Blogs: Terrance Heath

Weekend Watchdog Wrap-up

Terrance Heath — Mon, 23 Jun 2008 11:08:22 -0400

This Sunday was a real head-scratcher for the Watchdog. Depending on how you look a it we 0-for-3, because none of our questions were asked. On the other hand, maybe we 2-for-3, since two of our questions were answered even though they weren't asked.

On ABC's This Week George Stephanopolous turned to Red Markey, CEO of the American Petroleum Institute, during the debate about offshore drilling. But instead of asking our question, George asked about exploration and drilling on public lands, giving Markey a chance to pooh-pooh the idea. Ironically, doing so, Markey underscored that exploration comes before drilling, and we don't find oil everywhere we look.

MARKEY: … Let me give you an example. Over half the leases in the Gulf of Mexico are Out in the deep water. We drilled 296 Wells in deep water. Only 21% ended up having any commercially available [oil].

It then fell to economist Jeffrey Sachs to remind the panel that any talk about offshore drilling is really a distraction from the problem Americans are facing today.

SACHS: That's why this is a distraction. It's 10 to 12 years off. A small amount compared to the world balance. … My point is that if we're going to get serious about this we have to do the arithmetic, and the President got us distracted in a useless debate about the offshore, continental shelf. This is a tiny part of the puzzle.

On Face the Nation, Bob Schieffer didn't get around to asking McCain advisor Carly Fiorina our question about whether offshore drilling will really impact gas prices, but Gov. Bill Richardson answered it anyway.

Gov. RICHARDSON: Well, I was energy secretary and I can tell you that every bipartisan administration has opposed offshore drilling for pristine reasons, the ecosystem, but also the fact that you're not going to get any of this oil out offshore for the next 10 years and prices won't go down till the year 2030 according to the Energy Information Agency, which is part of the Department of Energy.

Now, secondly, what we have here is Senator McCain is basically following the policies of George Bush: drill, drill, drill. Now, the oil companies have millions of acres of leases in America and continental US that they need to drill in, but we lead a long-term solution and face the facts, and that is renewable energy, that is fuel conservation, 50 miles per gallon fuel efficiency. We need dramatic efforts to promote conservation, we need dramatic efforts to generate new technology in the areas of solar wind and biomass. The solution is not drill, drill…

Fox News Sunday was the one unquestionable disappointment, since our question to Tom Daschle didnt' get asked or answered. But two out of three ain't bad at all, depending on wheher we're talking questions or answers.

Weekend Watchdog

Terrance Heath — Fri, 20 Jun 2008 17:38:45 -0400

Every Friday in our Weekend Watchdog feature, we post suggested questions for scheduled Sunday guests. You can add your own questions in the comment thread. We'll also include contact information for the shows, so we can let them know what their viewers want asked. We'll post a wrap-up here on the blog on Monday.

The watchdog is back, and it looks like this week's line-up on the Sunday shows gives us a perfect chance to sink our teeth into some of the slipperiest questions of the past week. That is, if any of them toss us a bone in the form of a relevant question or two.What's on your list? What questions do you want to hear asked and — more importantly — answered this Sunday? We've got a few of our own in mind.

For Red Cavaney, President and CEO of the American Petroleum Institute (ABC, This Week): Your organization estimates that it will take at least seven to 10 years before offshore drilling provides Americans with any oil.

Is drilling really the fastest way to relieve the economic squeeze Americans are feeling at the pump?

For Carly Fiorina, (CBS, Face the Nation): You've pointed out that the price of oil has doubled since John McCain began talking about our energy problems.

It's estimated that the amount of usable oil thought to be off our coastlines would only reduce the price of oil by $2.25 per barrel, and gas by 2.5 cents per gallon, by 2025. How does drilling significantly lower the price of oil, or gasoline?

For Tom Daschle (Fox New Sunday): Federal Reserve Chairman Ben Bernanke that the controlling health care costs is our biggest economic challenge, and the same week we're heard reports that health care costs are driving more seniors in to bankruptcy.

As the co-author of a new book about our health care crisis, do you agree with Ben Bernanke's assessment?

***

Contact info for the Sunday shows

Contact ABC's This Week by clicking here

Email CBS' Face The Nation at ftn@cbsnews.com

Email Fox News Sunday at FNS@foxnews.com

Contact NBC's Meet The Press by clicking here

Remember: always be brief, polite and respectful when contacting the media, so our voices will be taken seriously.

Money to Learn

Terrance Heath — Thu, 19 Jun 2008 17:03:29 -0400

It's the kind of thing that's easily written off as a photo opportunity: a presidential candidate sitting down with a worried student and a financial aid administrator, working out a plan to help the student pay for her education. But, not if the candidate is one who understands the importance of education, and the difficulty of paying for it. So, when I read about Barack Obama helping a college student with her tuition concerns, it made sense.

A tearful Wayne County Community College student got advice and encouragement from Sen. Barack Obama on Tuesday, as he touted his plan to improve financial aid and tax credits to college students.

Marilyn Pace is about $1,500 short of paying for tuition and supplies for her dental hygiene studies, she told Obama at a meeting arranged by his aides. After she described the costs of supplies and exams, gas to get to and from classes and her father's disability, which keeps him from working, a financial aid counselor told her and Obama that private loans should be able to close her financial gap -- prompting tears from her and encouraging words from the candidate.

It may have something to do with understanding what it's like to go into debt for an education.

"Unfortunately, another thing that Michelle and I have in common is that we left school with a mountain of debt," he said. "Michelle I know had at least $60,000. I had at least $60,000, so when we got together we had a lot of loans to pay. In fact, we did not finish paying them off until probably we'd been married for at least eight years, maybe nine. And like a lot of families, we were still dealing with the cost of our own education when we had to start thinking about saving for our children."

Which is probably why he's proposing help for students struggling with the cost of getting an education.

"This isn't an issue you hear Sen. John McCain talk about much," Obama said. "It's not just that he doesn't have a real plan to make college affordable. It's that he has voted time and time again to stop us from making college affordable."

Obama has proposed a $4,000 tax credit his campaign says would pay nearly all the annual expenses for community college students and two-thirds of costs at four-year public schools. In return, students would have to perform 100 hours of community service each year. He also would make changes that reduce administrative costs and bank subsidies in federal student loans, and simplify the financial aid application process.

"Every college-savings account starts with a job, and Barack Obama has proposed tax hikes on over 21 million small businesses that drive job growth," said Tucker Bounds, a spokesman for McCain.

There's more than a little irony in the McCain campaign's response — or non-response — to Obama's proposal, because much of the difficulties students and families face in paying for education are direct consequences of conservatism and its impact on our economy. The credit crisis, brought to us in part by McCain's own economic advisor, has driven some student lenders out of the market, and a few into bankruptcy.

It's dried up the other resources families once used to finance their kids' education; bank loans and home equity lines of credit are harder to get. More than 70% of parents who responded to a survey just a few months ago indicated that they were "very concerned" about how they would pay for college.

Parents are concerned because they know what I mentioned earlier, that upward mobility is linked to education. Good jobs are harder to find for less educated workers, and even educated, white collar workers are having trouble finding decent work.

The McCain campaign may say that every college savings plan starts with a job, but as Alex pointed out, the cost of tuition has gone up 39% since 2001, while the median household income has gone down 2%. Pell Grants have been whittled down to the point of covering less than half the college costs they used to cover. The Bush administration stripped over $12 billion from the federal student loan program to fund tax cuts for the wealthy. And in the economy we're left with after 7.5 years of conservative rule, jobless claims are rising, Americans are $1.7 trillion poorer than we were even earlier in the fiscal year, low-income and middle-class families are struggling just to pay for utilities, more Americans are using food stamps than ever before, some are stockpiling food, and others are finding empty shelves at food banks overwhelmed by an unfortunate trio of economy-driven circumstances: a drop in donations, an increase in the number of people needing their help, and ever increasing food prices.

In the America conservatism has given us, having a job doesn't even guarantee a family will eat, let alone send their kids to college.

A common myth states that "if you can get a job, you can make a living in America", but the gap between a living wage and jobs that pay a living wage is ever-widening. Living below the poverty line places a massive strain on a household budget and little or no money makes it impossible to purchase adequate and nutritious food.

Meanwhile, hedge funds have been prowling the halls of Congress, looking for an angle on the student loan market. The same velociraptors of Wall Street, whose predatory prowess has left countless neighborhoods littered with the boarded up, gutted, foreclosed homes of subprime mortgagees — aided and abetted by the likes of former Senator and McCain's economic advisor, Phil Gramm, who deft move to keep credit swaps — the financial fuel the powered the subprime bonanza — unregulated by … well — anyone, really. The same financial entities that were still left virtually unregulated by the Bush administration's voluntary "best practices." Only two dozen of the 8,000 hedge funds roaming the financial frontier signed on to the "best practices" when they were rolled out. And it remains to be seen whether they will be reined in by the new regulatory powers Henry Paulson is calling for at the Federal Reserve.

The same Wall Street firms are looking for an opening in the student loan market.

And they just might find one. In one of the latest responses to the credit crisis, banks are starting to bypass two-year colleges — the community colleges for-profit institutions that are often the gateway to higher education for the country's neediest students. Financial administrators at these institutions have been able to find fallfack lenders — though at a cost to students of time and money — but how much longer will such lenders be easy to find? And students?

“If we put too many hurdles in their way to get a loan, they’ll take a third job or use a credit card,” said Jacqueline K. Bradley, assistant dean for financial aid at Mendocino College in California. “That almost guarantees that they won’t be as successful in their college career.”

And they may also be more vulnerable to predatory lending. Last year an investigation into relationships between lenders and universities yielded reports of corruption, as kickbacks to financial aid directors and deals with student lenders led to arrangements that benefited schools, lenders, and financial aid offers, at students' expense. The investigation also yielded proposed reforms, but those reforms don't apply to private loans that are not federally backed, whose rates can rise unchecked. States like California have met with heavy opposition from the banking industry when they have attempted to establish minimal standards of of ethical behavior for lenders and financial aid officers.

The pieces of the puzzle are easy to assemble, and the picture may be perilous for the neediest students — who need money to learn, but don't have "money to burn." So, it's appropriate that Obama visited a two-year college, and reached out to students while announcing a plan that would help those students pay for the education they will need to improve their lives and their chances of success in a changing economy, and deny those velociraptors of the financial world one more hunting ground.

Drill Here. Wait 10 Years.

Terrance Heath — Wed, 18 Jun 2008 02:25:32 -0400

First John McCain, then Newt Gingrich, and now president Bush — in an apparent about-face that puts him in the position of opposing both his father and his brother — has taken to peddling offshore drilling as the quickest way to ease consumer pain at the gas pump. As Isaiah J. Poole pointed out, Gingrich has even launched an online campaign, with a simple slogan: "Drill Here. Drill Now. Pay Less."

But the reality is more like, "Drill Here. Wait Ten Years."

Bill Scher explained that (a) there's not all that much oil off our coastlines, and (b) it would shave only a couple of bucks and some change from the price of a barrel of oil, which neared $140 this week. And I'm here to tell you that if we do start drilling along our coastlines, you won't see relief soon enough to make a dent in the cost of filling up your tank this summer, next summer, or the summer after that, or the one after that.

But don't just take my word for it. The oil industry's own trade group says it will take seven to 10 years before we see a drop.

Opening America's coastal waters to oil drilling, as John McCain urged in an address Tuesday, is unlikely to provide Americans with more oil for at least seven to 10 years.

That's the estimate from the American Petroleum Institute, the oil industry trade group. Major environmental groups think the increased supply would be at least that distant before arrival, and say it mostly would benefit Big Oil.

"It would take a decade to bring new leases into production, and then they would only line the coffers of the oil industry," said Carl Pope, the Sierra Club's executive director. Major environmental groups think the increased supply would be at least that distant before arrival, and say it mostly would benefit Big Oil.

"It would take a decade to bring new leases into production, and then they would only line the coffers of the oil industry," said Carl Pope, the Sierra Club's executive director.

And that's from the people who want to drill. Should they get their wish, there are still a few more "ifs" between the oil rig and the gas pump.

Even if states let drilling proceed, it would take years before new oil would flow.

First, drillers would need to clear regulatory hurdles and overcome environmental concerns.

Even if permission were granted, oil companies would have to find it worthwhile economically to drill; that's probably not a problem if prices stay high, but could be questionable if they fall again, as they did in the 1980s and '90s.

If companies found significant amounts of oil, some question whether this country has enough refining capacity to handle the new supply. The nation has slightly fewer refineries than it did in the mid-1980s

So, if all those conditions are met, it's likely we wouldn't see the first barrel of oil until sometime around the 2016 presidential election, at the earliest. And any oil we find will probably be used up before whoever's elected president in 2016 completes his or her first term in office.

The world consumes about 86 million barrels a day. The U.S. share of that is about 20.6 million barrels, 60 percent of them from foreign sources.

One thousand million barrels equals 1 billion, so if there are 19 billion barrels in the areas McCain would open to drilling, that's enough to provide about 920 days, or about 2.5 years, of current U.S. consumption.

Drill Here? Drill Now? Pay Less? In about 10 years. Maybe.

Then what?

The Society of the Owned: Hazardous Morals

Terrance Heath — Fri, 13 Jun 2008 12:00:40 -0400

Remember subprime mortgages? They've been nudged out of the headlines by gas prices lately, but they — and the crisis catalyzed by the collapse of the subprime market — are still news.

Bear Stearns (Remember them?) is finally, quietly sold to JP Morgan — to the tune of $2.2 billion, with taxpayers kicking in $29 billion via the Fed, to guarantee Stearns' subprime mortgage assets.

Bank of America has been cleared to buy Countrywide Financial (Remember them?), and apparently still wants to seal the deal. (BofA didn't want Countrywide's no. 2 executive, and it only took them about $28 million to get rid of him.)

Meanwhile, more than 1 million homes are now in foreclosure.

We all heard the outcry when, in the midst of rising foreclosures, our government moved to bail out one of the biggest (and most reckless) Wall Street players in the subprime debacle. We know that President Bush backed the move, though he's sworn to veto the supposed foreclosure relief bill that's heading his way after a Senate deal saved it from oblivion. The treasury secretary defended the Stearns bailout again in mid-May. (A "preemptive strike" in light of the impending final sale, perhaps?)

But do the defenses and explanations why the Fed had to bail out Bear Stears boil down to "love they neighbor"?

Bear Stearns
Headquarters
Let me point out that whatever you call the Fed's actions dealing with Bear Stearns, J.P. Morgan Chase Co. and the financial markets and whoever may appear to benefit directly from these steps, the fact remains that everyone (taxpayers and non-taxpayers alike) has a stake in keeping the markets running smoothly.

That said, in my view, it is wrong for the Times (or anyone else) to insinuate that using funds obtained from the general public via tax revenues to help prevent such an important sector of the economy as our financial system from seizing up benefits only a few: it actually helps everyone.

If you don't believe me, just consider what might have happened had Bear been allowed to go under. Although a relatively small player on Wall Street, Bear was heavily involved in the financial markets; its demise might well have brought other firms down as well.

And Wall Street's affliction might have spread to Main Street.

The same holds true for the ongoing decline in housing prices. Falling home values affect not just those who owe more than their home is worth or are being forced to sell at a loss, but everyone who owns a home.

For example, all homeowners in a neighborhood are hurt when many become vacant due to foreclosures. Falling property values will depress occupied and empty homes alike, so all homeowners have a stake in the government trying to avert this.

Now, don't get me wrong; I am no more in favor of the government rescuing people from unwise (or speculative) decisions than the next person. But I do believe that we should try to take care of our neighbors, for, in doing so, we will take care of ourselves

Or does that explanation really just trying to have it both ways? Who was more speculative or more unwise, and aggressively so? Homeowners who acquired loans they couldn't afford or didn't understand? Bear Stearns and other Wall Street players when it came to the mortgage securities market? Or conservative philosophy and political actors who's policy moves made the current crisis all but inevitable?

David Corn's article on former Senator — and current economic advisor to John McCain — Phill Gramm's role in the housing credit crisis is a prime example.

Image details: John McCain Campaigns In South Carolina served by picapp.com

Who's to blame for the biggest financial catastrophe of our time? There are plenty of culprits, but one candidate for lead perp is former Sen. Phil Gramm. Eight years ago, as part of a decades-long anti-regulatory crusade, Gramm pulled a sly legislative maneuver that greased the way to the multibillion-dollar subprime meltdown. Yet has Gramm been banished from the corridors of power? Reviled as the villain who bankrupted Middle America? Hardly. Now a well-paid executive at a Swiss bank, Gramm cochairs Sen. John McCain's presidential campaign and advises the Republican candidate on economic matters. He's been mentioned as a possible Treasury secretary should McCain win. That's right: A guy who helped screw up the global financial system could end up in charge of US economic policy. Talk about a market failure.

…But Gramm's most cunning coup on behalf of his friends in the financial services industry—friends who gave him millions over his 24-year congressional career—came on December 15, 2000. It was an especially tense time in Washington. Only two days earlier, the Supreme Court had issued its decision on Bush v. Gore. President Bill Clinton and the Republican-controlled Congress were locked in a budget showdown. It was the perfect moment for a wily senator to game the system. As Congress and the White House were hurriedly hammering out a $384-billion omnibus spending bill, Gramm slipped in a 262-page measure called the Commodity Futures Modernization Act. Written with the help of financial industry lobbyists and cosponsored by Senator Richard Lugar (R-Ind.), the chairman of the agriculture committee, the measure had been considered dead—even by Gramm. Few lawmakers had either the opportunity or inclination to read the version of the bill Gramm inserted. "Nobody in either chamber had any knowledge of what was going on or what was in it," says a congressional aide familiar with the bill's history.

It's not exactly like Gramm hid his handiwork—far from it. The balding and bespectacled Texan strode onto the Senate floor to hail the act's inclusion into the must-pass budget package. But only an expert, or a lobbyist, could have followed what Gramm was saying. The act, he declared, would ensure that neither the sec nor the Commodity Futures Trading Commission (cftc) got into the business of regulating newfangled financial products called swaps—and would thus "protect financial institutions from overregulation" and "position our financial services industries to be world leaders into the new century."

…Credit default swaps are essentially insurance policies covering the losses on securities in the event of a default. Financial institutions buy them to protect themselves if an investment they hold goes south. It's like bookies trading bets, with banks and hedge funds gambling on whether an investment (say, a pile of subprime mortgages bundled into a security) will succeed or fail. Because of the swap-related provisions of Gramm's bill—which were supported by Fed chairman Alan Greenspan and Treasury secretary Larry Summers—a $62 trillion market (nearly four times the size of the entire US stock market) remained utterly unregulated, meaning no one made sure the banks and hedge funds had the assets to cover the losses they guaranteed.

In essence, Wall Street's biggest players (which, thanks to Gramm's earlier banking deregulation efforts, now incorporated everything from your checking account to your pension fund) ran a secret casino. "Tens of trillions of dollars of transactions were done in the dark," says University of San Diego law professor Frank Partnoy, an expert on financial markets and derivatives. "No one had a picture of where the risks were flowing." Betting on the risk of any given transaction became more important—and more lucrative—than the transactions themselves, Partnoy notes: "So there was more betting on the riskiest subprime mortgages than there were actual mortgages." Banks and hedge funds, notes Michael Greenberger, who directed the CFTC's division of trading and markets in the late 1990s, "were betting the subprimes would pay off and they would not need the capital to support their bets."

These unregulated swaps have been at "the heart of the subprime meltdown," says Greenberger. "I happen to think Gramm did not know what he was doing. I don't think a member in Congress had read the 262-page bill or had thought of the cataclysm it would cause." In 1998, Greenberger's division at the CFTC proposed applying regulations to the burgeoning derivatives market. But, he says, "all hell broke loose. The lobbyists for major commercial banks and investment banks and hedge funds went wild. They all wanted to be trading without the government looking over their shoulder."

Neither thought is particularly comforting — that the man who stands to direct U.S. economic policy in a McCain administration either (a) didn't know what he was doing when he kick started the engine of the subprime mortgage debacle, or (b) that he knew exactly what he was doing and proceeded anyway. Corn's article points out, however, that whether Gramm knew what he was doing or not, he went on to profit handsomely from what his legislative move eventually wrought.

With the U.S. economy now battered by a tsunami of mortgage foreclosures, the $30-billion Bear Stearns Companies bailout and spiking food and energy prices, many congressional leaders and Wall Street analysts are questioning the wisdom of the radical deregulation launched by Gramm’s legislative package. Financial wizard Warren Buffett has labeled the risky new investment instruments Gramm unleashed “financial weapons of mass destruction.” They have fed the subprime mortgage crisis like an accelerant. While his distracted peers probably finalized their Christmas gift lists, Gramm created what Wall Street analysts now refer to as the “shadow banking system,” an industry that operates outside any government oversight, but, as witnessed by the Bear Stearns debacle, requiring rescue by taxpayers to avert a national economic catastrophe.

While the nation’s investment bankers are paying a heavy price for their unbridled greed (in billions of dollars of write-offs), Gramm has fared quite nicely. He currently serves as a vice president at UBS AG, a colossal, Swiss-owned investment bank, the post, no doubt, a thank you for assiduously looking out for Wall Street interests during his 23 years in public office. Now, with the aid of his longtime friend Arizona Sen. John McCain, Gramm may be looking at a quantum leap in power and influence.

Indeed, after virtually cutting the ribbon on Wall Street's "secret casino," Gramm took a prime spot at the high rollers' table.

But it just defies belief that McCain would have, as his main economic advisor and one of the people responsible for his plan to deal with the mortgage crisis, someone who was a paid lobbyist for a bank that was heavily involved in that crisis, a firm that has just advised some of its employees not to travel to the U.S. for legal reasons, and that stands to gain or lose a lot depending on what the federal government decides to do about it. What's next: the revelation that McCain's policy on Iran is being written by a lobbyist for the makers of cruise missiles? Or that he has outsourced his health care policy to a lobbyist for the National Funeral Directors Association?

And he may not be done wreaking economic havoc either, for in our debt-driven economy — in which everything from gas and groceries, to health care is bought on credit — the buying and selling of credit is essentially the buying and selling of our lives. Homes, after all, can be foreclosed upon, but much of what we buy on credit is either gone by the time the bill comes due — like gas and groceries — or intangibles like health care services, so there's nothing left to repossess.

On the economy, McCain's most daring manifesto is his healthcare plan. Not surprisingly, it bears the Gramm imprint. In fact, McCain has been heeding Gramm's "power-to-the-consumer" approach for more than a decade. The two senators bonded when they linked arms to fight Hillary Clinton's ill-fated healthcare program in 1993. "We couldn't get any press coverage in Washington, DC, so we traveled all over the country, to the regional media markets," says Gramm. In 150 meetings at hospitals and clinics, McCain and Gramm relentlessly pounded the Clinton plan, helping fire the voter outrage that killed the plan in 1994.

Today, McCain is advocating a plan that's radically different from those of Clinton and Barack Obama, and - if he goes all the way by following Gramm - could revolutionize America's healthcare system. For McCain and Gramm, the problem with our healthcare system - and the reason why over 47 million Americans are uninsured - is that it's excessively, scandalously expensive. The solution, they say, is to let Americans shop for healthcare with their own money. McCain advocates giving tax rebates of $2500 per individual or $5000 per family. With that money, families could purchase policies on their own. What's truly radical about the plan is that it eliminates the tax exclusion for healthcare benefits offered by companies to their employees, and replaces it with the $2500 to $5000 rebates.

Consumers could then use that cash to buy their own insurance in what Gramm foresees as a vibrant, consumer-driven marketplace for healthcare packages.

Add to the mix that hospitals are now putting patient debt up for auction, peering into patients' credit reports, and demanding cash before treatment, and it's not hard to predict what might result from the American's increasing reliance on credit to secure health care. Especially when you take in to consideration that health care is the fastest growing industry in America, health care costs are only going up, securitized debt is making a comeback, and the solutions proposed by Treasury Secretary Henry Paulson, does nothing to regulate the financial institutions and inventions that drove the current crisis.

But it was never conservatism's intention to regulate in the first place. I've noted earlier in this series that authorities like Alan Greenspan simply ignored warnings of impending financial disaster if the subprime boomtime was allowed to continue. Now it's being reported that — under the leadership of the now deposed and disgraced Alphonso Jackson— HUD ignored similar warnings and helped drive the subprime and credit crisis, by labeling subprime mortgages as "affordable loans," and requiring Fannie Mae and Freddie Mac— two government-run mortgage finance firms — to purchase more of these loans made to minority and low-income borrowers as a means of putting more of those borrowers in their own homes.

HUD

Eager to put more low-income and minority families into their own homes, the agency required that two government-chartered mortgage finance firms purchase far more "affordable" loans made to these borrowers. HUD stuck with an outdated policy that allowed Freddie Mac and Fannie Mae to count billions of dollars they invested in subprime loans as a public good that would foster affordable housing.

Housing experts and some congressional leaders now view those decisions as mistakes that contributed to an escalation of subprime lending that is roiling the U.S. economy.

The agency neglected to examine whether borrowers could make the payments on the loans that Freddie and Fannie classified as affordable. From 2004 to 2006, the two purchased $434 billion in securities backed by subprime loans, creating a market for more such lending. Subprime loans are targeted toward borrowers with poor credit, and they generally carry higher interest rates than conventional loans.

Today, 3 million to 4 million families are expected to lose their homes to foreclosure because they cannot afford their high-interest subprime loans. Lower-income and minority home buyers -- those who were supposed to benefit from HUD's actions -- are falling into default at a rate at least three times that of other borrowers.

"For HUD to be indifferent as to whether these loans were hurting people or helping them is really an abject failure to regulate," said Michael Barr, a University of Michigan law professor who is advising Congress. "It was just irresponsible."

In an upcoming edition of this series, we'll look in more at how this has all worked out for those minority and low-income borrowers, but the point is that whether it was irresponsible or not depends on your point of view. Or, in the case of HUD and its conservative leadership, it depends on who you're responsible to.

The result, as a professor quoted in the Washington Post story above put it, was to "pump more capital into a very unregulated market." Not just that, but a market that conservatives made sure was unregulated. How and why has been described in detail by John Atlas and Peter Deier in their article on the conservative origins of the subprime mortgage crisis, as well as our own Bill Scher in his "The Mortgage Crisis: Yet Another Conservative Failure" post. And Rick Perlstein's "Mythbusting the Right's Subprime Excuses" and "The Foreclosing of America" (parts one, two, three, and four) are must-reads on the subject of how conservatism created the current crisis.

But that's only one part of the story. The other is conservatives' efforts to preserve the consequences of the current crisis, by making arguments about "moral hazards" that are really a cover for their hazardous morals that drove and continue to drive the current crisis.

In a recent Financial Times column, Ian Morley provides a definition of "moral hazard" in the context of the subprime crisis.

Foreclosure
In the recent case of subprime mortgages, bankers lent money to anyone, irrespective of their credit history, because the risk was securitised and the financial equivalent of explosive pass-the-parcel ensued. When the game ended, bankers walked away with much of the gains while the parcel exploded in all our faces. The paper gains disappeared and the losses were added to our tax bill.

This is real moral hazard. It just happens more quickly in bear markets. In the midst of this the regulators tinker with the safety rules of the Titanic (it always sinks, regardless). What they cannot change is greed and stupidity.

Moral hazard is when risk and reward have an asymmetrical relationship - usually a lot of reward for one person and most of the risk for the other. This is the root cause of the subprime and credit crisis. And it is at the heart of most financial meltdowns. They just manifest themselves differently and therefore catch us unawares. It is like generals planning for the next war based on the experience of the last one; and just as failed generals get medals, bankers get bailed out.

John McCain, advised by an architects of the subprime debacle and former employee of one of the biggest risk takers in the subprime market, just a few months ago opined that "it is not the duty of government to bail out and reward those who act irresponsibly, whether they are big banks or small borrowers." Yet, he didn't see anything wrong with the Fed financing the Bear Stearns buyoutone of the most irresponsible actors in the subrime bonanza. Just a month before that statement, his own campaign finessed a bailout its own — via public funds, of course — if the campaign tanked.

The hazardous "bailouts for me, but not for thee" conservative morality that deregulates financial markets, but protects the biggest financial players from the consequences of their irresponsible, reckless, and often deceptive finaicial practices, means that those players will live to roll the dice another day in their "secret casino." Conservatism will make sure it's always open, and that the players never lose.

Their gambling debts will be paid by the rest of us, both in the form of bailouts, and in what happens to our communities. That's something we'll explore in the next part of this series.

[Photos via C R, respress, and Ryan Orr.]

Weekend Watchdog: Open Thread

Terrance Heath — Fri, 06 Jun 2008 11:52:03 -0400

It's that time again. Time for the watch to patrol the Sunday shows, on the look-out for a relevant question — should one get through. Which ones should get through? Make your suggestions and pose your questions in the comments, and when the guests are announced this evening we may pick some of your questions for the Watchdog. Come back and check out our usual Weekend Watchdog post to see who's on the guest list and whether your question is on the Watchdog list.

If you've read the headlines, you know what's probably going to be the main topic — if not the topic — on just about every show. The presidential race is down to two candidates, and the debate has begun.

But a quick review of the headlines shows that there are some other big stories out there that somebody on at least one of the Sunday shows ought to be asked about.

A few come to mind right away:

Last week, Scott McClellan became the most recent ex-Bush aide to "tell all," and told us that Bush was not "open and forthright" on Iraq and rushed into an unnecessary war. This week, the Senate Select Intelligence Committee reported that, in the run-up to the Iraq invasion, both Bush and Cheney made claims they knew weren't supported by intelligence. This comes months after a report by the military's Joint Forces Command concluded — after pouring over 600,000 Iraqi documents — that there was "no smoking gun" to back up Bush's claims about a Saddam/Al-Qaeda link, and after the Pentagon buried the report.
Bear Stearns has finally been sold, and Countrywide's sale can move forward now. But we're still reeling from the crisis they've wrought. Americans' net worth has plummeted, to the tune of $1.7 trillion, and more than 1 million homes are now in foreclosure. Where's our relief?
In the meantime, is the next bubble about to burst while we're still recovering from the last one? George Soros thinks so. He says there's a "bubble in the making" in oil and other commodities, and there may well be. Federal regulators disclosed an oil trading probe last week. This week, we learned that hedge funds and Wall Street investors are buying massive amounts of oil contracts thanks to some handy loopholes in federal trading limits. How messy is that bubble going to be when it pops?

That should get us started. What's on your mind? If you could ask one question on "Face the Nation," "This Week," or "Meet the Press" what would you ask? Let 'em rip in the comments. And, as always, keep things polite and respectful, as practice for when you contact the shows with your question.

History

Terrance Heath — Wed, 04 Jun 2008 10:50:28 -0400

Image details: Obama Holds Final Primary Night Event In St. Paul served by picapp.com

I can only think of one moment in my memory that compares to this. It was when I stood in front of my television and watched the Berlin wall come down, live on CNN. I'm not yet sure that another wall has come down now. In fact, I'm more certain that significant portions of it still stand, and some may have been reinforced.

But there's an opening now. It was there before, but it's much, much wider now. Through it, we can just see the other side, and even have more hope of reaching it.

I only wish my father had lived to see this moment. After all he saw and experienced in his lifetime, I'm sure it would have done his heart some good. If I actually get to go to the convention and cover it, now that I'm credentialed along with the rest of the bloggers at Pam's House Blend, I'm sure I'll be thinking about him. And maybe again at inauguration. Maybe I will have the chance to take Parker to downtown D.C., to the inauguration, to witness the moment. He may not grasp the significance then, but he will when he remembers. And he will remember. I know I will.

But tonight, when I get home, I'll take down from the shelf a project Parker and I have been working on for a while now. It started around the time that my son finally started to notice race, and perhaps he even perceived more about the differences made between people based on race than he had words to express. Wanting to pass on to him an idea of his heritage, and what people who look like him have and can accomplish, I decided we would start a photo album.

First, we put in family pictures, and I explained to him who each person in each picture was. Then we moved on to African Americans who are famous for their accomplishments. I tried to pick people whose accomplishments matched his interests — a black race car driver, because at the time Parker was into race cars; a black astronaut, because for a minute he wanted to be an astronaut; a black composer whose songs are among those I sing to him at night, when it's my turn to put him to bed. We paste the pictures into the book, and then a short paragraph about that person, which I would read to him.

It's our little history book, I guess. And tonight we'll put Barack Obama's picture in that book. For both of us, it will be an example of what he can accomplish. I will look my son in the eye and say to him what my parents said to me: "You can do anything, and be anything you want if you work hard at it. You could even be the president."

The difference is that when my parents said it to me, it was a dream — perhaps a belief in what the future and their country could be.

Tonight, when I say those words to my son, it will still be a dream just this side of reality; but a dream within reach, where it has never really been before.

The War Inside

Terrance Heath — Fri, 23 May 2008 13:08:44 -0400

Picture by jcolman

If my dad were alive, I know he'd be hanging the flag in front of our house, where it would stay for the remainder of the weekend. A veteran of two wars, Korea and Vietnam, my father was fiercely patriotic. Yet, displaying the flag on Memorial Day and Veterans' Day was as much a show of loyalty and respect for those he served with, and — I think — an acknowledgment of that they each carried home a part of those wars inside of them. I learned early on that my father carried his experiences in Vietnam and Korea with home him.

One of the earliest rules I remember learning as a child was how to wake dad up from a nap. Don't touch him or shake him, I was told. He might be dreaming about being back in Vietnam, or the defensive reflex required to survive there might kick in and the reaction might be violent. So, when it was time to wake him up, we would stand at the door and call to him until he responded, even well into my high school years. Looking back, in think it was a way of not releasing the war inside — the war he carried with him — into our home.

I never knew what my father experienced in Vietnam, or what he re-experienced sometimes when he closed his eyes to sleep. We never talked about it. Even when I wrote a one act play about Vietnam for a high school literary competition. Two of my classmates and I interviewed Vietnam veterans we knew, and placed classified ads to reach more veterans willing to share their experiences. I was surprised by how many were willing, even eager, to talk to three high school boys about what they'd experienced.

But I never interviewed my dad. I was in charge of distilling the interviews into an initial script of monologues that my classmates and I would perform, after they offered their input and edits. But I don't remember my dad ever reading the script. We performed the play at our county literary competition, and won the chance to perform it at the state competition. But I don't remember my dad ever seeing the play, or even talking to him about it.

Years later, when my parents came to visit me in Washington, D.C., I took my dad to the Korean and Vietnam war memorials. I watched him walk the length of the Vietnam memorial, stopping at the names of the men he'd known. I witness his silent tears at each stop. Yet, we never talked about his experience. To this day I don't know what he saw, or what he brought home from those wars.

I think that's because, though he'd brought home his experiences from the war, he wanted to keep the war — the war inside — out of his home.

Though he passed away just over two years ago, I thought of my dad, and all he kept inside of him when I read about two of the most recent Iraqi veterans to commit suicide. Recruiter Nils Aaron Andersson, who suffered PTSD, shot himself at two o'clock in the morning, on the top floor of a Houston parking garage. Staff Sgt. Travis Twiggs, who wrote about his PTSD experience, fatally shot his brother and then himself after a cross-state car chase.

News stories about their suicides were published the same week news broke that of a Veterans Administration employee's email suggesting that veterans with PTSD be diagnosed with disorders that carry a lower disability payment.

An internal e-mail message written by a Veterans Affairs Department employee suggested that the agency avoid giving a diagnosis of post-traumatic stress disorder for veterans and instead consider a diagnosis that might result in a lower disability payment.

The message, dated March 20 and titled “Suggestion,” said: “Given that we are having more and more compensation seeking veterans, I’d like to suggest that we refrain from giving a diagnosis of PTSD straight out. Consider a diagnosis of Adjustment Disorder, R/O PTSD.” R/O stands for “rule out.”

“Additionally,” it said, “we really don’t or have time to do the extensive testing that should be done to determine PTSD.”

News of their suicides — Andersson was one of 16 recruiters to take their own lives since 2000 — came one week before documents released by the VA gave further evidence of the agency's failure to address veterans' mental health needs.

New VA documents obtained exclusively by VCS using the Freedom of Information Act indicate the VA is only paying disability benefits for PTSD to 33,247 Iraq and Afghanistan Veterans, although 67,717 have been diagnosed with PTSD. According to Sullivan, VCS is calling for an investigation into this apparent discrepancy.

A Government Accountability Office (GAO) report in September 2007 stated that the VA's "lack of early identification techniques" led to "inconsistent diagnosis and treatment" of PTSD and Traumatic Brain Injury. According to the GAO, early diagnosis is essential in preventing PTSD's consequences - which could be deadly.

It's bad enough that we sent men and women overseas to fight a war founded disinformation, in insufficient numbers, and with inadequate equipment. But, when they come home with deep psychological wounds from that war, and we give them less than the treatment they need, Memorial Day celebrations and speeches ring hollow.

Let's all pay lip service to Support Our Troops. But if we want to be honest, we should edit those yellow-ribbon bumper stickers to say Support Our Troops — As Long As It Doesn't Cost Anything.

Let's acknowledge that this new generation of soldiers and Marines is amazingly motivated and talented. They're expected to be good killers, good diplomats and ambassadors of American goodwill who operate under impossibly complex rules of engagement in impossibly dangerous and deadly environments.

But if they come home wounded, their brains rattled by the huge IEDs of the new way of war, and if they suffer the horrors of PTSD nightmares and flashbacks, let's dump them on the streets with the least amount of help and benefits possible, as cheaply as possible.

For sure we don't want to improve their chances, better their future prospects, by offering them the same college benefits we gave their grandfathers six decades ago. God help us if they all get college degrees and figure out what we've done to them.

If my father were alive this Memorial Day, he would still display the flag. But not without anger, if he knew how today's veterans are abandoned to fight the war inside — the same one he fought when he came home — on their own.

Dear Congressional Conservatives

Terrance Heath — Thu, 22 May 2008 11:10:48 -0400

I probably shouldn't be giving you advice, but maybe because I'm a progressive, I can't see someone in crisis without having a desire to help if I can. Besides, a couple of you guys have offered advice and suggestions to one Democratic candidate — not to mention asking questions I assume were designed to be helpful.

So, in the tradition of one good turn deserving another, I'm going to give you guys some advice. Blaming Democrats for the trouble you're in now doesn't pass the laugh test, for a number of reasons. Keep pushing that meme, and it will prove as laughable as your new slogan turned out to be.

It's not the Democrats' fault that you lost a House seat in Mississippi — in the heart of Mississippi — that should have been a "secure" seat for you guys. That makes three losses in a row, in districts your president won easily, once upon a time.

It's not the Democrats' fault that you're going to be down one more House seat, as Rep. Fosella's drunk driving arrest means he'll be spending more time with his families instead of sitting on Congress.

It's not the Democrats' fault that you could lose 20 more seats in November.

It's not the Democrats' fault that you'll probably lose seats even if your candidate wins the White House.

It's not the Democrats' fault that a record number of Republicans are retiring from Congress, and their fundraising potential is leaving with them, to the tune of millions of dollars not raised for this election cycle.

It's not the Democrats' fault that you've failed to recruit minority voters, and that even rural voters aren't reliably Republican anymore. That's part of your bedrock coalition, too.

It's not the Democrats' fault that more and more evangelical voters are prioritizing issues like poverty and the environment — issues that you guys have never been too keen on, though you did give the "Clean Air Act" and "the Ownership Society." Nor is it Democrats' fault that some evangelicals have written a manifesto, declaring an intention never again to become "useful idiots" for one party or another. Again, that's part of your bedrock coalition breaking off.

It's not Democrats' fault that young evangelicals are abandoning the party, disillusioned. Again, bedrock.

It' not the Democrats fault that President Bush is "radioactive" now, when he should be your standard bearer and greatest campaign asset right now, as a sitting president.

To be honest, I think you guys know all of this stuff already. Else, why would you be questioning your leadership and whether the "killer instinct" needed for November is lacking? Why else would you be re-thinking your direction as a party? Why else would you try to re-brand yourself a change party? (And you're apparently sticking with that branding, despite the unfortunate association.)

But here's the thing, guys. What exactly do you want to change? More to the point, why change? You guys have pretty much been in charge for most of the last 7.5 years. You've held the White House all that time, and both houses of Congress for much of that time. You even "hit the trifecta" after 9/11 (President Bush's words, not mine), and ended up with the media and most of the country unwilling to challenge almost anything you wanted to do — from tapping their phones, to expanding executive power, invading a country that didn't (couldn't, and had no plans to) attack us, and even torture) if it could be sold as something that would make them safer, or if they were simply frightened enough. I'm hard pressed to think of much you wanted, policy-wise, that you haven't gotten — even, much to my chagrin, after the Democrats won majorities in both houses of Congress.

Why change now, unless you've had your shot and it hasn't worked out? Has it worked out? You guys have been giving us the change you thought we deserved for the last seven-and-a-half years, pretty much unimpeded. It must have worked out for someone, right? Because if it hasn't, then you've got a bigger problem than needing a new slogan.

The real question, and the one you're probably asking yourselves, is this: Has conservatism worked?

The answer, given all of the above, is: it depends.

Of course, one letter is far too little space to address the whole of conservative philosophy, or its failures. Or its successes, if where Americans find themselves today — facing an economic crisis stemming from Wall Street speculation run amok, paying for a war started on false pretenses that's already trillions of dollars over budget, dealing with agencies so understaffed and under-funded that a trip to the grocery store is like playing Russian roulette, and so ineffective as to make natural disasters even more disastrous — is the inevitable outcome of applied conservative philosophy.

It depends on whether conservatism even considers the problems Americans are facing to be actual problems. Ezra summed it up pretty well.

Conservatives like to argue that politics is about ideas, and to them, and many of the people who write about them, it is. But those ideas are politically useless unless they're understood by the electorate as solutions. Solutions, however, require problems. And that's what the GOP is lacking at the moment. The conservative movement has plenty of ideas for a certain universe of problems: Overly high taxes, say, or the need to respond to bluntly assert American power in response to foreign aggression. They have solutions for combatting a culture that's spun out of control and rebalancing a welfare state that's too generous to minorities. They have solutions for restoring order when the law no longer contains the crime.

What they're lacking, right now, are the appropriate problems. Because they don't have solutions for 47 million Americans without health insurance. They don't have solutions for a failing invasion that's exposed American power as significantly more constrained that the world imagined it to be. They don't have solutions for high gas prices, or a credit and mortgage crisis, or a dawning recognition that we're ruining the only planet we have.

But the message in all the realities above is that it's not working; or the very least, a growing number of people are realizing that it's not working for them; conservatism isn't solving their problems, and maybe doesn't even see them as problems requiring a solution.

If you guys want to keep governing, you're going to have to think about whether these are problems that require a solution, and whether a conservative government — or government, period — can solve them. No, scratch that. You're going to have to think about whether a conservative government — or government, period — should solve them.

Nail that down, and maybe then you'll know what you need to change.

A Fighter, and a Friend

Terrance Heath — Wed, 21 May 2008 11:56:07 -0400

Living in D.C., you can't help; crossing paths wiht some famous political names. In fact, you get used to it. But, as with most things, you never forget your first. And Ted Kennedy was my first.

I was still new to D.C., having moved up from Georgia in the Summer of 1994 to work for the Human Rights Campaign. I was young and (still) idealistic, even two years into the Clinton administration. I'd volunteered for the Clinton campaign in college. On election night I hosted my friends in "a gathering of the cultural elite" to watch the election results come in. (Funny how old memes get recycled, isn't it.) That night we watched the Reagan/Bush era end.

Two years later, I was in D.C., and working in politics. One of the issues I worked on was employment discrimination. The Employment Non-Dicsrimination Act, which scored a Senate hearing.

It was my first time on Capitol Hill, and my first time sitting in on a hearing, let alone being face to face with some names I'd only ever read about before. Our contingent got there early, in order to get places in the front of the line. The opposition was there, of course. I can't remember, but I think they arrived after we were already in line. Again, I came face to face with people I'd only read about, but I would have preferred not to.

I heard a commotion behind me, turned around, and saw Ted Kennedy making his way down the line, shaking hands with the activists from our side. You'd have thought he was a rock star. And, in the realm of progressive politics, he is.

Celebrity magazines hail him as the last son from a glamorous but sorrow-tinged political family. Congressional insiders know that he also embraces his job wholeheartedly, working harder and longer hours than some younger colleagues, and hiring bright aides who often stay for years and are seen as role models by others.

Perhaps because it was impossible, Kennedy never tried to shake his image as a liberal titan to admirers and a left-wing caricature to detractors. But the supposed idealist became a pragmatic dealmaker, sometimes angering liberals by his willingness to bargain with Republicans to enact legislation he saw as less than perfect but attainable.

…Jim Manley, a former Kennedy aide, said that "despite coming from a family of great wealth and privilege, no one has been a more effective advocate for the poor and the middle class." Manley said his former boss "has never been afraid to compromise in order to get things done."

The list is long. In 1973, after the Watergate scandal, Kennedy co-sponsored the first bipartisan campaign finance bill. It established new contribution limits and a public financing provision for presidential elections.

Kennedy was instrumental in enacting the Americans with Disabilities Act of 1990, the State Children's Health Insurance Program, and many other health care initiatives.

He's been described as a "liberal lion", and that day I felt a surge of hopefulness because this man was on our side even though — because of his wealth and power — he didn't have to be. In fact, doing so would probably make him a target for conservatives, much in the way his current illness has; as illustrated by Ben Shepard's post on the response over at The Free Republic.

There's much more behind that response, of course, a hatred for the man's record and what he has and still does stand for; a record Mike Lux illustrated in his post.

Kennedy has been a player in literally every major progressive accomplishment of my life, usually a major player, quite often the leading player: the Civil Rights Act of 1964, the Voting Rights Act, Medicare, Medicaid, Head Start, Legal Services, the War on Poverty, environmental legislation, OSHA, bringing down Richard Nixon on the Watergate investigations, ending the Vietnam War, stopping military aid to the Contras in Central America, the Martin Luther King holiday, stopping Robert Bork, the increases in the minimum wage, Family and Medical Leave, National Service, Motor Voter Act, S-CHIP. His fingerprints are on all of that legislation, and more. And even where he failed, on universal health care and labor law reform and stopping the Iraq war and other battles, he fought the good fight with passion and heart and courage. I hope like hell his fight is not ending, that he does not go gentle into that good night, because we need his passion and heart and courage in these cautious, careful times all the more.

I said a while ago that progressives see injustice and ask "Why?", while conservatives see injustice and ask "Why not?", if they question it at all. Senator Kennedy falls in to the first category. When I saw him coming down the line shaking hands, I thought to myself that this wealthy, heterosexual, white male certainly didn't have to care about those of us standing in in line that day, for a hearing on a bill about our equality. He wouldn't have suffered for not caring. But he did. He eventually came to me, shook my hand, and said a few words of encouragement before moving on.

If there is anyone whose career distills what being a progressive means to me — caring about and standing up for people and issues you don't have to care about, that your circumstances don't require you to care about — Ted Kennedy is such a person. His career in the Senate, and his political commitments are proof that one can be elite — born to privilege, wealth, and power — without being elitist. One simply has to care, as Ted Kennedy has and does. He could have spend most or all of his life coasting on the wealth, power, and influence of the Kennedy name. He chose not to do so.

I thought of that moment, my first time shaking hands with a politician after coming to Washington, when I heard Ted Kennedy was in the hospital, and it has been on my mind since learning of his diagnosis with a malignant brain tumor.

As far as morality is concerned, give me someone who care about people that he doesn't have to, any day. Kennedy's career, and his political stances, have cost fewer lives than the policies of our current president have cost in just 7.5 years, and have helped improved many more as well. Give me 100 more likeTed Kennedy any day, over another George W. Bush.

There are people who caution against "eulogizing" the man too soon. I don't know what outcome awaits Senator Kennedy, though my wish for him and his family is a speedy recovery. But I do know that honoring the man's career, his accomplishments, and his commitments — as one who stood up for issues, stood up for people, and fought battles he didn't have to

— will neither stall or speed along whatever fate awaits him.

I'm reminded of a song a grew up hearing in church occasionally.

Won't you give me my flowers while I'm living
Let me enjoy them while I can
Please don't wait till I'm ready to be buried
And then slip some lilies in my hand
Won't you give me my flowers while I'm living
And let me enjoy them while I can
Please don't wait till I'm ready to be buried

While Senator Kennedy can yet hear me, I'd like to say thank you, for being a friend and a fighter, when you didn't have to be.

Get well soon, Senator, and come back to the fight. You have fought and still fight the good fight, but there several rounds left to go. Perhaps it's selfish to say, but we still need you, and many more like you too.