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More Idiocy By Both Parties In Congress

Ross Kaminsky - 6/16/2007

Although most of the legislative attention in the news is on the war funding bill about to be vetoed by President Bush, back in their offices and conference rooms our elected representatives are hard at work trying to curtail our liberty in every facet of our lives, leaving me to wonder why anybody other than union members (or other societal sponges) and the religious right would vote for any of these people.

Here're the latest two examples:

First, the Republican folly: As part of the FDA reauthorization, Republicans will probably try to introduce an amendment to ban RU-486, also known as Mifepristone, which is a drug that can be used to end a pregnancy in its first 49 days. Many in the anti-abortion movement, and many who are not really active in the movement but still strongly opposed "partial birth abortion", known medically as dilation and extraction ("D&X"), cheered the recent Supreme Court decision to uphold a ban on that procedure. They said that D&X is a particularly abhorrent procedure and that a Federal ban was permissible because there was an alternative procedure which could be used most of the time. As I've written before, I believe the ruling was wrong for two primary reasons: The less important one (but still important) is that the Justices should not be playing doctor, so to speak. The more important one is that their ruling effectively gives the Federal government rather than the states jurisdiction over regulating health care, an area where the is obviously no Federal authority despite the existence already of much Federal regulation; to the extent that a government should be able to regulate abortion, it should be at the state level.

Now, feeling strong with the Supreme Court victory, Republicans will probably move to ban a pill that allows a woman to terminate a pregnancy without having to have the physical D&C procedure which typically is used for a first trimester abortion. Many in the anti-abortion camp have never been shy about their desire to rid the US of any and all forms of pregnancy termination. But their likely attempt to ban RU-486 shows the danger of letting the camel's nose under the tent the way the Supreme Court just did.

The Republicans have interfered with the FDA's medical decisions about RU-486 for years, politicizing an agency that should be free of politics...especially partisan politics. If they try to ban RU-486 now, that's just another reason that I will be withholding my donations from the Republican Party's various election committees, as I did last year. (I should be clear that I have withheld donating to Democrats every year since I was born, since they are incurably anti-liberty, at least in the economic sphere. The Republicans in their current form are a disaster, but they might be curable, whereas the Democrats surely are a lost cause.)

The Democrat's folly of the week is, as is typical of Democrats, less ideological and more simply stupid: It is reported that Maxine Waters (D-CA) wants to change the Federal Housing Administration ("FHA") rules on sub-prime lending in order to raise the amount the FHA would loan to (presumably high-risk) home buyers, eliminate a requirement for a down-payment, and lower certain up-front fees for high-risk borrowers.

So, on the one hand you have Senators Chris Dodd (D-CT) and Chuck Schumer (D-NY) wringing their hands about the epidemic of foreclosures which has begun to hit sub-prime borrowers as their interest rates reset (higher) on their mortgages. Dodd and Schumer are wondering aloud whether the government should spend at least $100 billion of taxpayer money to bail out people who made stupid decisions. And on the other hand you have Maxine Waters wanting to make it even easier and more attractive for more of the same type of borrower to make more of the same type of bad, or at least excessively risky, decisions. If there were ever a politician who believes the proper role of government is to transfer money from the middle and upper economic classes directly to poor people, regardless of the moral hazard involved, regardless of the personal responsibility needed by people of every economic class to let a country thrive, it is Comrade Waters. She is truly among the worst of the worst on economic issues.

Apparently, Waters also wants to take profits from one FHA program to set up a trust fund to help those who need "affordable housing". Again, if Lenin had had an FHA, he would have thought this to be a good idea.

Home ownership levels have recently dropped for the first time in years, in large part because people realize that real estate has gotten too expensive. Many people realize that because they bought property with the intention of selling it in the short term, or to refinance it at a higher appraisal value or lower interest rate because they bought more house than they could afford, with a loan that was going to kick them in the backside (starting right about now) if everything didn't go their way. These people are either stuck in those homes, wondering how they will be able to keep from being foreclosed on, or they are walking away and leaving them to the banks. Although it is not an economic disaster for the country (at least not yet), it is certainly a disaster for tens of thousands of people who were greedy, ignorant, or maybe simply duped by clever but unethical mortgage brokers.

It is no different than any other bubble, so let's use an example or two from history as comparison with what Waters is proposing: Imagine it's 1637, and you're in Holland. You're just at the end of the Tulip Craze, where people had sold their homes, and spent their life savings on pretty flowers, assuming "the greater fool theory" would apply: that they would them be able to sell the flower (they don't last forever, or am I mistaken?) would then be purchased for more by someone else, in a sort of pyramid scheme. Well, pyramids only work until they don't. The government got involved and ordered the terms of tulip futures changed, the effect of which was to keep buyers overly aggressive and unafraid. The resulting crash left many people bankrupt and damaged the entire country's economy for several years. So, if she were Maxine van der Waters, from Haarlem in 1637, Rep. Waters' proposal would be to give a government agency, funded with taxpayer dollars, the right (and even encouragement) to loan people money at low rates, with low fees, and no down-payment, to buy more tulips...just at the time that everyone else is trying to sell their tulips, realizing their quest for instant wealth was a fool's errand.

Another example: Imagine it's sometime in the year 2001, and people all around are losing their investment savings (and their jobs) in the end of the dot-com bubble. Internet companies which had been trading at market capitalizations of hundreds of millions of dollars are disappearing almost overnight. Amazon.com (one of the lucky ones that's still around today) has gone from a (split-adjusted) high of over $100 to a price in the teens, after trading for a little while in the single digits. JDSU has gone from a (split-adjusted) high of over $1000 down to $60 (FYI, it's trading around $16 today). Those same people who were saying "look how easy it is to make money in dot.com stocks" are now filing for bankruptcy. Several years earlier, Alan Greenspan had talked about the market's irrational exuberance, but since bubbles go farther and longer than anyone expects, many had written off Greenspan's caution as the worries of a guy who was hopelessly out of touch with the fact that "things are different now".

One of the roles of the Federal Reserve is to set margin requirements for stock trading, i.e. what percentage of a stock's purchase cost a buyer must put up, with the balance loaned to them by their brokerage firm. (Here's a fascinating debate from 2000 on this very issue:
http://cowles.econ.yale.edu/news/shiller/rjs_00-04-10_wsj_margin.htm)
And here's another very interesting piece which talks about both the massive increase in margin debt in the midst of the dot.com bubble, and also the limited evidence that changes by the Fed in margin requirements have made a significant different historically:
http://www.frbsf.org/econrsrch/wklyltr/2000/el2000-09.html

While I am not arguing that the Fed can easily, or should try to, target a booming stock market by raising margin requirements, imagine Maxine Waters coming along with a plan to lower margin requirements just as the bubble is bursting, allowing and encouraging those who likely have the least experience and least likelihood of success in financial markets to take risk in those markets...and to encumber taxpayers with bailing them out if the fail. What do you think would happen? Many inexperienced and unqualified investors would jump into the markets with borrowed money, and while the market might have a temporarly blip upward to absorb the new money, the market would shortly crush these new investors. Maxine Waters and friends would then propose legislation to bail out the losers, to tax the winners (or maybe charge them with some sort of crime, like being intelligent or capitalist).

Socialists like Maxine Waters have no understanding that a functioning economy and quality financial markets absolutely require that people take pain when they make mistakes. It's what keeps investors and entrepreneurs focused on making the smartest and most efficient decisions...decisions which end up creating wealth and jobs for many people. The more the government tells people "we'll bail you out if you're wrong" or encourages people to jump into areas where they are unqualified or underqualified, the more they erode the foundation of our economy by creating wealth-destroying policies and their inevitable taxpayer bailout suggestions.

Of our two major political parties, both are shockingly anti-liberty. These two items are just examples of the types of attacks on our freedoms that politicians of both parties engage in daily. As I said before, the Democrats are beyond hope: They are effectively union-owned socialists, not to mention their many other troubles. The Republicans might not be beyond saving, but I don't think Congressional Republicans have the will or strength to self-reform. They will probably not return to Reagan-like views on the value of limited government until we have a President who not only espouses such views in his rhetoric, but, unlike George W. Bush, actually governs that way.