Gold Standard lasted Until Nixon

All 44 Allied nations met in Bretton Woods, New Hampshire and signed Agreements during the first three weeks of July 1944.

FDR had taken our currency off the Gold Standard. Bretton Woods was a system of rules, institutions, and procedures to regulate the international monetary system, -- chief among them were --an obligation for each country to adopt a monetary policy that maintained the exchange rate of their currency within a fixed value—plus or minus one percent—in terms of gold and the ability of the IMF to bridge temporary imbalances of payments.

Don't let anyone tell you the gold standard is archaic and wasn't used recently. Nixon was fighting the war in Viet Nam and did not want to raise taxes (sounding familiar yet?) to pay for the war. When he ended Bretton Woods, in 1971, precious metals were stolen from our coinage. The 1960's quarters had silver worth over $5 today. The Federal Reserve had no limits to their power of expansion or inflation.

I feel so much better now that I've got that off my chest. More from NYTs.

And a hearing explaining rising prices and federal reserve actions

What Jefferson thought of English Politics

"The parliament is, by corruption, the mere instrument of the will of the administration. The real power and property in the government is in the great aristocratical families of the nation. The nest of office being too small for all of them to cuddle into at once, the contest is eternal, which shall crowd the other out. For this purpose, they are divided into two parties, the Ins and the Outs, so equal in weight that a small matter turns the balance. To keep themselves in, when they are in, every stratagem must be practised, every artifice used which may flatter the pride, the passions or power of the nation. Justice, honor, faith, must yield to the necessity of keeping themselves in place. The question whether a measure is moral, is never asked; but whether it will nourish the avarice of their merchants, or the piratical spirit of their navy, or produce any other effect which may strengthen them in their places. As to engagements, however positive, entered into by the predecessors of the Ins, why, they were their enemies; they did every thing which was wrong; and to reverse every thing they did, must, therefore, be right. This is the true character of the English government in practice, however different its theory; and it presents the singular phenomenon of a nation, the individuals of which are as faithful to their private engagements and duties, as honorable, as worthy, as those of any nation on earth, and whose government is yet the most unprincipled at this day known."
-- Thomas Jefferson to Governor John Langdon, March 5, 1810
Doesn't this apply to DC insiders now.

Oxymoron

Mr Buffett and Mr. Gates openly lobby others who have amassed great wealth to avoid capital gains taxes and inheritance taxes by donating to a foundation. They also freely espouse paying higher taxes is not only necessary, but the right thing to do... Am I the only one who sees this as an oxymoron?
In Nebraska, Buffett's capital gains taxes @ 7% of $Billion would produce $70Million in revenue and make up much of our budget shortfall.
After capital gains and later, death taxes are paid, foundation donors can still fund their charities only using after tax dollars. Better yet, research promising new industries in the US and fund them. The Bloom box, only one idea, creates electricity using 1/2 the fuel of current methods and is smaller than a dumpster. Americans are full of ideas and have literally changed the world. Investing creates jobs, grows the economy and teaches folks how to 'fish' rather than feeding them for a day. Risk means some winners and some losers, but many jobs.
By shielding their wealth, their dividends and real estate from the tax man, they should know the result is selfishly leaving the rest of us to make up the difference. Isn't the removal of billions from our struggling economy also a problem? Although I have no doubt their goals are unselfish, possibly they haven't thought through the "unseen" [Bastiat] lost benefits of added production, growth in the economy, job creation and worker independence that could have developed.
Mr. Buffett and Mr. Gates, the least you can do is offer to drop your Foundation's tax exempt status to show you are sincere and do desire to pay a fair share of taxes.
Sent to the hill on 12/17/10

WikiLeaks

Dear readers, listen to audio of Naomi Wolf as she warns that TSA and Wikileaks are Master-Slave fights, not Left-Right.

A deeply worried Naomi Wolf, author of The End of America, fears that both TSA actions and the threatened use of the 1917 Espionage Act against Wikileaks founder Julian Assange, a journalist, signal a rapid escalation on multiple fronts toward the end of liberty for all of us. Historically, the state always uses the excuse of national security as a tactic to subjugate citizens, forcing nakedness and sexual intrusions upon us, unless and until, courageous acts of resistance and mass opposition finally force these totalitarians, like the TSA, to back down. But we must act if we are to have a chance.


I love smart people who see past the rhetoric. This post from a Fox News from daisypug about WikiLeak's insurance file of unredacted data which exists to be 'unlocked' if they are shut down.

One of the stated goals for the release of the diplomatic cables is to expose American hypocrisy about freedoms of the press and speech. They chose to work with certain companies, like Amazon, specifically to show how quickly the government will demand censorship and how easily those corporations do cave. The U.S., Australian, and even Canadian governments have shown themselves to be no better than China when it comes to the distribution of information that actually has the power to change how those governments conduct themselves. They immediately start trying to shut down the website by any means legal, illegal, or completely against any sense of American democratic values.

You won't see anything that substantial on televised news, in the failing print publication industry, or even on mainstream websites.

How Cabal of Wall st bankers, federal reserve, & DC get rich

Let's assume you are an everyday guy who has saved 10,000 and buys a savings bond paying 7% interest compounded annually. Your bond would be worth $19,671.51 after 10 years. Your taxes on capital gains of $9,671.51, if you live in Nebraska with 7% capital gains plus 15% federal, would be $2,127.73 leaving you a net gain of $7,543.78 in currency.

Now lets assume inflation (amount of money the federal reserve was creating for the bankers) was at 5% over those 10 years. The amount of money needed to buy the same goods as 10 years ago when you made your investment would be $16,288.95 in currency.

That reduces your actual gain in buying power to $3,382.57 in today's currency. If we subtract the capital gains taxes paid from the actual gain in buying power, your gain was only $1,254.83 and your actual capital gains tax rate was more like 63% on actual gains.

Meanwhile, the banks are receiving federal reserve notes BEFORE the inflation rolls down hill to the pool of existing currency. Is it any wonder the divide between mega-rich and the average person is growing?

Added 12/5/10

The Fed creates all bubbles and inevitable bursting of all of the bubbles, by manipulating money supply & interest rate <<< pass it on.

Although we are all debt slaves to the Federal Reserve's ability to inflate, ballooning student loans-not forgiven by bankruptcy-may violate the Constitution. Many young adults after college are working in virtual 'involuntary servitude' to pay off loans--a clear violation of the 13th amendment. Why are college loans not challenged?

If the Supreme court ruled college loans violated the 13th, at first, fewer would go to college but very quickly colleges would recognize that market forces could put them on the street unless they tighten their belts so tuition could drop. Profs would take fewer paid trips, double up in offices again, and teach more hours. Also, many skills previously learned in technical high schools, might return meaning fewer community colleges classes needed. Think of the productivity from two years of work rather than two years of classes.

Added 1/11/11 A video explanation of paper money.

What causes bubbles?

Matt Taibbi, an author I do admire, has read Cato's take on the housing bubble and written about it here in Rolling Stone. Now I doubt Rolling Stone will pick up on my humble response, but I do have a point or two to make.

• 1) Community Redevelopment Act[CRA] as originally written had nothing to do with the bubble but was a factor in Credit Default Swaps [CDS] as a hedge against loss. Banks were judged on their CRA rating and that 'forced' them to make loans in areas where a trend was showing crime, vacancies and business pulling out made them a bad risk. The buyer wasn't a risk, the house was well constructed, but if the homeowner were injured or lost their job, the home might be worthless on the market. Banks don't print money (Fed reserve aside,) so they cannot make loans of their depositors money except on sound risk.
• 2) After CDS became the norm and pushed off from the mother ship (the banks,) loans became a commodity. If a broker sold a house and wrote the loan for maximum amount, their % of commission was higher and they could actually 'sell' the loan to a CDS broker. This caused brokers to run around making second mortgages in the 10's of thousands on kitchen remodels with no concern that the loans exceeded the value of the home. Again they sold them for % profit.
• 3) On C-SPAN I have had very informed sources answer this question: If Americans were negative savers (because both Greenspan and Bernanke kept interest at 1% which discouraged savings and encouraged spending,) where did the US$s that financed all these risky home loans come from? The normal process is a saver puts money in bank at a certain interest rate and the bank loans that money at a higher interest rate on good solid 'risks' to make bucks.. But, we had no savings. The answer was the federal reserve created the money used to fuel the bubble. Its like a forest fire with lots of downed trees, branches and brush.. it burns very hot and destroys the trees.
  
• 4) So the circle was complete; the bubble grew. Greenspan or Bernanke could have (should have) raised interest rates like Volcher did to let the bubble deflate and give us several good years of growth again. The only way to deflate a bubble is to deflate it--in our case by not printing so much money and raising interest rates. The pain is hard, but its over fast. No Politician wants that. The federal reserve is very much in tune with politics and the administration in power.
• 5) Yes there was greed with flipping homes and some got caught with the hot potato when the bubble burst. There was greed in Goldman and other banks selling a faulty investment. There was greed in the loan makers who would shop the neighborhood to find a home that sold for a huge amount so they could make the loan (and their commission) higher.

Providing equal rights for all

In Public Pulse on Friday

Omaha City Councilman Ben Gray said, "We want to make sure people are protected no matter who they are, where they come from or what they consider their gender to be."
When our Constitution was created, it was earth-shattering. Sovereigns were no longer kings, queens or elite bodies of leaders, but individuals. Each individual had sovereign rights, which we were born with.

In Europe, Marxism worked, as class structure existed. Marxism was not so easy here. We had to be convinced there was no American dream of success with hard work, planning and setting goals. We had to be divided.

Today, we have almost every special-interest group imaginable, from age, color, race, sex, sexual identity, disability, veteran and on and on - divided mostly by groups we cannot choose to leave - I can't be young, male or Hispanic.
Groups now vie for favor of the government to gain their rights - rights we gave away in our fervor to be fair to all.

Separation of School and State

Ezra,

Hotly debated issues on education are created BECAUSE we do not have separation of school and state. Forget separation of church and state==its the schools as political footballs that are causing the quality of education of our kids to be relegated to the bottom of the adults' priority list. I'm listening to the Florida governors debate on C-SPAN and much of their discussion is how to 'RULE' education in their state. Top down cannot work as one size NEVER fits all. Their mortgages are teetering on the edge, says a reporter, but often that mortgage includes hundreds a month for education taxes.

If all schools were immediately unfunded by all level or agency of government, and only funded privately by tuition (or education stamps explained later,) property taxes would plummet, overhead costs at all levels and lobbyist groups would crumble, principals at existing public school buildings would need to negotiate tuition with parents and learn, as private schools do, that all resources must be used in classroom for teaching the kids including the head master. Most children would stay in their current school. The only difference would be the parents being empowered and education of children becoming the primary goal of schools again. I would abolish dept of education and In a five year phase out, have election of parents advisory board done at each school to work with the principal during transition.

What about the poor? Well, I think food stamps pro-rated by income is a good model as a tuition supplement for poor. I would base the amount on an average tuition for the county of residence. After all, we don't care whether grocery stores are owned by Jews, Catholics, Muslims or atheists for food stamps.

Justice Sotomayor's widowed mother worked two jobs to send her daughter to private Catholic school in NYC. In fact, Kagan attended Hunter College exclusive K-12 and Roberts attended Notre Dame K-12. Clinton, GW and Obama all benefitted from private K-12 school along the way. If the Justices who benefitted from private K-12 excused themselves from cases about public schools, how many would be able sit?

Bill & Melinda Gates and Warren Buffett's foundation as well as others interested in education could dive in to assist large city school districts (explaining business practices) during transition. Everything would begin to focus on one issue... only one.. the education of the child.

Certifications would be of no consequence. Either a teacher is teaching or they are not. If a neighbor has decided to stay home to teach their children, taking a hit in their double salary income, that teacher can now accept (for tuition) other children from the neighborhood. In my neighborhood we have an autistic child who could easily succeed with his siblings and neighborhood friends in a small class setting around the kitchen table.

States may decide it is in their interests to test children at set points to identify neglect, and absolutely test to certify 8th grade and high school diploma requirements have been met. Colleges and universities would no longer have to bear costs of the growing number of remedial classes. The ability to sit for annual testing can identify a need for coaching if a child is falling behind. As with college entrance exams, coaching programs will arise from free market.

Trades can once again be removed from community colleges and rolled into a high school focused on the borderline academic, who may be kept in school given the ability to work with their hands part of the day. In Omaha, our former Technical High, where interwoven with their classes, (given the sexism of the times) boys worked on their cars, and girls learned to type and take shorthand, has over 300 non-teaching staff and is being used as the district's headquarters.

The Prussians designed public education to create a class of citizens who respond to orders without question and are trained to endure long periods of boredom. Even the USSR did not fall for that standard. Public Schools are teaching our children that government is their friend and only has their best interests at heart. How many times has that worked out in the past? Was Uncle Joe Stalin a good guy? or Mao, or the politburo?

I say, separation of school and state is our best solution for education in the USA today.

My opinions are my own.. but It might be interesting to hear comments/questions.
Sent to wonkbook@gmail.com Washington Post

Schiff on Economics

Peter Schiff can spout more common sense economics in a minute then most do all year.

Schiff's podcast

includes an explanation about the current mess and why savings is always what created growth, not spending.

Midlands Voices/2005

Nebraskans understand issues have more than two sides. This is certainly true of the current attempt of the Unicameral, supported by the education establishment, to force Nebraska’s hundreds of Class I school districts to merge with larger school districts. Right now the choice is black and white. The Class I school districts will surely resist and the outcome is unknown. But why not allow the parents of children attending Class I schools a third choice?
Nebraska’s constitution requires we educate our children but has no barriers to a Charter school fulfilling that requirement. What is a Charter school?
A school stands alone as a Charter school by guaranteeing students meet certain educational outcomes. The operators of the school, generally the teacher(s), sign the contract. Charter schools receive tax moneys for the children in attendance. Traditionally, it is much less than the state average spent per child and if outcomes are not met, the contract is pulled and the school closes.
An administrator in Bellevue told me of a sandhills school near North Platte that was closed. The ranchers purchased a trailer and the teacher now teaches their children in the trailer. The other difference is that the ranchers pay her salary. This is the perfect example of the benefit of a Charter school option. The need was there, the desire was there and the teacher was there. It was the legislative option that was missing.
Parents have an option of sending their children to a traditional public school or setting up a Charter school system. In this respect, it is a win-win situation. Parents choosing the Charter school elect a parental advisory board, and often expect to volunteer, help with maintenance, provide transportation, etc. The rural Charter school is much like those of our past. My mother taught in rural schools and answered directly to the parents. Parental control gets defused as control moves up the bureaucracy.
And Charters are not only for rural school choices. Here are other options to increase choices and extend outcomes for kids:
• To attract quality professional staff, a large medical facility provides day care. Extending this facility to a K-6 Charter school might serve the same purpose.
• An international engineering firm recruits engineers by giving them summer jobs during college. A highly challenging math and science curriculum taught to 17 and 18 year olds on site in a Charter school could serve the same purpose.
• A teacher promises to cut the drop-out rate in half if given a Charter school in an inner city neighborhood. If she succeeds, she keeps her school and her Charter. And, she saves some kids from certain poverty and lives of lower fulfillment.
Charter schools offer a choice for parents. They offer competition to the existing monopoly of public schools. Charter schools are public schools, too, but they are run by parents, not administrators or bureaucrats. If no parents send their children to a Charter school, it closes.
--> not included in newspaper: Running for the Unicameral taught me the power of the Education establishment. The teachers union can and does deliver votes. Their questionnaire for candidates is much more about finance and control and much less about improved student outcomes and choices. I’m pro-education for our kids and I want more choices, not less. Hopefully, LB 126 can be amended to include Charter schools as an option. School Charters can be co-signed by a mayor, a county board or a school district board.
Reagan said it best: "Our system freed the individual genius of man. We allocate resources not by government decision but by the millions of decisions customers make when they go into the market place. If something seems too high-priced, we buy something else. So resources are steered toward those things people want most at the price they are willing to pay." Today, too many of our education decisions are made by government not by the customers of education --the parents.

Define Progress

Progressive policymakers moved single mothers to projects like Cabrini Green's high rises [see below] and lumped them together by the thousands -- miles from the father and extended family-- left to foment for 20/30/40 years. Men called 'dad,' attempting to stay with their families, became 'cheaters.' When the drugs, crime and gang problem resulted, they bulldozed the site and scampered off to hatch a new plan to help the poor.

All the neighbors in the projects had failed at personal responsibility in one way or another. The children in this situation seldom if ever saw their father, their grandparents, or any individuals that might be classified as 'responsible,' and had only lonesome, dejected, and often depressed moms to raise them.

With hindsight, we should be able to see how this process, implemented across the US, destroyed the family structure for scores of millions of children over the years.

Why would anyone vote for progressives or for a way forward after observing social planners abject failures over the years.

a Chicago Housing Authority (CHA) public housing development on Chicago's Near North Side, ..At its peak, Cabrini–Green was home to 15,000 people,^[1] living in mid- and high-rise apartment buildings. Over the years, gang violence and neglect created terrible conditions for the residents, and the name "Cabrini–Green" became synonymous with the problems associated with public housing in the United States.

Is all this history of failure down the memory hole? Didn't we learn anything? I hear day after day, young voters asking for a 'way forward' and 'progress' from their elected representatives.

Unless they look back at what prior social engineers created with their good intentions, before listening to current plans from politicians, they will risk more unintended consequences.

The Fourth Turning, Headed Our Way

When the first Bush was President, Brian Lamb hosted followers of possible effects of Fourth Turning in America and I bought the book. The authors are careful not to predict events but only to show based on history how 4 generational archetypes following in succession 20-25 years apart identify trends based on history. The book predicts we jump from WWII hero generation, Reagan/Bush, to Boomer generation, Clinton/Bush which we did.
You can learn more by purchasing the book but this article also lays out what could very well be our short term future:

William Strauss and Neil Howe published The Fourth Turning in 1997. This was before the internet bubble, before the housing bubble, before 9/11, before the two wars in the Middle East, and before the financial collapse of 2008. They made a strong case for their generational theory of history. Everything that has happened since 1997 supports their theory. We are currently in the early stages of the Fourth Turning. In the last two chapters of their book, they describe the possibilities during a Fourth Turning. In the last section of the book they provide guidance on how to prepare responsibly for a Fourth Turning. Without preparation, the Fourth Turning is much worse. Below is a description of Fourth Turning possibilities, the preparations that were recommended by Strauss & Howe, and my assessment of how prepared we are as a country.

"What will America be like as it exits the Fourth Turning?

History offers no guarantees. Obviously, things could go horribly wrong – the possibilities ranging from a nuclear exchange to uncurable plagues, from terrorist anarchy to high tech dictatorship. We should not assume that Providence will always exempt our nation from the irreversible tragedies that have overtaken so many others: not just temporary hardship, but debasement and total ruin. Since Vietnam, many Americans suppose they know what it means to lose a war. Losing in the next Fourth Turning, however, could mean something incomparably worse. It could mean a lasting defeat from which our national innocence – and perhaps even our nation – might never recover.

If America plunges into an era of depression or violence which by then has not lifted, we will likely look back on the 1990s as the decade when we valued all the wrong things and made all the wrong choices."

"However sober we must be about the dark possibilities of Crisis, the record of prior Fourth Turnings gives cause for optimism. With five of the past six Crises. it is hard to imagine more uplifting finales. Even after the Civil War, the American faith in progress returned with a new robustness. As a people, we have always done best when challenged. The New World still stands as a beacon of hope and virtue for the Old, and we have every reason to believe this can contine.

By the middle 2020s, the archetypal constellation will change, as each generation begins entering a new phase of life. If the Crisis ends badly, very old Boomers could be truly despised. Generation X might provide the demagogues, authoritarians, even the tribal warlords who try to pick up the pieces.

History is seasonal, but its outcomes are not foreordained. Much will depend on how tall we stand in the trials to come. But there is more to do than just wait for that time to come. The course of our national and personal destinies will depend in large measure on what we do now, as a society and as individuals, to prepare."

Preparations Needed (1997–2006)

In their chapter on preparations for the Fourth Turning, Strauss and Howe essentially tell Americans to grow up. Give up the bad habits that had become part of our life during the Unraveling. We needed to prepare as if a blizzard was headed our way.

"Reflect on what happens when a terrible winter blizzard strikes. You hear the weather warning but probably fail to act on it. The sky darkens. Then the storm hits with full fury, and the air is a howling whiteness. One by one, your links to the machine age break down. Electricity flickers out, cutting off the TV. Batteries fade, cutting off the radio. Phones go dead. Roads become impossible, and cars get stuck. Food supplies dwindle. Day to day vestiges of modern civilization – bank machines, mutual funds, mass retailers, computers, satellites, airplanes, governments – all recede into irrelevance. Picture yourself and your loved ones in the midst of a howling blizzard that lasts several years. Think about what you would need, who could help you, and why your fate might matter to anybody other than yourself. That is how to plan for a saecular winter. Don’t think you can escape the Fourth Turning. History warns that a Crisis will reshape the basic social and economic environment that you now take for granted."

... Finish the article

Dichotomy

by Rex May
baloocartoons.com

Bush Tax Cuts

In January of 2003, a local tax preparer, David Oenbring, sent me this note concerning tax cuts for only the wealthy:

...The common theme is that the plan only benefits the wealthy and the little guy gets nothing. As a tax professional I know that nearly all taxes are paid by the wealthy, after all they are the ones with the money. According to figures from my 2003 Income Tax Quickfinder Handbook the top 25% of taxpayers (those earning over $52,965) pay 84% of all federal income tax. So any reasonable person could assume that any reduction in tax rates would benefit them the most.

But what about the assertion that the poor people get nothing? For that comparison I turned to my tax preparation software and examined the returns of the mythical couple of Joe and Mary Taxpayer. They are married with two children. Both are in low wage jobs earning only $25,000 annually between them.

They have worked since 2000 without a raise and need every penny to survive so both have elected to have no income tax withheld from their paychecks. By any standards they qualify as working poor. I prepared returns for them for tax years 2000 (the last year of Clinton influenced tax policy) and for 2001 and 2002 (the first two years of Bush influenced tax policy). The results cast serious doubt on the claims that the poor received no benefit from the Bush tax policy.

In 2000 Joe and Mary had $971 tax on their combined income of $25,000. They were entitled to a Child Tax Credit of $500 per child, which reduced their tax to $0. The remaining $29 of the credit was lost. The Earned Income Tax Credit (EITC) then gave them a refundable tax credit of $1,290, which was their refund. Nebraska, being less generous, insisted on $212 in tax.

In 2001, the first year of the Bush tax plan, Joe and Mary had only $874 in tax on their combined income of $25,000. This year they qualify for a child tax credit of $600 per child. This again reduces their tax to $0 but now the remaining $326 of the credit ($1200 - $874 = $326) has become refundable. That amount adds to the EITC of $1,494 to give them a total refund of $1,820. Still the spoiler, Nebraska wants $192 in income tax.

This year, the second of the Bush tax plan, their income tax has fallen to $518, only 53% of the tax burden under Clinton. Again, the total available Child Tax Credit of $1,200 reduces this to $0. The remaining $682 of the credit is again refundable and adds to the EITC of $1,928 for a total refund of $2,610. Still not caught up in the spirit of giving, Nebraska insists on $171 of income tax.

So in only two years under a president whose tax policies presumably only benefit the wealthy, Joe and Mary Taxpayer have had a net 103% increase in the amount of free money the government hands them every tax season. (Refundable tax credits are not counted as income and are tax free) Now could someone please explain to me again how the Bush tax plan only benefits the rich?

Update:  By 2008, the top 1% pd 38% of income taxes, the top 5% paid 58% of income taxes, the top 10% paid 70% of income taxes and the top 25% paid 86% of ALL income taxes. 47% paid NO INCOME TAX.

Credit Default Swaps and Financial Collapse

Where did Credit Default Swaps originate and why?
If you spend some time poking around the history of the Community Redevelopment Act in Wikipedia, you can see how unintended consequences crept into the process as features were added or modified. Of course, the Income Tax mortgage loan deduction skewed the market and encouraged home ownership, too.
Passed in 1977, CRA addressed discrimination in loans. The original ideas were sound.

The Act mandates that all banking institutions that receive FDIC insurance be evaluated by Federal banking agencies to determine if the bank offers credit (in a manner consistent with safe and sound operation as per Section 802(b) and Section 804(1)) in all communities in which they are chartered to do business.^[3]

But somewhere along the way...

the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) was enacted by the 101st Congress and signed into law by President George H. W. Bush in the wake of the savings and loan crisis of the 1980s. As part of the subsequent general reform of the banking industry, FIRREA added section 807 (12. U.S.C. § 2906) to the existing CRA statutes in an effort to improve the area concerning insured depository institution examinations.
The public section introduced a four-tiered CRA examination rating system with performance levels of 'Outstanding', 'Satisfactory', 'Needs to Improve', or 'Substantial Noncompliance', each supplemented with a written synopsis of the agencies' evaluation reasoning using any available facts to support their conclusions.^[40][46]
According to Ben Bernanke, this law greatly increased the ability of advocacy groups, researchers, and other analysts to "perform more-sophisticated, quantitative analyses of banks' records", thereby influencing the lending policies of banks. Over time, community groups and nonprofit organizations established "more-formalized and more-productive partnerships with banks."^[4]

The above partnerships caused banks to change their lending practices to generate higher CRA ratings, but, as some loans were not up to the banks' original lending standards, the banks made every attempt to reduce risk by offloading those loans to third parties.

With the passage of this Act [FDICIA] in December 1991, section 807 (12. U.S.C. § 2906) was amended to required the inclusion of any examination data relevant in determining an institutions CRA rating as well.^[4][47] A week earlier that same December, the existing CRA statute was amended once again upon the enactment of the Resolution Trust Corporation Refinancing, Restructuring, and Improvement Act of 1991. It allowed the Resolution Trust Corporation (RTC) to make available any branch of any savings association located in any predominantly minority neighborhood to any minority depository institution or women's depository institution, the amount of the contribution or the amount of the loss incurred in connection with such activity would go towards meeting the credit needs of the institution's community and would be taken into consideration when CRA examinations were evaluated.^[48]

These changes, year by year, increased the ability of community groups to influence bankers into making loans that made them uncomfortable in order to stay in compliance with the laws.

...portions of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 indirectly afftected the CRA practices at the time in requiring Fannie Mae and Freddie Mac, the two government sponsored enterprises that purchase and securitize mortgages, to devote a percentage of their lending to support affordable housing.^[4] In October 2000, to expand the secondary market [bankers selling loans] for affordable community-based mortgages and to increase liquidity for CRA-eligible loans, Fannie Mae committed to purchase and securitize $2 billion of "MyCommunityMortgage" loans.^[49][50] In November 2000 Fannie Mae announced that "HUD" would soon require it to dedicate 50% of its business to low- and moderate-income families."

None of these changes were for any purpose other than 'improving' the bill because of unintended consequences of prior legislative changes.

In 2001 Fannie Mae announced that it had acquired $10 billion in specially-targeted Community Reinvestment Act (CRA) loans more than one and a half years ahead of schedule, and announced its goal to finance over $500 billion in CRA business by 2010, about one third of loans anticipated to be financed by Fannie Mae during that period.^[52]

The stage was being set for nervous banks holding CRA loans which were becoming progressively more risky to create subsidiaries to take them off their books. Many moved loans to Freddie and Fannie for the security of government backing.

The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, which repealed restrictions on interstate banking, listed the Community Reinvestment Act ratings received by the out-of-state bank as a consideration when determining whether to allow interstate branches.^[53][54]

Adding CRA ratings to the criteria for expansion created an adverse incentive to make riskier and riskier loans or purchase these loans from brokers who made their income based on a percentage of the size of the loan, not its security.

According to Bernanke, a surge in bank merger and acquisition activities followed the passing of the act, and advocacy groups increasingly used the public comment process to protest bank applications on Community Reinvestment Act grounds. When applications were highly contested, federal agencies held public hearings to allow public comment on the bank's lending record. In response many institutions established separate business units and subsidiary corporations to facilitate CRA-related lending. Local and regional public-private partnerships and multi-bank loan consortia were formed to expand and manage such CRA-related lending.^[4]

The amount of red above shows how the problem was growing more and more tangled year by year.

In July 1993, President Bill Clinton asked regulators to reform the CRA in order to make examinations more consistent, clarify performance standards, and reduce cost and compliance burden.^[55] Robert Rubin, the Assistant to the President for Economic Policy, under President Clinton, explained that this was in line with President Clinton's strategy to "deal with the problems of the inner city and distressed rural communities". Discussing the reasons for the Clinton administration's proposal to strengthen the CRA and further reduce red-lining, Lloyd Bentsen, Secretary of the Treasury.., affirmed his belief that availability of credit should not depend on where a person lives, "The only thing that ought to matter on a loan application is whether or not you can pay it back, not where you live." Bentsen said that the proposed changes would "make it easier for lenders to show how they're complying with the Community Reinvestment Act"...

Bentsen, above, is saying that even a neighborhood with 5 empty homes cannot be considered as criteria for ability for resale of the home if the homeowner defaults. The family may have an excellent credit history but if the unexpected happens and they cannot pay their loan payments, the bank cannot sell the home to recoup portions of its investment.

[1995] Information about banking institutions' CRA ratings was made available via web page for public review as well.^[36] The Office of the Comptroller of the Currency (OCC) also moved to revise its regulation structure allowing lenders subject to the CRA to claim community development loan credits for loans made to help finance the environmental cleanup or redevelopment of industrial sites when it was part of an effort to revitalize the low- and moderate-income community where the site was located.^[57]

No one can fault the good intentions of the changes taking place but the result of Credit Default Swaps was growing beneath the surface. A bank employee and loan officers who reported to the lender on the soundness of loans, was replaced with professionals who sold their loans as a percentage of the loan amount. Loans themselves became a commodity and the larger the loan, first or second mortgage, the higher the commission. Again, unintended consequence of well intended changes that grew into a tangled web obscuring the bubbles growing risk. The bigger the loan, the higher the payout so brokers over estimated values to increase their commission.

William A. Niskanen's 1995 criticism of both the 1993 and 1994 sets of proposals for political favoritism in allocating credit, for micromanagement by regulators and for the lack of assurances that banks would not be expected to operate at a loss to achieve CRA compliance. He predicted the proposed changes would be very costly to the economy and the banking system in general

When criticized,

agencies jointly reported their final amended regulations for implementing the Community Reinvestment Act in the Federal Register on May 4, 1995. The final amended regulations replaced the existing CRA regulations in their entirety.[59

So here we see the entire CRA being replaced in 1995 resulting in yet more unintended consequences. In 1999, Gramm-Leach-Bliley Act let "smaller banks be reviewed less frequently for CRA compliance by the addition of §2908. (Small Bank Regulatory Relief) directly to Chapter 30, (the existing CRA laws), itself. The 1999 Act also mandated two studies to be conducted in connection with the "Community Reinvestment Act":^[64]

On signing the "Gramm-Leach-Bliley Act", President Clinton said that it, "establishes the principles that, as we expand the powers of banks, we will expand the reach of the [Community Reinvestment] Act".^[67]

The Office of Thrift Supervision (OTS) proposed revising and started to solicit public comment regarding the complete alignment of its CRA rule with the CRA rules of the other three federal banking agencies in November 2006....
OTS Director.., John Reich announced the final decision to go ahead and implement the proposed revisions ... Reich stated, "OTS is making these revisions to promote consistency and facilitate objective evaluations of CRA performance across the banking and thrift industries.

And here is Bernanke as late as 2007 recommending more access to Credit Default Swaps to add government support for the CRA-related loans [translate: 'scary' loans based on less then sound banking principles.]

In 2007, Ben Bernanke suggested further increasing the presence of Fannie Mae & Freddie Mac in the affordable housing market to help banks fulfill their CRA obligations by providing them with more opportunities to securitize CRA-related loans.^[77]

In a 2000 report for the US Treasury, several economists concluded that the CRA had the intended impact of improving access to credit for minority and low-to-moderate-income consumers.^[86]

Never mentioned in the above report were NINJA loans borrower with "no income, no job and no assets". Whereas most lenders require the borrower to show a stable stream of income or sufficient collateral, a NINJA loan ignores the verification process." The cycle was complete and set to collapse.
Not mentioned above are contributing factors like the federal reserve maintaining an artificially low interest rate for too long which encouraged borrowing and their inflated dollars to produce the money for loans as Americans slipped into a negative savings rate.
Included in what had become a financial disaster was a flawed formula used on Wall Street to assign value to Credit Default Swaps. David X. Li's Gaussian copula function as first published in 2000. Investors exploited it as a quick—and fatally flawed—way to assess risk.

How much of this debacle was caused by the 'free market' or 'capitalism?' I rest my case! And multiple boards of 'officials' in DC who seek the underlying issues will never find unintended consequences of well intentioned laws over the years as the culprit.

The Invisible Government

So many conspiracies;so little time, but this podcast brings up very interesting questions about the Bush family, the CIA and the government unseen by many voters unless they dig!
In 1943, the year I was born, the Central Committee of the Communist party sent this advice:

"Members and front organizations must continually embarrass, discredit, and degrade our critics. When obstructionists become too irritating, label them as fascist or Nazi or anti-Semitic. Constantly associate those who oppose us with those names that already have a bad smell.
The association will, after enough repetition, become 'fact' in the public mind."

The Democrats and the Republicans use these tactics. Is there an invisible government or is it a "conspiracy" theory which labels you a kook? Nothing to see here, move along.

Tackling Public Education

First on my blog post, let's tackle public education. The last three Supreme Court Justices never attended public K-12 schools. Roberts attended Notre Dame K-12, Sotomayor attended Catholic schools, including exclusive Cardinal Spellman High School in NYC. Kagan attended exclusive Hunter College K-12. A growing number in DC have parents who paid for private K-12 somewhere along the way including Presidents Obama, George W Bush, Clinton and Vice President Al Gore.

So what can we do about this? What can we do with local low graduation rates, grade inflation and schools where 'lockdowns,' a prison term, are commonplace?

Over the years, layers have been added (many layers passed to correct previously passed laws) between teachers and parents. Funding for school districts now is fragmented across many taxing authorities including the federal government. Mandates frustrate teachers who find little ability to make individual decisions about their classes. Districts spend our tax dollars on lawsuits against other taxing authorities for more funds and pay grant writers with our tax dollars to obtain grants from other taxing authorities. The lines are very blurred. School budgets are full of mandated spending untouchable by the district boards.

So... how can we fix it? I'm so far off the reservation now, having attended hearing after hearing only to see the 'suits' who benefit from the current system work behind the scenes to thwart change, that I'm ready to start over rather than add more layers.

Unicameral bill:

1. End all tax funding of public K-12.
2. During a five year transition period, current principals of neighborhood schools required by law to hold elections for a board of parents as advisers with the power to hire and fire staff. After 5 years, the school is run like any other non-profit independent business. Far from seeing a mass exodus from these schools, history shows most parents are happy with their schools. Its the cost that is out of line.
3. Mandate all minors be presented annually for age appropriate testing by State, such as motor/cognitive skills for infants and California Achievement test for K-12. Disabilities are identified early. For the other children, lack of gains during year places parents under social services monitoring. Parents not educating their children are guilty of neglect/abuse.
4. Tuition is a matter between the parents and the school. In private schools everyone teaches including the head master. K-12 principals will learn early that maintaining their student body requires belt tightening. Parents writing checks are more apt to shop around.
5. Eliminate all state monitoring of teachers (other than abuse) including teaching certificates. Either the child makes gains or not; no certificate is a guarantee of success in the classroom.
6. Based on income, a program similar to 'food stamps' is created based on the average tuition paid in the family's county . 'Education stamps' for tuition are graduated on parental income. Again, parents found not to be educating their children, risk losing them to Social Services.

Well, what do you think? I need feedback.

The neighborhood parent who is homeschooling now may accept tuition for other children to attend which defrays the family's loss of income. Again, without annual advancement, parents risk charges of neglect. No one wants children hidden in the attic. Today there is no check on individual children's annual gain in public schools-probably for a reason.

The immediate impact includes:

• a massive drop in property taxes saving many home mortgages.
• a falling away of all special interest groups who today live off our public education system although they spend no time in classrooms.
• Foundations like Bill and Melinda Gates still find the success stories and donate as they are today with Cristo Rey in So. Omaha. No laws forbid previously publicly funded schools from making any change that works for their students, like the 4 day classes at Cristo Rey.
• There is no public funding so, as with food stamps, the religion of the business owner is of no consequence with education stamps.

As with Bell Telephone's monopoly, once broken, new innovations in education will emerge that we cannot imagine in our wildest dreams. Did we imagine cell phones when a princess extension phone cost a monthly fee?

What about problem kids? In a free market, we don't know what new ideas will be created. A sandhill's rancher may open a school 20 miles from the nearest town and along with teaching the 3Rs, also teach the responsibility (and satisfaction) of caring for animals who depend on them.

We cannot predict the future of innovation that could result in a truly free market of K-12. Those who plan cities or industries, like the USSR, end up with rot, decay and unemployed citizens. As Reagan said: "Our system freed the individual genius of man. We allocate resources not by government decision but by the millions of decisions customers make when they go into the market place. If something seems too high-priced, we buy something else. So resources are steered toward those things people want most at the price they are willing to pay."

Okay.. shoot away.