached as a judge for corruption and perjury and since elected to the House in Florida).
And these just scratch the surface.
What does all this have to do with Blagojevich? Plenty. Blagojevich's case goes far beyond Illinois borders in its implications for the American political system.
For years, Illinois' state legislature has been controlled by one party, the Democrats just as Washington will be in January. As Lord Acton said, power corrupts, and absolute power corrupts absolutely. We hope one-party control of Washington won't bring a new wave of political crimes and corruption.
President-elect Obama emerged from the rough-and-tumble Illinois and Chicago political milieus. He knew Blagojevich well. He also knew convicted felon and political fixer Tony Rezko. So he no doubt knows too how corrosive this kind of malfeasance can be to a democratic system such as ours.
We hope he'll set an example and show zero tolerance for this kind of corruption in his new administration. Because people are fallible, corruption is perhaps inevitable. But that's no reason to tolerate it.
Thursday, December 11, 2008
By INVESTOR'S BUSINESS DAILY | Posted Tuesday, December 09, 2008 4:20 PM PT
Mortgage Meltdown: Democrats first circled the wagons around the Community Reinvestment Act, aided by their friends in the media. Now regulators have joined them. It's called CYA.
Read More: Economy
Four federal agencies enforce the CRA, a banking regulation whose original purpose of encouraging homeownership among the poor was well-intended. Abused by the Clinton administration, however, the act triggered the subprime crisis by relaxing lending standards across both the primary and secondary mortgage markets.
These agencies, which over the years have become entrenched in pushing the act, include the FDIC, Office of Thrift Supervision, the Comptroller of the Currency and the Federal Reserve. Top agency officials each took a turn Monday defending the CRA during a C-SPAN-covered panel discussion on the housing crisis.
OTS director John Reich insisted it "had absolutely nothing to do with the mortgage crisis." FDIC chief Sheila Bair said it was a "myth," adding that "it's really unfortunate that this is out there." "It's simply not true," she asserted. Next up was Comptroller of the Currency John Dugan, who agreed the CRA "certainly was not the cause of the subprime crisis."
Though they offered little evidence to support their assertions, a Fed governor released findings of a study the Fed did with the Brookings Institution to quash the idea the CRA encouraged high-risk subprime lending to uncreditworthy borrowers.
In a speech to the "Confronting Concentrated Poverty Policy Forum," Randall Kroszner asserted that CRA-mandated loans are "nearly as profitable" as conventional loans. He cited a 2000 Fed study on CRA loan performance.
A careful reading of the 99-page report finds evidence that seems to undercut his conclusion that CRA loans are just as safe. For example, the study found that "nearly 90% of large banking institutions report higher 30-89 day delinquency rates for CRA-related home lending than for overall home lending."
That little gem was left out of Kroszner's argument, along with this one: "CRA-related home loans do not appear to perform as well as other home loans when the analysis is conducted on a per CRA-dollar basis."
What do current data show? "Unfortunately," Kroszner said, "the available data on loan performance do not let us distinguish which specific loans in lower-income areas were related to the CRA."
In other words, he doesn't really know, and therefore can't clear the CRA. Still, promoting the CRA is "important," he said, "because neighborhoods and communities affected by the economic downturn will require the active participation of financial institutions."
Kroszner, who is on the board of an affordable-housing advocacy group in Washington, also neglected to mention the role of government-sponsored enterprises in mitigating the risk of CRA lending.
In a more aggressive pursuit of "social justice," the Clinton administration revised the CRA in April 1995 to mandate that banks pass lending tests in "underserved" communities and suffer tough new sanctions for failing to make enough loans there.
According to the language of the new Clinton regs, banks that used "innovative or flexible lending practices" to address the credit needs of low-income borrowers passed the test. Banks with poor CRA ratings were hit with stiff fines and blocked from expanding their operations. Soon, "flexible" lending became the norm, and banks used subprime loans, which charge higher interest rates, to cover the added risk.
But it wasn't enough. So Clinton ordered HUD to pressure Fannie Mae and Freddie Mac to buy the higher-risk loans from private banks and lenders, while adopting the same "flexible" credit standards. By 2000, HUD had mandated that low-income mortgages including CRA-related loans make up half of their portfolios.
To further spread the risk, Clinton legalized the securitization of such mortgages. In 1997, Bear Sterns securitized the first CRA loans $385 million worth, all guaranteed by Freddie Mac. Thus began the massive bundling of subprime mortgages that wound up poisoning the entire industry.
The cause and effect is clear. As ex-Fed chief Alan Greenspan recently testified: "It's instructive to go back to the early stages of the subprime market, which has essentially emerged out of the CRA."
It strains credulity for top regulators to now say the CRA had "absolutely nothing" to do with the subprime crisis. It smacks of political spin and bureaucratic CYA.
Tuesday, December 09, 2008
By INVESTOR'S BUSINESS DAILY | Posted Monday, December 08, 2008 4:20 PM PT
Politics: The election of a Republican as the first-ever Vietnamese-American congressman is not an "odd news" item. Joseph Cao represents the future of the GOP — if it wants success.
Read More: Election 2008
The latest Republican standard-bearer was a Navy pilot who was tortured as a POW in North Vietnam. How ironic that in the wake of John McCain's loss, the most exciting victory for Republicans is that of one of the hundreds of thousands of Vietnamese boat people who fled their country's communist regime.
Anh "Joseph" Quang Cao over the weekend won Louisiana's gerrymandered 2nd Congressional District over Democratic Rep. William Jefferson, who had been indicted on numerous corruption charges last year after the FBI allegedly found $90,000 in cash in the freezer of his home.
Beating someone as scandalized as Jefferson might not seem like much of a feat. But that House district has been rigged in favor of Democrats for more than four decades, regularly delivering 75% to 80% majorities to the Party of Jefferson (both of them).
Cao received not quite 50% of the vote to Jefferson's 47% in the runoff, but considering the incumbent's corruption, shouldn't any opponent have won in a landslide? Alas, too often heavily liberal districts will re-elect corrupt Democratic incumbents no matter how seedy their behavior.
The late Rep. Gerry Studds, for instance, was repeatedly re-elected in spite of being censured by the House after revelation of his sexual relations with a 16-year-old male congressional page.
Fellow Massachusetts House member Barney Frank took 66% of the vote — and larger majorities since — after he was reprimanded by more than 400 of his colleagues because a male prostitute was found apparently using his apartment to operate an escort service.
Both men even became committee chairmen.
In this race, Cao was able to break the pattern as a candidate in the mold of his state's Republican governor, Indian-American Bobby Jindal — staunchly conservative on moral issues and embracing a can-do approach on economic issues. He focused on job creation, opposed government spending initiatives, favored the redevelopment of the Port of New Orleans and sought education reform.
Once a Catholic seminarian, Cao was a legal counsel to Boat People S.O.S., a refugee advocacy organization. He also served as an attorney specializing in immigration issues. His community activism has included rebuilding schools, medical clinics and retirement facilities.
The Cao win comes after last Tuesday's re-election of Republican Sen. Saxby Chambliss in a landslide 14-point runoff victory in Georgia. Both victories were, of course, in the conservative South. But the winners in both also adhered to the conventional formula of supporting low taxes, less government spending and an assertive foreign policy, while defending traditional values.
Louisiana may be giving the country a preview of the multicultural figures who strongly believe in the same principles as the most successful Republican leaders of the recent past and will lead the GOP of the future.