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2008-09-28 Home Front Economy

Taxpayers are naturally suspicious that political insiders and contributors on Wall Street are going to make out like bandits once Washington starts spending the $700 billion in the financial market rescue. But Democrats have already decided to spin off potentially billions of taxpayer dollars from the bailout fund to their own political buddies -- not on Wall Street but on nearby K Street.

The House and Senate Democratic drafts contain an indefensible and well-hidden provision. It would mandate that at least 20% of any profit realized from the sale of each troubled asset purchased under the Paulson plan be deposited in either the Housing Trust Fund or the Capital Magnet Fund. Only after these funds get their cut of the profits are "all amounts remaining . . . paid into the Treasury for reduction of the public debt."

Here's the exact, amazing language from the Democratic proposal, breaking out how the money would be divided and dispensed:

"Deposits. Not less than 20% of any profit realized on the sale of each troubled asset purchased under this Act shall be deposited as provided in paragraph (2).

"Use of Deposits. 65% shall be deposited into the Housing Trust Fund established under section 1338 of the Federal Housing Enterprises Regulatory Reform Act . . . ; and 35% shall be deposited into the Capital Magnet Fund . . .

"Remainder Deposited in the Treasury. All amounts remaining after payments under paragraph (1) shall be paid into the General Fund of the Treasury for reduction of the public debt."

What we have here essentially are a pair of government slush funds created in July as part of the Economic Recovery Act that pump tax dollars into the coffers of low-income housing advocacy groups, such as Acorn.

Acorn, one of America's most militant left-wing "community activist groups," is spending $16 million this year to register Democrats to vote in November. In the past several years, Acorn's voter registration programs have come under investigation in Ohio, Colorado, Michigan, Missouri and Washington, while several of their employees have been convicted of voter fraud.

Along with other potential recipients of these funds, including the National Council of La Raza and the Urban League, Acorn has promoted laws like the Community Reinvestment Act, which laid the foundation for the house of cards built out of subprime loans. Thus, we'd be funneling more cash to the groups that helped create the lending mess in the first place.

This isn't the first time this year that Democrats have tried to route money for fixing the housing crisis into the bank accounts of these community activist groups. The housing bill passed by Congress in July also included a tax on Fannie Mae and Freddie Mac to raise an estimated $600 million annually in grants for these lobbying groups. When Fannie and Freddie went under, the Democrats had to find a new way to fill the pipeline flowing tax dollars into the groups' coffers.

This is a crude power grab in a time of economic crisis. Congress should insist that every penny recaptured from the sale of distressed assets be dedicated to retiring the hundreds of billions of dollars in public debt that will be incurred, or passed back to taxpayers who will ultimately underwrite the cost of the bailout.

The idea that special-interest groups on the left or right should get a royalty payment for monies that are repaid to the Treasury is a violation of the public trust. We're told the White House and House Republicans are insisting that the Acorn fund be purged from the bailout bill. The Paulson plan is supposed to get us out of this problem, not start it over again.

Posted by Besoeker 2008-09-28 00:00|| || Front Page|| [13 views ] Top

#1 Sadly, this surprises not a single solitary soul.

Posted by Mike N. 2008-09-28 00:22|| 2008-09-28 00:22|| Front Page Top

#2 Well, maybe there won't be any profits realized on the sale of troubled assets -- real estate has been so grossly overpriced it must fall further, and this may happen to MBS (mortgage backed securities also).

Posted by Anguper Hupomosing9418 2008-09-28 00:24|| 2008-09-28 00:24|| Front Page Top

#3 The price of housing became so much higher than housing's actual value as a result of two things:

1. The home mortagage interest deduction, which in effect makes real estate (at least two homes' worth) a taz-subsidized investment and

2. An interest rate which was held artificially low (vs the true cost of borrowing) for about 10 years too long.

In the absence of these two things, the attitudes and events and legislation that led up to this mess would probably not have happened.

Posted by no mo uro 2008-09-28 06:46|| 2008-09-28 06:46|| Front Page Top

#4 'tax', not 'taz', PIMF.

Posted by no mo uro 2008-09-28 06:46|| 2008-09-28 06:46|| Front Page Top

#5 nmu,

mortgage interest has been tax deductible since the inception of the current income tax in 1913. So the problem it creates is not a recent one and it is difficult to assign it any specific responsibility for this crisis to it.

Your point about interest rates is more appropriate as the Federal Reserve, also established in 1913, kept interest rates far too low far too long. Greenspan's reputation will be as the worst Fed Chairman since Miller.

Posted by Nimble Spemble 2008-09-28 08:21|| 2008-09-28 08:21|| Front Page Top

#6 Re-Seeding the Housing Mess

Much too late in the growing season. A long cold winter approaches. PLOW THE FAILED CROP UNDER!

Posted by Besoeker 2008-09-28 08:24|| 2008-09-28 08:24|| Front Page Top

#7 Agreed on the history of HMID, NS, but the fact of the matter is that making real estate an investment which is federally subsidized in a way that other investments are not has altered the real estate - and mortgage - market in ways that prevented market forces from working as efficiently as they might have otherwise.

In the absence of other factors, it was never enough of an intrusion to do more than artificially elevate the price of real estate with respect to the value of stocks, bonds, commodities, etc. But adding everything else, including foolishly tweaked interest rates, made it suddenly loom large.

Posted by no mo uro 2008-09-28 09:36|| 2008-09-28 09:36|| Front Page Top

#8 This is a great time for winter wheat, winter rye, etc., Besoeker.

There must be a pertinent analogy in there somewhere.

Posted by no mo uro 2008-09-28 09:37|| 2008-09-28 09:37|| Front Page Top

#9 It aint gonna be good, I'll tell you that much. Not for buyers or sellers.

Posted by bigjim-ky 2008-09-28 10:20|| 2008-09-28 10:20|| Front Page Top

#10 I agree the tax subsidy drove up prices.

But adding everything else, including foolishly tweaked interest rates, made it suddenly loom large.

I don't see how you can make this statement our of clear air. The everything else caused the problem, not the inflated, subsidized price which had been consistently subsidized for 90 years.

Posted by Nimble Spemble 2008-09-28 10:48|| 2008-09-28 10:48|| Front Page Top

#11 Thought the Conservative Republicans in the House forced the removal of the ACORN provision or horse-swapped for the restrictions on CEO golden parachutes. Any way it is cut, it is not going to end for a long, long time and I can't see where are not going to ultimately foot the bill.

Posted by JohnQC 2008-09-28 10:58|| 2008-09-28 10:58|| Front Page Top

#12 It was the gradual removal of reserve requirements down to next to nothing that allowed the credit bubble to form.

When you halve the reserve ratio, you double the amount of credit.

As there are now no reserves left, then you cannot manoeuvre them down to cope with a recession. I've been worried by the credit bubble since 2003, so it takes a lot longer to kill the economy than I thought!

Posted by Bright Pebbles 2008-09-28 11:01|| 2008-09-28 11:01|| Front Page Top

#13 The reductions in the reserve ratio is definitely the big problem, and without that this crunch may never be. And if you buy a house for the going market price, but that price is 20% higher than the house value, then, you buy debt. You gamble. Some houses sold for 30 to 50% above real value. No doubt American educated college grads bought them. Now, if they could get that job...

Posted by lollypop 2008-09-28 13:47|| 2008-09-28 13:47|| Front Page Top

#14 "The everything else caused the problem, not the inflated, subsidized price which had been consistently subsidized for 90 years."

Fair enough.

Posted by no mo uro 2008-09-28 17:46|| 2008-09-28 17:46|| Front Page Top

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