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Barney Frank Comes Home to the Facts

A Commentary By Lawrence Kudlow

Saturday, August 21, 2010

Can you teach an old dog new tricks? In politics, the answer is usually no. Most elected officials cling to their ideological biases, despite the real-world facts that disprove their theories time and again. Most have no common sense, and most never acknowledge that they were wrong.
But one huge exception to this rule is Democrat Barney Frank, chairman of the House Financial Services Committee.
For years, Frank was a staunch supporter of Fannie Mae and Freddie Mac, the giant government housing agencies that played such an enormous role in the financial meltdown that thrust the economy into the Great Recession. But in a recent CNBC interview, Frank told me that he was ready to say goodbye to Fannie and Freddie.

"I hope by next year we'll have abolished Fannie and Freddie," he said. Remarkable. And he went on to say that "it was a great mistake to push lower-income people into housing they couldn't afford and couldn't really handle once they had it." He then added, "I had been too sanguine about Fannie and Freddie."

When I asked Frank about a long-term phase-out plan that would shrink Fannie and Freddie portfolios and mortgage-purchase limits, and merge the agencies into the Federal Housing Administration (FHA) for a separate low-income program that would get government out of middle-income housing subsidies, he replied, "Larry, that, I think, is exactly what we should be doing."
Frank also said that any federal housing guarantees should be transparently priced and put on budget. But he added that the private sector must be encouraged to re-enter housing finance just as the government gradually withdraws from it.

Some would say Frank's mea culpa is politically motivated in advance of an election where bailout nation and big government are public enemies No. 1 and 2. Of course, poll after poll shows that the $150 billion Fan-Fred bailout, which the Congressional Budget Office estimates could rise to $400 billion , is detested by voters and taxpayers everywhere.

In fact, these failed government agencies are in such bad shape that they can't even pay Uncle Sam the dividends owed under the conservatorship deal reached two years ago. That's right. In order to pay a $1.8 billion dividend on Treasury department stock, Fan and Fred had to borrow $1.5 billion from -- you guessed it -- the Treasury.

Then there's this head-scratching detail: In an absolutely outrageous move last Christmas Eve, President Obama signed off on $42 million in bonuses for the top 12 Fannie and Freddie executives, including $6 million apiece for the two CEOs. (Hat tip to attorney Stephen B. Meister.)
Voters are on to all this. So politics may indeed be motivating Barney Frank's turnaround. But I'm going to credit him with more than that.
I think Chairman Frank watched these government behemoths descend into hell and then witnessed the financial catastrophe that ensued. And I think he has come to realize that the whole system of federal affordable-housing mandates that was central to the real-estate collapse -- including the mandates on Fannie and Freddie and the myriad bad decisions made by private banks and other lenders in response to the government's overreach -- simply needs to be abolished.

Noteworthy is the fact that Treasury Secretary Tim Geithner has come to a similar conclusion. Geithner told a recent Washington conference on the future of housing finance that the system needs fundamental change. He said, "We will not support a return to the system where private gains are subsidized by taxpayer losses."

Of course, the withdrawal of housing markets from government programs, and the onset of a reinvigorated private sector for providing mortgages, must be done gradually over a period of years. But it is possible that the federal mortgage madness is coming to an end.
We will have to see if Congress really does say goodbye to Fan and Fred, as Republicans like Jeb Hensarling are advocating. Equally important, we will have to see if the federal affordable-housing mandates created by Congress and implemented by HUD and banking regulators are similarly repealed.

And then we will have to see if reformed federally guaranteed housing insurance includes larger down payments, stricter underwriting standards and greater reliance on private capital markets, lenders and insurers. In other words, we need to see if housing will be restored to a market-based system and removed from the government-backed system that has proved so disastrous.
The broader lesson here is that government planning doesn't work. And if left to their own devices, market processes will work. I don't know if President Obama gets this. But my hat goes off to a man who does, Chairman Barney Frank.

COPYRIGHT 2010 CREATORS SYNDICATE INC.

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New York City Panel Clears Way for Mosque Near Ground Zero

Published August 03, 2010

| FoxNews.com

A New York City panel voted unanimously Tuesday to reject landmark status for a building near the World Trade Center site, paving the way for construction of a mosque and an Islamic community center.

Opponents of the project, including 9/11 first-responders and family members of victims of the Sept. 11, 2001, terror attacks, have said the location would be insensitive.

The mosque is slated to be part of an Islamic community center to be operated by a group called the Cordoba Initiative, which says the center will be a space for moderate Muslim voices.

Several members of roughly 50 people who attended the hearing applauded the ruling, while others shouted "shame" as commission chairman Robert Tierney called for the vote. The city Landmarks Preservation Commission then proceeded to vote 9-0 against granting landmark status to the site's 152-year-old building, which can now be torn down to make way for the Islamic center. 

One opponent, Linda Rivera, of Manhattan, held a sign reading, "Don't glorify murder of 3,000. No 9/11 victory mosque."

But commissioner Christopher Moore noted that the debris struck a number of buildings in the area.

"One cannot designate hundreds of building on that criteria alone," Moore said. "We do not landmark the sky."

The commission was asked to determine whether the building is architecturally important enough to preserve, not to consider the merits of the proposed mosque. Demolition and construction of the mosque can now proceed.

The move was applauded by the New York Civil Liberties Union and the American Civil Liberties Union, citing principles of religious freedom.

"We congratulate the Landmarks Preservation Commission for promoting our nation's core values and not letting bias get in the way of the rule of law," the groups said in a joint statement. "The free exercise of religion is one of America's most fundamental freedoms. For hundreds of years,our pluralism and tolerance have sustained and strengthened our nation. On 9/11, religious extremists opposed to that very pluralism killed 3,000 Americans. Those fanatics would want nothing more than for our nation to turn its back on the very ideals that make this country so great."

Oz Sultan, the program coordinator for the proposed Islamic center, said last week that the building has been changed too much over the years to qualify as a landmark.

"I think a lot of the negativity we're getting is coming from people who are politically grandstanding," Sultan said. "We're completely open and transparent."

Daisy Khan, executive director of the American Society for Muslim Advancement, told The Wall Street Journal in Tuesday's editions that the center's board will include members of other religions and explore including an interfaith chapel at the center.

"We want to repair the breach and be at the front and center to start the healing," said Khan, a partner in the building and the wife of the cleric leading the effort.

But Abraham Foxman, national director of the Anti-Defamation League, said Khan's proposals fail to address the crux of opponents' criticism that constructing the mosque near ground zero is insensitive to 9/11 victims' families.

Last week, the leading Jewish organization came out against the mosque. The ADL said "some legitimate questions have been raised" about the Cordoba Initiative's funding and possible ties with "groups whose ideologies stand in contradiction to our shared values."

Rick Bell, executive director of the New York chapter of the American Institute of Architects, said the building does not deserve landmark status.

"The nature of the current building isn't worth preserving," Bell said.

Mayor Michael Bloomberg supported the mosque's construction, but the project has drawn opposition from former U.S. House Speaker Newt Gingrich and former Alaska Gov. Sarah Palin, among others.

FOX News' Lauren Green, Jonathan Wachtel, Christopher Laible and The Associated Press contributed to this report.

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WHY WE NEED TO LET STATES GO BROKE??By DICK MORRIS & EILEEN MCGANN?
Published in the New York Post on August 10, 2010

Federal Band-Aids won't cover the fiscal problems of such states as New York, California, Michigan and Connecticut forever. State bankruptcy and fundamental restructuring of state and local finance -- and labor relations -- is at hand.?
Take Connecticut. In the current fiscal year, $2 billion in federal subsidies have helped tide it over the recession -- a hefty share of its $15 billion budget. But these infusions are one-shot grants, renewed only if Congress acts affirmatively to do so.
Other states depend on similar manifestations of federal largess.??In Washington, the House is set to pass a $26 billion aid package this week -- fresh federal aid amounting to about 2 percent of state and local spending. But if the Republicans win control of Congress this fall, it is hard to see any legislative willingness to renew these subsidies.??Instead, GOP lawmakers will point to the examples of New Jersey, Virginia and Indiana -- where conservative governors have slashed spending to avoid tax hikes. In Virginia, Gov. Bob McDonnell has reduced spending to pre-2006 levels.??
If Congress fails to renew its subsidies, the more profligate states will face cash shortfalls in the current fiscal year. They'll threaten school closures, prison releases and all manner of mayhem if their subsidies aren't renewed. But the Republicans in Washington are likely to refuse -- asking why the responsible states should bail out the spendthrifts in Albany, Sacramento, Lansing and Hartford.??
At that point, the bond markets will start eyeing state (and local) balance sheets more critically -- demanding higher rates or even refusing to lend. California won't be the only one trying to get by on IOUs.??But beyond this tale of woe lies a golden opportunity to reform state governments and redress the imbalance of power between elected officials and public-employee unions.??
Absent endless federal subsidies, states will simply no longer be able to afford to give the unions everything that they want.  And governors -- many of them newly elected Republicans -- will realize that they can't even afford to honor agreements their big-spending predecessors OK'd.?The GOP Congress should then amend the federal bankruptcy law to provide for a way -- now absent -- for states to declare bankruptcy. (Municipalities can do so under current law, but states have no such relief.)??
Here's the key: The reforms must require that states abrogate their public-employee union agreements in the bankruptcy process, just as private corporations like Delta and Chrysler have done. The wage hikes, the work rules, the pension plans all go out the window.??Few states will have the starch to cut benefits for those now receiving them. But most will cut pensions for current workers and all will slice them for future employees. Even the threat will be a powerful bargaining tool.??And beyond the fiscal adjustments, the power of the municipal- and public-employee unions will be broken.??Voters throughout America will loudly applaud if Congress tells the profligate states, "Work it out on your own. Don't look to us for a bailout."??
President Obama could veto the bankruptcy reforms -- but a Republican Congress need do nothing to assist states in their plight until he relents. All of the political and financial leverage will be on Congress' side.?The result could be the greatest revolution in state and local governance since public-employee unions came on the scene. The public and the voters would get their local governments back, and the grip of public unions will be weakened. It would be the state and local equivalent of President Ronald Reagan's tough stand against the air-traffic controllers' strike.??
Politically, the unions that fund and fuel the Democratic Party would be emasculated, dramatically shifting the national balance of power.??Former British Prime Minister Margaret Thatcher's prediction about socialism will have come true for America's states: "Sooner or later, they run out of other peoples' money."