Finally: The DOJ Charges S&P With Fraud In Rating Sub-Prime Backed Securities

The DOJ is going after S&P for giving sub-prime mortgage backed securities AAA ratings in the run-up to our economic meltdown in 2008. This move is getting panned by many on the right as payback against S&P for downgrading U.S. credit rating to AA in 2011 - and that certainly is a reasonable conclusion, given that the DOJ has not similarly targeted either Moody's or Fitch, both of which were equally guilty of vastly over-rating sub-prime mortgage backed securities.

Regardless, this is a lawsuit that I sincerely hope plays out in public. The fraud perpetrated by the ratings agencies was wholly intertwined with an insane government policy to force banks into making loans that did not meet traditional colorblind lending criteria. The ratings agencies were both complicit in and victims of this policy. There are a lot of facts that need to come out. Moreover, it is an issue with direct application to today, as the Obama administration not merely continues, but actually has strengthened the same insane government policies that gave rise to the the subprime crisis and our 2008 economic meltdown.

To explain, the Community Reinvestment Act (CRA) was used by the left for 16 years to destroy color-blind lending standards and force banks to make sub-prime loans. Fannie and Freddie were used to create a massive market for these loans. Still, none of this would have worked if the credit rating agencies had not given AAA ratings to the securities containing these mortgages, as most if not all banks were limited to purchasing securities with AAA ratings. That is how the sub-prime contagion spread throughout world markets.

In 2008, I wrote a long post explaining the origins of our melt-down. As to the ratings agencies, I opined at the time:

One of the most questionable aspects of the subprime meltdown is how mortgage backed securities being pumped out by Fannie Mae and others, were vastly underrated as to the actual risk they represented. This is another horror story that centers on the tearing down of "outdated and arbitrary" lending criteria. From the information available today, it appears that, when the old standards were labled "racist" under Clinton, the rating agencies tried to adapt to the new "market innovations" without reliance on old standards. This from Stan Liebowitz of the University of Texas:

[Why were] the rating agencies were willing to give [risky loans] AAA ratings? . . .

[T]he housing price bubble that was caused in part by these relaxed underwriting standards tended to reduced defaults and obscure the impact of the standards while prices were rising because almost no one would default when they could, instead, easily sell the house at a profit. Rating agencies could suggest that these loans were no more risky than the old antiquated loans and provide empirical support for that conclusion, given the still low default rates at the time, although to do so was short sighted to the point of incompetence.

In fact, the rating agencies seemed overly concerned with the trees and lost sight of the forest. For example, a Wall Street Journal article (which is the basis for the following three quotes) reports on rating agencies’ benign treatment of piggyback mortgages (taking out a second mortgage to cover the downpayment required by the first mortgage). In previous decades, mortgage applicants unable to come up with the full downpayment and therefore thought to be more at risk of default, were required to pay ‘mortgage insurance’ which raised the interest rate on the loan. Piggyback loans allowed borrowers to avoid this mechanism, thus presumably making the loan riskier. Nevertheless, the article reports that rating agencies did not consider these loans more risky:

Data provided by lenders showed that loans with piggybacks performed like standard mortgages. The finding was unexpected, wrote S&P credit analyst Michael Stock in a 2000 research note. He nonetheless concluded the loans weren't necessarily very risky.

The finding was unexpected because it contradicted what had generally been known about mortgages by a prior generation of mortgage lenders—that when applicants made smaller downpayments, increasing the loan-to-value ratio, the probability of default increased. This finding contradicted common sense. Further, these measurements were being made at the front end of a housing price bubble (Figure 1 below shows that prices were rising smartly in 2000), likely biasing downward any default statistics. Relaxed lending standards also had a short enough track record that rating agencies could not know how they would perform in the long run or in adverse conditions, meaning that it isn’t clear that sufficient information existed to even rate these securities. So how did the rating agencies defend their counterintuitive ratings?

One money manager, James Kragenbring, says he had five to 10 conversations with S&P and Moody's in late 2005 and 2006, discussing whether they should be tougher because of looser lending standards… Other analysts recall being told that ratings could also be revised if the market deteriorated. Said an S&P spokesman: "The market can go with its gut; we have to go with the facts."

Whether such a myopic view of the “facts” was responsible for all or most of the excessively high ratings I cannot say, but these ratings were consistent with the views of the relaxed lending standards crowd. The real facts, of course, eventually soured the view of the rating agencies:

By 2006, S&P was making its own study of such loans' performance. It singled out 639,981 loans made in 2002 to see if its benign assumptions had held up. They hadn't. Loans with piggybacks were 43% more likely to default than other loans, S&P found.

In spite of their inaccurate ratings, the rating agencies, nevertheless, were making great profits from rating mortgage-backed securities, a quasi-sinecure created by the government which required many financial organizations (e.g., insurance companies and money market funds) to invest only in highly rated securities as certified by government (Security and Exchange Commission) approved rating agencies (NRSROs). There were only three such approved rating agencies for most of the last decade (S&P, Moody’s and Fitch). Given that government-approved rating agencies were protected from free competition, it might be expected that these agencies would not want to create political waves by rocking the mortgage boat, endangering a potential loss of their protected profits.

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Setting Us Up For The Next Great Recession

The next great recession in the U.S. is going to look surprisingly like the last one. The exact same policies that led to the 2008 recession are being followed - and indeed, in many cases strengthened - by the Obama administration.

One of the great tragedies of the left taking control of the Presidency and both houses of Congress in 2009 was that the nation never learned the reasons for our economic meltdown. That means the real problems haven't been fixed.

If you listen to Obama and the left, the sole causes of the meltdown were Wall St. greed, the derivatives market, and deregulation - though even that which they complained about, the repeal of the Glass Stegall Act, occurred under Bill Clinton in 1999. The true culprits, subprime lending, the disastrous Community Reinvestment Act that was used to eviscerate lending standards, ostensibly to cure racism, and a historic fraud perpetrated by bond rating agencies in collusion with our government, are never mentioned.

As I pointed out when Dodd Frank was first proposed, the terms of that bill actually strengthened the policies that gave rise to the housing bubble. The effects are now being felt. A month ago, AG Eric Holder bragged about strong arming thousands of bankers for imaginary racism in lending. Now this the other day from IBD:

Despite new evidence the Community Reinvestment Act led to riskier lending and played a key role in the subprime mortgage crisis, the Obama administration is broadening the anti-redlining regulation's authority and scope, spooking bankers.

A recent study by the National Bureau of Economic Research, the nation's pre-eminent economic research group, states that the CRA "clearly" had a major impact on the flood of subprime loans made in the late 1990s and 2000s, which directly led to the housing crisis.

By quietly expanding the regulation, analysts say President Obama is picking up where President Clinton left off in April 1995, when he rewrote rules for what had been a largely toothless law as first drafted in 1977. Through executive orders, Clinton set strict numerical lending targets for banks in "underserved" neighborhoods, while ordering regulators to crack down on alleged bank redlining.

The new rules for the first time mandated that banks use "innovative" or "flexible underwriting practices." Compliance required banks to pass a heavily weighted "lending test" or suffer holds on expansion plans.

The CRA overhaul "has been a disaster," said ex-BB&T CEO John Allison in his recent book on the financial crisis. He argued it's forced "banks to participate in making high-risk housing loans to low-income buyers who would not meet traditional bank lending standards."

Added Allison, who now heads the Cato Institute: "The default rates on these low-income loans are extraordinarily high."

Still, the Obama administration wants banks to step up approval of such low-income mortgages. And it's using the CRA to spur more lending, including:

• Forcing banks through threat of prosecution to expand their CRA assessment areas to include inner-city areas blighted by subprime foreclosures, where they are compelled to invest in new brick and mortar.

Many banks, in fact, are under direct federal orders to open new branches or ATMs in high-risk and unprofitable areas of Detroit, St. Louis and other cities hit hardest by the recession. . . .

• Ordering bank defendants accused of lending bias to underwrite riskier CRA loans at discounted rates.

For instance, Justice has ordered First United Security Bank of Alabama to "ensure that residential and CRA small business loan products are made available and marketed in majority African-American census tracts," while offered on terms "more advantageous to the applicant" than normal.

• Toughening CRA enforcement by bank examiners, . . .

• Broadening CRA examination guidelines to include loan "pricing discrimination," and instructing examiners to take a closer look at improper "steering" of minority borrowers into subprime loans with higher interest rates and fees.

• Using the threat of CRA "noncompliance" and denial of expansion plans to pressure bank defendants into settling "fair lending" cases, while scaring other banks into lending in low-income minority areas where the banks aren't located. . . .

• Pressuring banks to fund HUD's new $7 billion Neighborhood Stabilization Program to earn CRA credits under a new "community development" test.

And it is not just banks. The major bond rating agencies are still giving subprime mortgage backed securities AAA ratings. This is just pure fraud being driven by government policy. People should be in jail over this. But that is not the concern of our government when it comes to the bond rating agencies. They are only being punished when they threaten to downgrade U.S. government debt:

. . . when S&P finally downgraded the US one notch in August 2011, the SEC and Justice Department announced that S&P was under investigation, just two weeks later.

Egan-Jones, a smaller rating agency, has been even more aggressive, downgrading the US credit rating three times in 18 months. And while the federal government may not have imposed Diocletian’s death penalty, they are just as willing to squash dissent.

In a country that churns out thousands of pages of new regulations each week, it’s easy to find a reason to go after someone. As you read this letter, in fact, you are probably in violation of at least a dozen regulatory offenses.

In the case of Egan-Jones, the SEC brought administrative action against the agency within two weeks of their second downgrade. And a few days ago, the case was settled.

I’m sure you have already guessed the ending: Egan-Jones is banned from for the next 18 months from rating US government debt. They’ve effectively been silenced from telling the truth. . . .

We are being set up by the left for our next massive economic meltdown. This is beyond travesty.

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Holder Celebrates Strong Arming 3,000 Bankers For Imaginary Racism

This from IBD:

In an end-of-year press release — posted under the banner headline "Accomplishments Under the Leadership of Attorney General Eric Holder" — the Justice Department boasts of charging "nearly 3,000" bankers with lending discrimination and fraud.

This could not be more screwed. One, the way the DOJ is "proving" discrimination is by nothing more than a statistical analysis under a disparate impact theory - the same theory the Supreme Court held unconstitutional in the employment context in the 2009 Ricci decision. Under a disparate impact theory, if statistics show that blacks are being denied loans at a greater rate or at less favorable rates than whites at any particular bank, then that is legally deemed "proof" of racism. The DOJ needn't show even a single case of actual racism. The burden then shifts to the Defendant to prove it made legitimate, color blind decisions in each case - with potential litigation costs being astronomical.

The DOJ uses this scam to strong arm lenders, then directs a substantial portion of all multi-million dollar settlements to fund left wing activist organizations. This was the ACORN model in the Clinton years. Unfortunately, lenders almost uniformly fold when faced with the litigation costs of trying to defend these bogus law suits. This is something that cries out for a hearing before the Supreme Court.

More from IBD;

. . . none of the race-bias cases highlighted by the administration was litigated in court. Evidence was never presented or tested, nor guilt ever proven. What's more, no incident of discrimination was ever specified, and no individual complainants or victims of discrimination were ever identified.

All the major defendants — Bank of America, Wells Fargo and SunTrust Mortgage — settled while strongly denying Holder's allegations that they charged blacks and Latinos a "racial surcharge" for mortgages simply because of the color of their skin. In court documents, they argued that if Holder's civil-rights prosecutors conducted an "appropriate analysis" of their loan data and loan-file documentation, it would have shown no disparate impact in product placement against African-Americans or Hispanics. They argued that any differences in loan pricing were attributable to legitimate, nondiscriminatory factors, such as poor credit.

When one defendant recently fought back in court, the administration admitted in a little-noticed court filing that, indeed, it had not considered all the credit factors that went into the lender's decisions to charge higher rates for loans to minorities whose credit history left them unqualified for prime loans.

GFI Mortgage Bankers Inc. last summer asked a federal judge to dismiss a lending discrimination complaint filed by Holder. The New York-based lender argued that the government failed to establish a link between its policies and lending disparities outlined in the suit.

When Justice opposed GFI's motion, it revealed a serious flaw in its "statistical regression analyses" used in almost every race-bias case filed against lenders under this administration.

It acknowledged that its models do not account for all factors related to borrowers' credit risk and loan characteristics — factors that could explain disparities in loan pricing by race.

In the court filing, Justice Department official Thomas Perez, chief of the civil-rights division, said the sum total of the government's proof was "statistical evidence" that did not include all elements of creditworthiness. But he argued that the government did not need to control "all measurable variables" to prove discrimination, that it "need not prove discrimination with scientific certainty."

In other words, Holders' diversity police relied on incomplete statistics as evidence to prove intentional discrimination. They failed to compare apples to apples. There could have been legitimate business reasons for what they construed from the limited data as racism. Yet they didn't bother to look further.

GFI's attorney Andrew Sandler complained that Justice has been using an overly broad and "now discredited interpretation" of civil-rights law known as "disparate impact." But GFI happened to draw an Obama-appointed judge to hear its motion to dismiss what looked to be groundless charges against it.

With that judicial leaning in mind, GFI agreed to settle the case. It will fork over more than $3.5 million to as-yet unidentified black and Latino victims of alleged mortgage discrimination and also "qualified organization(s) that provide programs targeted at African-Americans and Hispanic potential and former homeowners."

It also agrees to implement over the next 4-1/2 years a "fair lending monitoring program" to make management and its employees more sensitive to the "credit needs" of the minority community.

Only in the race-obsessed Obama administration is a racist "witch hunt" worthy of celebration.

But it gets far worse. Of vastly greater importance, this type of litigation under the Community Reinvestment Act was the "but for" cause of our financial collapse in 2008. It eviscerated bank lending standards As I summarized in a long, 2008 post identifying the causes of our financial collapse:

During the period 1977-2000, most of the elements of our current fiscal crisis were put in place. President Clinton turned a little known law from the Carter-era, the Community Reinvestment Act, into a tool of massive socialist engineering. Color-blind lending standards were eviscerated and new standards were enforced by the police powers of the government and through the enlistment of community organizers and their ilk. Fannie Mae and Freddie Mac were made the engines of the new social engineering, creating an ever-expanding market for mortgages founded upon the new "innovative" lending standards. [And indeed, under the new lending standards, subprime loans were bundled as AAA investments and sold throughout the world financial markets.] All attempts by Republicans to attack this cancer failed. The left deliegitimized and beat back every attempt to reform the CRA by recasting such efforts as racist.

And here we sit today, with the same "race based" cancer still being spread through our financial system. It has been a gross distortion of reality that the left was able to sell the massive lie that the meltdown was caused by the "failed policies" of the Bush administration, coupled with vague references to "Wall St. greed" and "deregulation." They rarely, if ever, get any more specific in their charges than that.

It should also be noted that a lot of what went on in the lead up to our financial meltdown was pure old fashioned fraud. As I wrote in a recent post:

The economic meltdown from the housing bubble should have led to a whole host of criminal prosecutions for fraud. When sub-prime loans were being bundled and resold with a AAA rating, that was not within the realm of reasonable opinion, that was criminal. When Goldman Sachs marketed four sets of complex mortgage securities to banks and other investors without warning of the high risk, or when they "secretly bet against the investors' positions and deceived the investors about its own positions to shift risk from its balance sheet to theirs," that is fraud. Yet the Obama DOJ refused to prosecute Goldman Sachs or anyone else.

As near as I can tell, no one from the economic melt-down of 2007 has been criminally prosecuted by Obama - and its not hard to understand why. That melt-down was caused by Democrat policies over a period of two decades - ones fought by Bush, McCain and most other Republicans. To prosecute anyone for the crimes that occurred in the creation of the melt-down would shine a bright light on the facts - as well as the utter canard that the melt-down was caused by Republican economic policies or de-regulation.

Strong arming 3,000 bankers with false charges of racism is not something Holder and the left should be celebrating with press releases. It should be something they contemplate while trying to scrape the tar and feathers off their bodies.

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Setting The Record Straight Four Years Later

It has long been leftist dogma that "the failed policies of the Bush administration" caused our economic meltdown.  That statement was usually followed by vague references to "deregulation" and Wall St. greed. It has been the single most destructive lie of my lifetime. And because of it, we now have another four years of Obama

I pointed out over four years ago that the left's social engineering with the Community Reinvestment Act (CRA) caused both the housing bubble and the destruction of credit standards - all leading directly to our economic meltdown. Recently, the IBD published a concurence:

Democrats and the media insist the Community Reinvestment Act, the anti-redlining law beefed up by President Clinton, had nothing to do with the subprime mortgage crisis and recession.

But a new study by the respected National Bureau of Economic Research finds, "Yes, it did. We find that adherence to that act led to riskier lending by banks."

Added NBER: "There is a clear pattern of increased defaults for loans made by these banks in quarters around the (CRA) exam. Moreover, the effects are larger for loans made within CRA tracts," or predominantly low-income and minority areas.

To satisfy CRA examiners, "flexible" lending by large banks rose an average 5% and those loans defaulted about 15% more often, the 43-page study found.

The strongest link between CRA lending and defaults took place in the runup to the crisis — 2004 to 2006 — when banks rapidly sold CRA mortgages for securitization by Fannie Mae and Freddie Mac and Wall Street.

CRA regulations are at the core of Fannie's and Freddie's so-called affordable housing mission. In the early 1990s, a Democrat Congress gave HUD the authority to set and enforce (through fines) CRA-grade loan quotas at Fannie and Freddie.

It passed a law requiring the government-backed agencies to "assist insured depository institutions to meet their obligations under the (CRA)." The goal was to help banks meet lending quotas by buying their CRA loans.

But they had to loosen underwriting standards to do it. And that's what they did. . . .

Read the entire article here. Expect this to get zero play outside of the IBD.

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Common "Progressive" Threads

Just a thought as I reflect on the massive celebration of progressive entitlement programs and big government philosophy in last night's DNC.

The Head Start program, designed to help preschool children, eats up billions of dollars per year, yet it has not shown to have a single long term benefit.  The welfare system that we put in place in the 1960's to help blacks had the unintended consequence of destroying inner city black families.  The housing program and inserting affirmative action in our lending and credit systems between 1994 and 2008 under the CRA has all but destroyed our economy.  All of these programs were major progressive initiatives, all have, by most metrics, failed catastrpophically, and yet all are still with us.

And Barack Obama, who has utterly failed to lead us out of the recession of 2008-09 is now asking for another four years.

The common threads running through all of these things are that, one, Progressivism never admits failure.  Two,  regardless of how ineffective or inefficient, regardless of the unintended consequences,  every progressive idea implemented in the real world just needs more time to work, or just one more new law or regulation to push it over the top into meeting its designated purpose.  Three, to question progressive ideas is to be evil - it is to conduct a war on [insert designated progressive victim class here], it is to be racist or sexist, etc.  And four, people should believe in the eventual triumph of failed progressive ideas out of simple faith in their moral superiority.

It is a toxic mix of fanaticism, fantasy and secular religion.  And anyone who pulls the lever for Obama this time around will be acting out of a faith misplaced indeed.    

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Preparing To Answer The Left's DNC Mantras

According to WaPo, next week's DNC will be a blame-Bush-apalooza, at least in between updates on the war on women (i.e., the wholly irrational and unfair refusal of people to willingly and fully fund Sandra Fluke's sex life).

At any rate, expect to hear the following mindless mantras repeated ad infinitum next week:

- Do we "want to return to the very same policies that brought on the crisis in the first place?".

and

- "Wall Street greed"

and

- "Deregulation"

The Romney response to them should be simple - if Obama and the left are right about the causes of our economic problems, then their solutions should have righted our economy by now, or at least have us on a clear path to recovery, just like in every other recession we have had in the past 65 years. Yet, instead of recovery, we are circling the drain.

And of course, if Romney feels the need to elaborate any more, he can point to any of the following. IBD opined yesterday, "the Obama recovery can only be graded as a tremendous failure — as it has produced the worst rate of economic growth of any recovery in the past 65 years." And as the Economist noted this week, "three million more Americans are out of work than four years ago, and [our] national debt is $5 trillion bigger." And there is no relief in sight. On the horizon are hundreds of billions in tax increases to fund Obamacare, an explosion in regulations between Dodd Frank and an EPA at war with our energy sector. Then there is the biggie, the combination of Medicare and Social Security that will swallow our economy in a decade or so if not reformed.

Just keep the responses simple and loud. Let no repetition of the mantras go unanswered. Do that and by any measure, this should be Republicans election to lose.

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So Did The Housing Crisis Cause Our Economic Meltdown & Our Continuing Malaise

Until we get this right - and by that I mean identify the causes of our economic meltdown - we will never fully right our economy, nor protect it from the harm done by the left's social engineering.



I've been beating my chest on this one since October 2008.  The left's social engineering - put into law by the left through the Community Reinvestment Act and forced down the throats of lenders by community organizers - led to the massive housing bubble based on a complete degradation of lending standards.  The bond rating agencies - which have yet to be criminally investigated - were utterly and criminally complicit with Fannie and Freddie in giving AAA ratings to equities based on subprime loans.  These toxic loans created by Fannie spread throughout the world's financial markets.  Wall St. created Credit Default Swaps were insurance policies against default.  They were not the demon the left has made them out to be.  They failed not because of lack of regulation, but because mark to market accounting rules meant that when the bubble burst, the equities based on subprime loans could not be sold and thus had to be accorded a wholly unrealistic value of zero dollars on the bank books.  All of this is what caused the economic meltdown.

It should be noted that in Dodd-Frank, the exact same social engineering that led to the economic meltdown in the first place is not only retained, but strengthened.  It virtually insures that we will again face the same economic issues that led to the melt-down in the first place.    

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From Our Pockets To Far Left Activist Groups - Democrat Corruption At Work

That stench of corruption you smell is most likely the odor emanating from Obama Administration and Attorney General Eric Holder's Office. At least a portion of what you are smelling is how the Democrats are funneling tax dollars and bank fines to far left community activist organizations - for these organization to then in turn use in support of Democrats. It is as corrupt a practice as you will find in any banana republic.

It works like this. Democrats pass a law, take Dodd Frank for example, which could also reasonably be called the ACORN Full Employment Act. In it, the Democrats specify that a portion of our tax dollars are to be used to fund local organizations, ostensibly to conduct education and counseling of minorities or the elderly on financial matters. The government than enters into a multi-year contract with one of the many far left activist organizations for millions of dollars. A variety of far left organizations wholly survive on our tax dollars through this scam, the most infamous being, until their recent dissolution, ACORN.  It is completely legal.  It is utterly corrupt.  And because of contractual obligations, the Democrats are able to keep this scam going even during periods of Republican control of Congress.

But that is not the only method by which Democrats funnel millions in funds to partisan left wing groups. A variant on the above theme is for the Justice Department to direct that banks owing fines for "race discrimination" have to pay a portion of the fines directly to whatever private radical left organization the Justice Department directs. This too is ostensibly justified on the grounds of educating minorities.  The difference here, as the IBD article below makes clear, is that the left are on far shakier legal grounds when going this route.

Just as an aside, these shakedowns of banks for "racism" in lending practices are precisely what led to our economic meltdown in 2008 by destroying credit standards. Invariably in these cases, no single act of racial discrimination is ever proven to have occurred. Rather a bank is held liable if its lending practices show a disparate impact on minorities. That means that statistically, a bank did not make enough loans to minorities - irrespective of how colorblind the bank's lending standards are, irrespective of its outreach to minorities, and indeed, irrespective of whether it statistically rejected more applications from whites than minorities. It is a travesty. This use of disparate impact theory was held, for all intents and purposes, unlawful by the Supreme Court in the employment context in the pivotal 2010 Ricci v. Destafano case. It should be unlawful in all contexts. There is no place for racism in our society, but the disparate impact theory doesn't punish racism, it punishes institutions for results wholly irrespective of actual racism and thus it deeply distorts our economy.

At any rate, back to the topic at hand. It is the Justice Department funneling fines to left wing organizations that is rearing its ugly head today. This from IBD:

Last week, House Judiciary Committee Chairman Lamar Smith fired off a three-page letter to Attorney General Eric Holder warning that his recent punishment of Bank of America's mortgage unit seemed political. In fact, he may have abused his power.

As IBD first reported Jan. 4, 'BofA Must Pay Excess Settlement Funds To Acorn Clones," the $335 million lending-bias deal requires BofA to fork over a chunk of the payout to leftist groups not connected to the suit.

The unusual term is part of a secret Justice program to redistribute millions in settlement cash to third parties instead of alleged victims.

Critics told IBD it's a "political backdoor" to subsidize Democrat-tied bank shakedown groups. . . .

Under the order, excess funds will be handed to groups that "provide education, counseling and other assistance to low-income and minority borrowers."

The corrupt group, [ACORN,] which has re-emerged under other names after coming under investigation in 2009, continues to receive federal funds. Acorn Housing Corp. got some $700,000 in federal money after changing its name to Affordable Housing Centers of America.

Last year, Holder also ordered two AIG-owned banks to pay a minimum of $1 million to "qualified organizations" that help "African-American borrowers."

More recently, he ordered C&F Mortgage Corp. of Virginia to reward such groups. As of 2010, some $7.6 million was waiting to be handed out from his unsupervised grant program. Recipients aren't restricted in how they use the money. In 2008, Acorn bankrolled get-out-the-vote operations for Obama.

Justice would not provide a complete list of approved nonprofits, but a spokeswoman told IBD the National Urban League and Operation Hope are eligible for cash from the AIG case. Urban League has lobbied to water down credit standards. Operation Hope founder John Bryant serves on Obama's financial advisory council.

Smith demands that Holder furnish a full list of "qualified organizations," along with an audit of payments. Hearings are in order if his response is unsatisfactory.

Hats off to IBD for following up on this like a dog with a bone and getting the Republicans in congress to finally move off their posteriors.  Nothing that I am aware of authorizes the Justice Department to direct that fines otherwise payable to the government be directed to non-party organizations.

I am waiting for the day when a financial institution finally appeals the use of disparate impact theory in lending to the Supreme Court. This is social engineering at its worst, it was the "but for" cause of the 2008 economic crash and our continuing economic woes, and yet the Obama administration and the Holder Justice Department are pushing it harder than ever before. It is setting us on a second course for disaster.

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An ACORN In The White House: Obama Putting Social Engineering Back Into The Economy

Those who cannot learn from history are doomed to repeat it.

- - Edmund Burke

Can you say SUBPRIME CRISIS - THE SEQUEL. On Christmas Eve, Team Obama announced that it was uncapping government guarantees for Fannie Mae and Freddie Mac, giving those institutions a blank check with our tax dollars and seemingly preparing the way for these institutions to again play major roles in driving our housing market. Now, our "post-racial" President is about to reinject race-based social engineering into the front and center of our financial system. This coming just a year and a half after the precise same practice, coupled with the government directed machinations of Fannie and Freddie, brought our economy to its knees. I've spent tons of pixels on this blog discussing the origins of our financial meltdown. The exceptional video below explains some of the basics in 3 minutes.



(H/T Hot Air)

Democrats' social engineering is the "but for" cause of our financial meltdown. As I have written previously, in summing up a very detailed post:

During the period 1977-2000, most of the elements of our current fiscal crisis were put in place. President Clinton turned a little known law from the Carter-era, the Community Reinvestment Act, into a tool of massive socialist engineering. Color-blind lending standards were eviscerated and new standards were enforced by the police powers of the government and through the enlistment of community organizers and their ilk. Fannie Mae and Freddie Mac were made the engines of the new social engineering, creating an ever-expanding market for mortgages founded upon the new "innovative" lending standards. All attempts by Republicans to attack this cancer failed. The left delegitimized and beat back every attempt to reform the CRA by recasting such efforts as racist.

As to [contributing factors, possibly] the most important but as of yet underreported aspect of the crisis, is how rating agencies of the era vastly underrated the risk of the toxic mortgage backed securities coming out of Fannie Mae. The repeal of Glass-Steagall actually strengthened some of the [defenses]. Credit Default Swaps, which developed unregulated during the Clinton era . . . [were] unable to withstand the widescale failure of the underlying mortgages, [particularly after the recent imposition of mark to market accounting rules.]

. . . [The] goal of "affordable housing" was laudable. Looking at this in retrospect, there were and are two ways to approach this issue - one from a capitalist and market based approach and one from a socialist and redistributionist approach. The former would have been a series of programs to repair credit and to assist individuals with amassing savings for a down payment. The latter, well, that was what the left was able to enact.

Yet today, Democrats are in the midst of trying to wipe not merely their responsibility for our financial meltdown from the historical record, but to claim that the fault lies completely with deregulation and derivatives. This is not merely an exercise in assigning blame, for what our graduate of Acorn in the White House wants to do is double down on the social engineering. This from the NY Times:

The Justice Department is beginning a major campaign against banks and mortgage brokers suspected of discriminating against minority applicants in lending, opening a new front in the Obama administration’s response to the foreclosure crisis.

Tom Perez, the assistant attorney general for the department’s Civil Rights Division, is expected to announce Thursday in New York that the administration is creating a new unit that will focus exclusively on unfair lending practices.

“We are looking at any and every practice in the industry,” Mr. Perez said in a recent interview.

As part of an expansion of the Civil Rights Division approved by Congress last year, the Justice Department is hiring at least four lawyers and an economist for the new unit, while about half a dozen current staff members will transfer into it.

Mr. Perez plans to formally announce the new unit at the “Wall Street Project” conference organized by the Rev. Jesse Jackson’s Rainbow/PUSH Coalition. He characterized the effort as a major turnaround, and criticized the previous administration as failing to scrutinize lending practices amid the subprime mortgage boom.

While past lending discrimination cases primarily focused on “redlining” — a bank’s refusal to lend to qualified borrowers in minority areas — the new push will instead center on a more recent phenomenon critics have called “reverse redlining.”

In reverse redlining, a mortgage brokerage or bank systematically singles out minority neighborhoods for loans with inferior terms like high up-front fees, high interest rates and lax underwriting practices. Because the original lender would typically resell such a loan after collecting its fees, it did not care about the risk of foreclosure.

It is a rarely used theory, and it carries political risks. Some critics have contended that government rules pushing banks to lend to minority and low-income borrowers contributed to the financial meltdown. The campaign could rekindle that debate.

“They encourage lenders to make risky loans for reasons such as diversity, and then when lenders have a problem because they made too many risky loans, they condemn them for that,” said Ernest Istook, a fellow at the conservative Heritage Foundation and a former Republican congressman from Oklahoma. . . .

Under federal civil rights laws, a lending practice is illegal if it has a disparate impact on minority borrowers, and the Obama administration is signaling that it intends to make the enforcing of fair lending laws a signature policy push in 2010. . . .

Neither racism nor reverse racism have any place in America. Actual cases of improper discrimination need to be dealt with by an iron fist. But the disparate impact theory, that is a different beast entirely. What it means is that, even if a bank can show that every lending decision it made was based on commercially reasonable, colorblind lending standards and that its decisions were made without any reference to the race of the applicant, the bank can still be fined and subject to other penalties if, statistically, it did not make enough loans to low income individuals or in low income areas. This is the same legal theory that the Supreme Court all but completely struck down in Ricci v. Destefano several months ago. That case dealt with limitations on the disparate impact theory in employment decisions. Disparate impact is also the same legal theory that our government relied on to cause the subprime crisis in the first place. In light of Ricci, this is something that cries out for a court challenge on Constitutional grounds.

This is merely Obama's latest existential attack on an economy already gravely ill and with no signs of recovery in sight. It falls perfectly in line with his attempts to socially engineer our economy through health care and cap and trade. But as bad as the latter two portend to be, we know beyond doubt just how much damage the former has already caused. Moreover, Obama is simply too much the ideologue to learn the lessons of history. 2012 just can't come soon enough. In the meantime, it would seem the best way to combat this latest assault lays with our courts and with our elected representatives.

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Karl Rove and Axle Grease

Last week in the Washington Post, Karl Rove was one of several individuals who took part in assessing the economy and what Obama should attempt to do in the coming year. This from Mr. Rove:

Congressional Democrats pushed through ineffectual legislation such as the stimulus that didn't produce the promised results.

They raised discretionary spending by 24 percent from President George W. Bush's last full-year budget and will run up more debt by October than Bush did in eight years.

They made a priority of the unpopular cap-and-trade energy tax while Americans were worried about jobs and the economy.

They squandered every opportunity for the bipartisanship President Obama promised in his campaign.

Then they ended the year with a pork-filled monstrosity of a health-care bill that's increasingly detested.

The solid support that Democrats enjoyed at the start of 2009 among independents and college-educated voters is gone: They and seniors have propelled the GOP to a nine-point lead in Rasmussen's generic ballot.

Congressional Democrats can't reverse their midterm fortunes by trying to pass itsy-bitsy pieces of insignificant but popular legislation. Voters will stay fixated on their existing mistakes. So Harry Reid and Nancy Pelosi should push for big things:: In for a penny, in for a pound. It would be hard to come up with less popular causes than they've already embraced. So find something that might redirect voter anger, especially if Republicans cooperate by failing to offer a positive alternative. Good luck: You made the mess.

This motivated David Axelrod to crawl out from under his slime encrusted rock and pen a response. It is breathtaking. This from Mr. Axlerod:

When the Bush administration left office, it handed President Obama a $1.3 trillion deficit -- and projected shortfalls of $8 trillion for the next decade.

Where does Axelrod come up with this? Was Bush President through the stimulus. When Obama took the oath of office, the deficit stood at $569 billion. You only get to $1.3 trillion near the end of Obama's first year in office, when you start adding in the massive, pork laden stimulus bill plus all of the rest of the profligate spending from Obama. .

To continue with Mr. Axelrod:

During eight years in office, the Bush administration passed two major tax cuts skewed to the wealthiest Americans, enacted a costly Medicare prescription-drug benefit and waged two wars, without paying for any of it.

To put the breathtaking scope of this irresponsibility in perspective, the Bush administration's swing from surpluses to deficits added more debt in its eight years than all the previous administrations in the history of our republic combined. And its spending spree is the unwelcome gift that keeps on giving: Going forward, these unpaid-for policies will continue to add trillions to our deficit.

Somebody correct me if I am wrong, but wasn't Obama elected because he claimed to be able to fix our economy? And even a year in, he is still blaming Bush for all current and future deficits? Sorry, Axlerod, but that one is far beyond it "use by" date. Besides, there is little more that Obama could be doing to hurt the business climate in America. Who will hire when looming in the backround are massive new taxes and costs from the threats of health care reform and cap and trade?

This fiscal irresponsibility -- and a laissez-faire attitude toward the excesses of the financial industry -- helped create the conditions for the deepest economic catastrophe since the Great Depression.

The worst thing about the Democrats holding both the Senate and the House is that the left has been able to continue the greatest myth of our time, that our financial meltdown was brought about "financial industry" excess rather than social engineering of Democrats - and in particular Bill Clinton, Barney Frank and Chris Dodd - since 1993. It is obscene.

The only greater travesty is watching the Dems supposedly conduct an inquiry into the causes of our financial meltdown while utterly refusing to even address the subprime crisis at the heart of the meltdown. The "Financial Crisis Inquiry Commission" is now meeting. Perhaps the biggest clue that this is a pro forma white wash is that it the Commission's report is slated to arrive on 15 Dec., "long after Congress and the Administration hope to pass the most far-reaching reform of financial laws since the 1930s." Isn't that breathtaking.

The WSJ has an article on the Financial Crisis Inquiry Commission discussing how it is aimed only at the finanical services industry while ignoring the Fed, Fannie and Freddie - and I would add Bill, Barney and Chris. As the author so cogently opines, this is like writing a history into the causes of the Civil War while "ignoring slavery."

Here are some more of Mr. Axelrod's mendacious musings:

Economists across the political spectrum agreed that to deal with this crisis and avoid a second Great Depression, the government had to make significant investments to keep our economy going and shore up our financial system.

That is why President Obama and Congress crafted the American Recovery and Reinvestment Act. Despite Rove's assertion, it is widely accepted that the difficult but necessary steps Obama took have helped save our economy from an even deeper disaster.

The truth of course is that the stimulus was not a way to start regrowing the size of the economy. It was instead a means of keeping public and public union workers in their jobs overtopped with funding for the entire A to Z list of Democratic pork projects, a list that included such things as $16.1 million for saving endangered marsh mice in San Francisco, a hundred thousand to porn producers as part of an $80 million NEA grant, and $500,000 in a grant for disgraced Prof. Michael Mann to do more studies on the canard of global warming. As to the wealth creating engines of America, they were virtually ignored in the stimulus. Of the 787 billion stimulus, all of 2.6% was dedicated to helping small businesses through the SBA, and only another 10% aimed at construction and infrastructure. When Obama told the nation that it would keep unemployment - now at Depression levels of 17.3% in real terms - under 8%, he was accurate in one sense. Public union employees are doing outstandingly well. It is the rest of America, the one's that produce the wealth that allows public employees to get paid, that are suffering a sucking chest wound. But that house of cards is about to come to a screeching hault also as the gravy train for the states runs out and the private sector, having been bled dry and threatened with ever greater taxes and regulations by Team Obama, cannot provide the tax funds necessary to keep the public sector afloat.

To continue with Mr. Axelrod:

. . . we also recognize that we need to address the long legacy of overspending in Washington. That is why, shortly after taking office, Obama instructed his agency heads to go through the budget page by page, line by line, to eliminate what we don't need to help pay for what we do.

As a start, the president proposed billions of dollars in cuts, and he'll continue to fight for them and others in the upcoming budget. An analysis by the Washington Times concluded that in this first year, Obama had been more successful in getting his proposed cuts through Congress than his predecessor was in any of his eight years in office.

How hard is it to give up a little pork when you are bringing in a whole herd of swine? Just as a reminder, this is what Axlerod is trumpeting, from Reuters in May, 2008:

The proposals to trim 121 programs identified by the White House as wasteful or unnecessary amounted to only a half of 1 percent of the $3.55 trillion budget that Obama has submitted for the fiscal year that begins in October.

Of the $17 billion in budget savings the White House identified, about half were in the defense budget.

That Axelrod is trumping that as proof of Obama's fiscal responsibility . . . hmmm, the words offensive and disingenuous just are far too mild to do it justice. But then of course, there is the claim that Obama is being financially responsible by relying on the CBO report to prove that health care reform will not only be budget neutral, but will reduce the budget. This from Axelrod:

And even as Obama has pursued landmark health insurance reforms that will hold the insurance industry accountable and expand coverage to working Americans, he has insisted from the beginning that any reform legislation must not add to the federal deficit and must help reduce it over time. According to the nonpartisan Congressional Budget Office, the legislation making its way through Congress upholds this principle. . . ..

Does Obama think that a majority of Americans are being fooled by this CBO mantra? Does Obama think that it hasn't filtered out that health care legislation he has proposed has as much a chance as being deficit neutral as a high school football team has of going to the superbowl. Obama's problem, and by extension Axelrod's, is that they have mistakenly conflated the ignorance of Americans with stupidity. The mere fact that the majority of Americans were willing to swallow the Obama-aid in 2008 does not mean that they close their eyes to reality thereafter. What is happening in Massachussets right now ought to be sufficient proof.

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BOHICA - Obama's Fannie/Freddie Dead Drop

Those who cannot learn from history are doomed to repeat it.

- - Edmund Burke

The Obama administration, on Christmas Eve, dropped an utterly insane bombshell. Team Obama has used the slowest news weekend of the year to announce that they are uncapping federal guarantees for Fannie Mae and Freddie Mac loans - writing these institutions a blank check with our tax dollars. This from the WSJ:

The Obama administration's decision to cover an unlimited amount of losses at the mortgage-finance giants Fannie Mae and Freddie Mac over the next three years stirred controversy over the holiday.

The Treasury announced Thursday it was removing the caps that limited the amount of available capital to the companies to $200 billion each.

Unlimited access to bailout funds through 2012 was "necessary for preserving the continued strength and stability of the mortgage market," the Treasury said. Fannie and Freddie purchase or guarantee most U.S. home mortgages and have run up huge losses stemming from the worst wave of defaults since the 1930s.

"The timing of this executive order giving Fannie and Freddie a blank check is no coincidence," said Rep. Spencer Bachus of Alabama, the ranking Republican on the House Financial Services Committee. He said the Christmas Eve announcement was designed "to prevent the general public from taking note."

Treasury officials couldn't be reached for comment Friday.

So far, Treasury has provided $60 billion of capital to Fannie and $51 billion to Freddie. Mahesh Swaminathan, a senior mortgage analyst at Credit Suisse in New York, said he didn't believe Fannie and Freddie would need more than $200 billion apiece from the Treasury. . . .

Why uncap federal (our tax dollar) guarantees for Freddie and Fannie, particularly when they have the vast majority of funds remaining available to them. At Politico, one analyst speculates that "It's possible we may see some horrendous numbers for the fourth quarter and, thus 2009, and Treasury wants to calm the markets." The other possiblity is more insidious. Hot Air reasons:

It looks as though Obama wants to use Fannie and Freddie as proxies for more social engineering and wants to prepare for them to take more losses as a result. That would be the only reason to completely uncap the commitment to cover its losses. After all, the bailout was supposed to help put the two GSAs back into the black, and at the rate they have used that bailout (assuming no improvement), we wouldn’t have to worry about exceeding caps until 2012. I’d bet that the Obama administration retools its foreclosure prevention programs to have Fannie and Freddie buy up the paper and forgive parts of the principal on the loans, and have taxpayers eat the losses on a massive basis.

Perhaps the biggest travesty of putting Democrats in charge of both houses of Congress is that there has been no investigation into the causes of our economic meltdown. That meltdown, which began with the sub-prime crisis, was proximately caused by massive market distortion resulting from Democrat's social engineering. Bill Clinton, Chris Dodd and Barney Frank were the engines of that social engineering, and the tools they used were Community Reinvestment Act (CRA) regulations to force the lowering of lending standards and the use of Fannie Mae and Freddie Mac to underwrite these risky loans.

The CRA regulations allowed groups like ACORN to sue banks who did not make a proportionate amount of loans to African Americans. It mattered not that the banks could show, in virtually all cases, that loans denied to people of whatever race were denied on legitimate, non-discriminatory grounds. It didn't matter that ACORN could not show that a minority was treated to different standards than a white. All that mattered were the statistics. As an aside, this precise theory has been held, standing alone, as unconstitutional in terms of hiring and fining.

With no official investigation into this disaster, Obama has been free to not merely continue with the poison at its heart, but to further it. A few months ago, proposed financial regulations that would not merely keep the CRA in force, but would double down, expanding its enfocement. And now if Obama is planning to again use Fannie and Freddie as tools of this disaterous piece of social engineering, it will condemn us to repeat history. BOHICA - bend over, here it comes again.

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The "Recovery" That Isin't

The latest Republican ad - not a bad effort



Meanwhile, USA Today is reporting that Obama continues a practice from ancient antiquity - that of tyrants distibuting the spoils to their favored subjects in order to cement their power. We saw Obama do it with the extra-constitutional favoring of unions over preferred debt holders with GM and Chrysler, and now we see it being played out in the stimulus. Specifically, when the USA today charts where the stimulus money has gone, they find that those locales that supported Obama are raking in $69 per person, those that supported McCain are getting less than half of that at $34 per person.

At least Obama is tanking in the polls. This from Rasmussen:

The Rasmussen Reports daily Presidential Tracking Poll for Thursday shows that 30% of the nation's voters now Strongly Approve of the way that Barack Obama is performing his role as President. Thirty-eight percent (38%) Strongly Disapprove giving Obama a Presidential Approval Index rating of –8. The President’s Approval Index rating has fallen six points since release of a disappointing jobs report last week (see trends).

Thirty-nine percent (39%) now give the President good or excellent marks for handling the economy while 43% say he is doing a poor job. Those are by far his lowest ratings yet on the economy . . .

Thirty-four percent (34%) of voters nationwide say the U.S. is heading in the right direction, the lowest level of optimism since mid-March. The Rasmussen Index shows consumer and investor confidence are down again today reaching the lowest level in three months. The Discover U.S. Spending Monitor fell for the first time in three months. A Rasmussen video report notes that 46% want the government to stay out of the housing market. . . .

As to the last mentioned by Rasmussen, while it was government involvment in the mortgage industry that gave us our current economic meltdown (see here and here) - specifically, social engineering of lending standards in order to achieve racial quotas - Obama has big plans for expanding that bit of social engineering.

(H/T Gateway, Gateway, Gateway)

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Obama's Prescription For Our Recession - More Massive Fiscal Irresponsiblity, This Time Race Based

Obama is attacking everything about our capitalistic system - with the sole exception of the program at the center of the subprime meltdown - and thus our current recession - the Community Reinvestment Act (CRA). In 1993, we had colorblind lending standards. By 1994, that was all changed by the CRA. It degraded lending standards ostensibly under the rubric of racial fairness. In his latest massive attack on capitalism - the proposed massive expansion of regulations and government intervention into our financial sector unveiled two days ago (readers digest version here) - Obama is not merely protecting the racist contagion that is the CRA, he is putting it on steroids.

In Obama's 89 page “A New Foundation: Rebuilding Financial Supervision and Regulation,” the following appears as a duty under the newly proposed Consumer Financial Protection Agency:

A critical part of the CFPA’s mission should be to promote access to financial services, especially for households and communities that traditionally have had limited access. . . .

Rigorous application of the Community Reinvestment Act (CRA) should be a core function of the CFPA. . . .

The appropriate response to the [financial] crisis is . . . to promote robust application of the CRA so that low-income households and communities have access to responsible financial services that truly meet their needs. To that end, we propose that the CFPA should have sole authority to evaluate institutions under the CRA. While the prudential regulators should have the authority to decide applications for institutions to merge, the CFPA should be responsible for determining the institution’s record of meeting the lending, investment, and services needs of its community under the CRA, which would be part of the merger application.

The CFPA should also vigorously enforce fair lending laws to promote access to credit. Furthermore, the CFPA should maintain a fair lending unit with attorneys, compliance specialists, economists, and statisticians. The CFPA should have primary fair lending jurisdiction over federally supervised institutions and concurrent authority with the states over other institutions. Its comprehensive jurisdiction should enable it to develop a holistic, integrated approach to fair lending that targets resources to the areas of greatest risk for discrimination. . . .

The CRA imposed ridgid color-centric loan standards that caused in part, led in part to a lowering of lending standards throughout the nation. Loans under the CRA are not merely individually evaluated to see if there has been actual discrimination, they are looked at statistically by race. If there are not enough loans to inner city minorities in your portfolio, you used to get sued by Obama and ACORN. Now if Obama has his way, it will be the CFRA looking ever closer at our banks and lending institutions and penalizing based on statistics.

I've written thousands of words documenting the role of the CRA in causing our financial melt-down. None-the-less, according to Obama, it is only through race based lending that we can pull out of the financial crisis that such lending led us into. Indeed, at one point in the 89 page report, the authors defend the CRA, claiming that it played no role in our financial crisis:

Some have attempted to blame the subprime meltdown and financial crisis on the CRA and have argued that the CRA must be weakened in order to restore financial stability. These claims and arguments are without any logical or evidentiary basis. It is not tenable that the CRA could suddenly have caused an explosion in bad subprime loans more than 25 years after its enactment. In fact, enforcement of CRA was weakened during the boom and the worst abuses were made by firms not covered by CRA. Moreover, the Federal Reserve has reported that only six percent of all the higher-priced loans were extended by the CRA-covered lenders to lower income borrowers or neighborhoods in the local areas that are the focus of CRA evaluations.

This is not merely pure fantasy, it is an utterly outragous - and dangerous - lie. For an in-depth discussion of the CRA and its impact on our economy, please see Hurricane Subprime, 1977-2000. Whatever else the conservatives and centrists do over the next three years, perhaps one of the most important will be to insure that Obama's CFPA never becomes law. Of equal importance is getting the CRA erased from the federal code.

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Obamanomics Pulling Hard Left

We are moving ever more quickly into socialism and, if the inevitable huge jump in inflation kicks in before our economy can recover, then we will have stagflation that will make us pine for the good old days of the Carter economy. The Obama administration is now seeking to take effective ownership of both our auto industry and our banking industry. This is on top of the cap and trade plan and Obamacare. And it is on top of massive public spending that threatens us with more debt than that created by all previous administrations combined. And that's only the first 100 days. There are many more to go. Indeed, when cap and trade and Obamacare hit, the numbers get too big for my five year old calculator.



Let's tick these off, one by one. The government refused banks the right to pay back TARP funds and floated a plan, still alive as far as I know, to coercively turn TARP loans into common stock, effectively nationalizing the banks and giving the Obama administration the right to set bank policy. Since it was setting bank policy through the Community Reinvestment Act that is at ground zero of our economic crisis, this ought to be doubly troubling.

As to the auto industry, we have already seen the incredible intervention of Obama forcing the CEO of GM to step down - apparently to get someone in the top spot who would be more amenable to the government's plans for the company. Now we have the government floating a plan that for GM and Chrysler that would have the government become the primary owner of both, with Big Labor as a junior partner. As to holders of common stock and bond holders who are legally entitled to far more - well, they are evil capitalists anyway who didn't likely vote for Obama, so they get shafted. See here, Powerline and Big Lizards.

Just to add here problem with government ownership of the means of production is that they will direct production and costs in ways that help them politically - or that are ideologically driven - rather than do what makes economic sense for the business and its customers. It is only the latter that helps all parties. It is why not a single socialist economy has ever prospered. Well, the ruling elites and their cronies all prosper, but the average Jack and Jill certainly do not.

Then there is the Troubled Assett Relief Program (TARP) that is growing in size and corruption by the day. As reported in the WSJ, Neil Barofsky, the Special Inspector General (SIG) for TARP, spoke before Congress in February, telling the legislators that far more transparency was needed to prevent vast fraud and abuse. At the time, Treasury concurred and said that they would institute changes to the program. Treasury since has dug in its heals and it really looks like TARP is out of control. The Special Inspector General (SIG) issued a report to Congress just the other day. I have not yet had time read the Quarterly Report of the Inspector General to Congress, but Powerline did - and their report is troubling indeed. Some snippets:

- - report documents the stunning and at least partly illegal expansion of TARP from the $700 billion originally allocated by Congress to what is now a $3 trillion complex of programs.

- - most troubling feature of the SIG's report is its documentation of reluctance on the part of Tim Geithner's Treasury Department to make even modest efforts to protect the interests of the taxpayers. To take just one glaring example, Treasury has refused to require banks to account for what they do with the billions of dollars they receive in TARP money.

- - The Treasury Department is now managing a vast portfolio of "troubled assets" on behalf of the American people. It has not, however, developed any plan for how to dispose of them, or how to manage them

- - The SIG discusses the "Public-Private Investment Program," one of the most controversial aspects of TARP. PPIP is intended to form public-private "partnerships" to buy distressed assets, mostly mortgage-backed securities. But the vast majority of the risk lies with the taxpayers, while the program is rife with opportunities for connected insiders to make a fortune.

There is much more and, if you do not have the time to read the SIG report, I would urge you to see the post at Powerline. As John Hinderaker sums it up in his post:

1) The government's $3 trillion and counting TARP program represents the greatest opportunity for sharp operators to profit at taxpayer expense in history.

2) The Obama administration is either in favor of giving Wall Street sharks this opportunity or, at a minimum, doesn't much mind doing so. (If this seems odd, remember where Obama got the biggest chunk of campaign contributions in 2008.)

3) It may be that the TARP complex of programs is the beginning of a national-socialist type takeover of the financial services industry by the federal government.

4) We can only hope that this turns out not to be the case, and TARP is only the biggest--and perhaps, by the end of the day, the crookedest--waste of taxpayer money in history.

5) so far the only person or organization who appears to be looking out for the taxpayers is the Special Inspector General. We will be reading his future reports with great interest.

Why is it that we did not see this splashed across the papers as a huge scandal in the making?

One last note relating to TARP, though hardly least in importance, is that the programs - and people - who gave us this economic meltdown are still in place. As I wrote months ago, our credit rating system - the one that regularly gave us triple-A ratings for mortgage backed securities based on subprime mortgages - was completely broken. It was a huge contributing cause to the mess we are in, and truth be known, it is wholly unclear why and how this happened. Regardless, as the SIG wrote in his report to Congress, and as quoted in the WSJ, "credit ratings on residential mortgage-backed securities (RMBS) 'have proven to be unreliable and largely irrelevant to the actual value and performance of the security. Arguably, the wholesale failure of the credit rating agencies to rate adequately such securities is at the heart of the securitization market collapse, if not the primary cause of the current credit crisis.'" So can we at least get a correction of the systemic problems in our credit rating industry? Fat chance with Barney Frank at the helm. Indeed, Barney Frank's sole contribution to adjusting the credit rating system since Obama and cronies took power was to call on credit agencies to give higher ratings to municipal bonds than their risk justifies so that states could raise more money.

As to Obama's plan to revitalize the economy, he rammed through his massive spending bill without any meaningful debate. While tax cuts gets the money into the economy near immediately and can have long term effect as businesses expand, government spending can take years to have any impact and the effects are largely transitory. As far as I can tell, we have yet to see in history a government successfully borrow and spend its way out of an economic crisis such as we are in. It did not work for FDR, and most recently, it did not work for Japan. Dale Franks at Q&O has done a very interesting post how closely our current economic plans mirror those that failed utterly in Japan in response to its own financial crisis.

Then there are Obamacare and cap and trade. The former is an intermediate step towards socialized medicine expected to add a trillion dollars to our tax bill. The latter is designed to force us off of oil and coal - at the modest initial annual cost of $4k per American family - and into a world of green energy that does not exist. Those pushing cap-and-trade the most are those people and industries who stand to make a true windfall - GE and Al Gore chief among them.

Further, Obama is now warring on domestic production of energy plants using coal - and I seriously doubt this administration will consider any sort of expanded domestic oil production. Oil costs are low now. That said, the pendulum will, as it always does, swing. The massive markets for oil in China and India will again take hold. When it does, we will be even less prepared for the huge jump in oil and gas costs then when we were a year ago, when merely $4 a gallon for gas was putting a world of hurt on American families. Obama, despite his promises to the contrary during the campaign, is doing nothing to prepare us for this inevitability.

We are in a mess and the left, having primed the nation with class envy and then convinced a majority that they could improve the economy, are now spending us into penury for generations to come. Obama - who in fact himself bears some personal responsiblity for our current financial crisis through his strong arming of Chicago banks on behalf of ACORN - is nothing if not an opportunist. He and his like minded cronies are using the economic crisis to work a fundamental change to our nation. We are on the road to European socialism. I wonder if we will even stop there between now and 2012? Or will we run past that line following the rainbow to Utopia?

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