Pasadena Pundit 
NOTE: The Pasadena Pundit is now Pasadena Sub Rosa and can be found at the following new web address:
http://pasadenasubrosa.typepad.com/

The new website will provide expanded services such as trackbacks, archives, podcasts, and the ability to post comments.  Please be patient while we learn the workings of this new website.  Anyone who has an image which would be fitting for the masthead of the new website Pasadena Sub Rosa please submit it to passubrosa@yahoo.com

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New below:
Letter from Yale School of Medicine on Perchlorate Cleanups
Secret Sites for East Pasadena Urgent Care Center Revealed
EPA Rules Perchlorate Removal from Groundwater is Meaningless for Reduction of Disease or Birth Defects
EPA says rocket fuel pollutant perchlorate can remain in water
The ingredient contaminates water in California and 34 other states. The EPA says removing it wouldn't lead to a 'meaningful opportunity for health risk reduction'
From the Associated Press - September 23, 2008
http://www.latimes.com/news/science/environment/la-na-perc23-2008sep23,0,5493781,print.story
WASHINGTON ? The Environmental Protection Agency says there's no need to rid drinking water of a toxic rocket fuel ingredient that has fouled water supplies around the country, including in California.

The EPA's conclusion is in a draft document not yet made public but reviewed Monday by the Associated Press.

Perchlorate has been found in at least 395 sites in 35 states at levels high enough to interfere with thyroid function and pose developmental health risks, particularly for babies and fetuses, according to some scientists.

The EPA document says that mandating a cleanup level for perchlorate would not result in a "meaningful opportunity for health risk reduction for persons served by public water systems."

Perchlorate is particularly widespread in California and the Southwest, where it's been found in groundwater and in the Colorado River, a drinking-water source for 20 million people. It also has been found in lettuce and other foods.

In absence of federal action, states have acted on their own. In 2007, California adopted a drinking-water standard of 6 parts per billion.

Massachusetts has set a drinking-water standard of 2 parts per billion.

Jonathan Borak, M.D., Yale Medical School, Letter on Perchlorate
Read here:
http://www.councilonwaterquality.org/pdfs/borak_inhofe.pdf

Secret Sites for East Pasadena Urgent Care Center Uncovered
Some months ago on this website and in a letter published in the Pasadena Weekly this writer suggested the City of Pasadena abandon its proposal to put an Urgent Care Center in the former St. Lukes Hospital or in an empty former recreation center building at Eaton Blanche Park and investigate brand new vacant medical buildings at 3018 and 3030 East Colorado Boulevard, about half mile north of the Eaton Blanche Park site.  The current issue of the Pasadena Weekly reports that the City has been looking at undisclosed other sites in East Pasadena - read here:
http://www.pasadenaweekly.com/cms/story/detail/urgent_needs/6391/
Now the secret alternative sites have been unofficially discovered. The City Council meets Monday night in closed session to consider 3018 and 3030 East Colorado Boulevard and another office facility at 40 No. Altadena Drive - see Council Agenda below:

CITY COUNCIL

 

The Pasadena City Council will meet Monday, Sept. 22, at Pasadena City Hall, 100 N. Garfield Ave.  They will meet in closed session at 5:30 p.m. to confer with legal counsel regarding Hindman v. City of Pasadena et al and Los Angeles Engineering Inc. v. City of Pasadena; and confer with real property negotiators regarding 40 N. Altadena Dr., 3018 E. Colorado Blvd. and 3030 E. Colorado Blvd.

Former City Council candidate from East Pasadena Gene Masuda is apparently taking credit for steering the City Coucil away from the Eaton Blanche Park site. If memory serves me correct wasn't it Masuda and activist Roberta Marti who wrongly steered the City to St. Lukes and/or the Eaton Blanche Park site in the first place? 

We hope the Council makes a wise decision.  But they should remember that locating a City-sponsored Urgent Care Center in East Pasadena will mainly be for political expediency, not necessarily for the best medical care.  It is likely that any urgent care center in East Pasadena will still have to refer patients to the Huntington Hospital Imaging Center for anything other than routine x-rays (e.g., Catscan, Sonogram, MRI, etc.). 

A recent study by the Public Policy Institute of California revealed that emergency room congestion is mainly caused by Medi-Cal patients who can't find doctors to treat them at Medi-Cal reimbursement rates and HMO insured patients who don't want to wait until the next day for care from their assigned treatment facility.  So what an Urgent Care Center in East Pasadena may end up being is mostly a Medi-Cal/HMO treatment facility. 

 

And urgent care centers located long distances from state of the art imaging and diagnostic equipment and trained triage teams are unlikely to serve the best interests of medical patients. It isn't geographic proximity that makes for the best medical facility, but the type of equipment and trained personnel at such facilities. But locating such a clinic in East Pasadena will be politically popular, even if the remaining bulk of the city will have to trudge to East Pasadena for non-emergent medical care. 

Remember, privatization works better for urgent care. If you have your own doctor already, he or she can typically see you the same day for walk-in (i.e., urgent) care.  Or if you need hospitalization, your doctor can end run the hospital emergency room and admit you to a bed immediately.  They can also order tests immediately.  So a model urgent care delivery system might be better if, say, a half dozen private doctors could be given incentives to take Medi-Cal patients than in a model involving building or renting a new urgent care center.  A church is not a building; neither is an urgent care center.  The lack of a building for an urgent care center in East Pasadena is not the problem.  If it was then the three existing buildings the city is presently looking at would have been the solution a long time ago.  The problem (as I understand it) is inducing private doctors to take Medi-Cal and HMO patients.  That does not necessarily entail a new geographically proximate urgent care center.  Is the health care delivery model the city is pursuing appropriate to the problem at hand?  I'm not sure.

Now you know why we have the subprime lending mess.    

In Socialized Health Care System in Britain They Are Building Health Centers "Where They Are Not Needed"
Read here: http://www.timesonline.co.uk/tol/news/uk/health/article4799372.ece

The Bailout from Hell

Debra Saunders - SFChronicle
Read here: http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/09/23/EDA5132KFU.DTL

The Financial Bail-Out Plan Is Unlikely to Work
"Contrary to popular belief, the rescue package cannot help the economy; it will only severely weaken wealth generators. (The larger the package, the more misery it will inflict.) Hence, once the massive rescue plan is implemented, it will not prevent an economic slump but, rather, runs the risk of plunging the economy into the mother of all recessions." - Frank Shostak
Read the entire long think piece by economist Frank Shostak here:
http://mises.org/story/3119 
Note: Since Congressman Adam Schiff is about the only responsible local politician involved in the proposed financial bail out plan (see report care above), we hope someone from his office gives the above-linked article a good read and that Congressman Schiff is properly briefed as to the full ramifications of the bail out plan.  

Grading the Websites of Your Elected Representatives & Local Media on the Largest National Financial Crisis Since the Great Depression
(as of Sunday evening Sept. 21)

Elected Officials:
Grade - B
Congressman Adam Schiff - webpage includes a special timely statement on the crisis with a statement opposing bailouts that harm taxpayers, but no information on how he voted on prior related legislation
http://www.house.gov/htbin/blog_inc?BLOG,ca29_schiff,blog,999,All,Item%20not%20found,ID=080918_2408,TEMPLATE=postingdetail.shtml

Grade - D
Senator Barbara Boxer - no crisis here; webpage does not address the financing crisis, only the foreclosure crisis; no voting history or statement on financial workout plan:
http://boxer.senate.gov/features/mortgage/index.cfm

Senator Dianne Feinstein - no crisis here either; website only addresses foreclosure crisis; no voting history or position statement on bailout plan
http://www.feinstein.senate.gov/public/index.cfm?FuseAction=IssueStatements.View&Issue_id=fb8359b5-969f-2f07-cbb5-9cc4d0b07aa9

State Assemblyman Anthony Portantino - website concerned with foreclosures and global warming; they apparently are immune from financial meltdowns or foreclosures in La Canada - read here: http://adc.asm.ca.gov/issues/MortgageCrisis/

Grade - F
Governor Arnold Schwarzenegger - Overwhelmed with State budget crisis; no mention of effects of national financial meltdown on the State economy.  http://gov.ca.gov/

State Senator Jack Scott - Totally non copis mentis; website only concerned with self-congratulating legacy of education legislation - see here:
http://dist21.casen.govoffice.com/

Pasadena Mayor Bill Bogaard - No crisis reported at Mayor's website despite that the website Foreclosure.com lists 1,586 foreclosures in Pasadena. 
http://www.ci.pasadena.ca.us/mayor/ 
http://www.ci.pasadena.ca.us/mayor/speechescvrpg.asp

Local Newspapers
Grade C
PSN Editorial Page - Star News: Stale article here that wisely tells us not to panic, but oddly after PSN previously was accused of fomenting a bank run on the local branch of Indy-Mac Bank which purportedly contributed to its insolvency. 
http://www.pasadenastarnews.com/editorial/ci_10492132 
U.S. Senator Chuck Schumer claimed that he read about the dire situation of Indy Mac Bank in the local Pasadena newspaper before alerting Federal regulators to seize the assets of the bank.    http://www.pasadenastarnews.com/columnists/ci_9893630?source=rss
PSN News Page - Star News:  Good article here on how the local real estate economy is already recovering without the enactment of the national bailout plan
- http://www.pasadenastarnews.com/ci_10520951
Note: Are the banks in Pasadena solvent and do they have money to lend and at what interest rates? We have no way of knowing from the local newspapers.  Can't anyone interview a real banker?

Grade F
PSN Public Eye Website - Larry Wilson, Star News - Nothing here but predictable artsy stuff.  
http://www.insidesocal.com/publiceye/

PW Home Page - Pasadena Weekly: Nothing here except the juvenile focus on the unending crisis of the preservation of the former Crown Theater, the impeachment of President George W. Bush, and the continuation of the Bolshevik Revolution
http://www.pasadenaweekly.com/cms/index/

Beware politicians who peddle fables that cast themselves as the heroes.
WSJ
Once upon a time, in the land that FDR built, there was the rule of "regulation" and all was right on Wall and Main Streets. Wise 27-year-old bank examiners looked down upon the banks and saw that they were sound. America's Hobbits lived happily in homes financed by 30-year-mortgages that never left their local banker's balance sheet, and nary a crisis did we have.

Then, lo, came the evil Reagan marching from Mordor with his horde of Orcs, short for "market fundamentalists." Reagan's apprentice, Gramm of Texas and later of McCain, unleashed the scourge of "deregulation," and thus were "greed," short-selling, securitization, McMansions, liar loans and other horrors loosed upon the world of men.

Now, however, comes Obama of Illinois, Schumer of New York and others in the fellowship of the Beltway to slay the Orcs and restore the rule of the regulator. So once more will the Hobbits be able to sleep peacefully in the shire.

AP

From left: Christopher Cox, Henry Paulson, Harry Reid, Richard Shelby, Nancy Pelosi, Chris Dodd and Ben Bernanke.

With apologies to Tolkien, or at least Peter Jackson, something like this tale is now being sold to the American people to explain the financial panic of the past year. It is truly a fable from start to finish. Yet we are likely to hear some version of it often in the coming months as the barons of Congress try to absolve themselves of any responsibility for the housing and mortgage meltdowns.

Yes, greed is ever with us, at least until Washington transforms human nature. The wizards of Wall Street and London became ever more inventive in finding ways to sell mortgages and finance housing. Some of those peddling subprime loans were crooks, as were some of the borrowers who lied about their incomes. This is what happens in a credit bubble that becomes a societal mania.

A Look Back at the Crisis Unfolding

• Be It Resolved 09/19/08 - Paulson and Bernanke ask Congress for a resolution agency.
• The Fed and AIG 09/18/08 - Nationalizations aren't stopping the financial panic.
• McCain and the Markets 09/17/08 - Denouncing 'greed' and Wall Street isn't a growth agenda.
• The Fed's Epic Day 09/17/08 - It's only fair to praise the central bank when it does the right thing.
• Surviving the Panic 09/16/08 - A resolution agency, steady monetary policy, and a big tax cut.
• Wall Street Reckoning 09/15/08 - Treasury Secretary Hank Paulson's refusal to blink won't get any second guessing from us.

But Washington is as deeply implicated in this meltdown as anyone on Wall Street or at Countrywide Financial. Going back decades, but especially in the past 15 or so years, our politicians have promoted housing and easy credit with a variety of subsidies and policies that helped to create and feed the mania. Let us take the roll of political cause and financial effect:

- The Federal Reserve. The original sin of this crisis was easy money. For too long this decade, especially from 2003 to 2005, the Fed held interest rates below the level of expected inflation, thus creating a vast subsidy for debt that both households and financial firms exploited. The housing bubble was a result, along with its financial counterparts, the subprime loan and the mortgage SIV.

Fed Chairmen Alan Greenspan and Ben Bernanke prefer to blame "a global savings glut" that began when the Cold War ended. But Communism was dead for more than a decade before the housing mania took off. The savings glut was in large part a creation of the Fed, which flooded the world with too many dollars that often found their way back into housing markets in the U.S., the U.K. and elsewhere.

- Fannie Mae and Freddie Mac. Created by government, and able to borrow at rates lower than fully private corporations because of the implied backing from taxpayers, these firms turbocharged the credit mania. They channeled far more liquidity into the market than would have been the case otherwise, especially from the Chinese, who thought (rightly) that they were investing in mortgage securities that were as safe as Treasurys but with a higher yield.

These are the firms that bought the increasingly questionable mortgages originated by Angelo Mozilo's Countrywide and others. Even as the bubble was popping, they dived into pools of subprime and Alt-A ("liar") loans to meet Congressional demand to finance "affordable" housing. And they were both the cause and beneficiary of the great interest-group army that lobbied for ever more housing subsidies.

Fan and Fred's patrons on Capitol Hill didn't care about the risks inherent in their combined trillion-dollar-plus mortgage portfolios, so long as they helped meet political goals on housing. Even after taxpayers have had to pick up a bailout tab that may grow as large as $200 billion, House Financial Services Chairman Barney Frank still won't back a reduction in their mortgage portfolios.

- A credit-rating oligopoly. Thanks to federal and state regulation, a small handful of credit rating agencies pass judgment on the risk for all debt securities in our markets. Many of these judgments turned out to be wrong, and this goes to the root of the credit crisis: Assets officially deemed rock-solid by the government's favored risk experts have lately been recognized as nothing of the kind.

When debt instruments are downgraded, banks must then recognize a paper loss on these assets. In a bitter irony, the losses cause the same credit raters whose judgments allowed the banks to hold these dodgy assets to then lower their ratings on the banks, requiring the banks to raise more money, and pay more to raise it. The major government-anointed credit raters -- S&P, Moody's and Fitch -- were as asleep on mortgages as they were on Enron. Senator Richard Shelby (R., Ala.) tried to weaken this government-created oligopoly, but his reforms didn't begin to take effect until 2007, too late to stop the mania.

- Banking regulators. In the Beltway fable, bank supervision all but vanished in recent years. But the great irony is that the banks that made some of the worst mortgage investments are the most highly regulated. The Fed's regulators blessed, or overlooked, Citigroup's off-balance-sheet SIVs, while the SEC tolerated leverage of 30 or 40 to 1 by Lehman and Bear Stearns.

The New York Sun reports that an SEC rule change that allowed more leverage was made in 2004 under then Chairman William Donaldson, one of the most aggressive regulators in SEC history. Of course the SEC's task was only to protect the investor assets at the broker-dealers, not the holding companies themselves, which everyone thought were not too big to fail. Now we know differently (see Bear Stearns below).

Meanwhile, the least regulated firms -- hedge funds and private-equity companies -- have had the fewest problems, or have folded up their mistakes with the least amount of trauma. All of this reaffirms the historical truth that regulators almost always discover financial excesses only after the fact.

- The Bear Stearns rescue. In retrospect, the Fed-Treasury intervention only delayed a necessary day of reckoning for Wall Street. While Bear was punished for its sins, the Fed opened its discount window to the other big investment banks and thus sent a signal that they would provide a creditor safety net for bad debt.

Morgan Stanley, Lehman and Goldman Sachs all concluded that they could ride out the panic without changing their business models or reducing their leverage. John Thain at Merrill Lynch was the only CEO willing to sell his bad mortgage paper -- at 22 cents on the dollar. Treasury and the Fed should have followed the Bear trauma with more than additional liquidity. Once they were on the taxpayer dime, the banks needed a thorough scrubbing that might have avoided last week's stampede.

- The Community Reinvestment Act. This 1977 law compels banks to make loans to poor borrowers who often cannot repay them. Banks that failed to make enough of these loans were often held hostage by activists when they next sought some regulatory approval.

Robert Litan, an economist at the Brookings Institution, told the Washington Post this year that banks "had to show they were making a conscious effort to make loans to subprime borrowers." The much-maligned Phil Gramm fought to limit these CRA requirements in the 1990s, albeit to little effect and much political jeering.

We could cite other Washington policies, including the political agitation for "mark-to-market" accounting that has forced firms to record losses after ratings downgrades even if the assets haven't been sold. But these are some of the main lowlights.

Our point here isn't to absolve Wall Street or pretend there weren't private excesses. But the investment mistakes would surely have been less extreme, and ultimately their damage more containable, if not for the enormous political support and subsidy for mortgage credit. Beware politicians who peddle fables that cast themselves as the heroes.

Headline Not Found in Newspapers - The Democratic Housing Crony Bailout of 2008 has failed! 
Newt Gingrich -
" If this were a Democratic proposal, Republicans would remember that the Democrats wrote a grotesque housing bailout bill this summer that paid off their left-wing allies with taxpayer money, which despite its price tag of $300 billion has apparently failed as of last week, and could expect even more damage in this bill."
Read the whole thing here:
http://corner.nationalreview.com/post/?q=ZGE5MmE0YmRiODA3YTRiNzFlN2FmNDU5N2I0ZDc3YTE=

Guaranteed Not In the "Your View" (i.e. Hate Mail) Section of the Local Newspaper
Bush called for reform of Freddie Mac and Fannie Mae 17 times in 2008
Here:
http://gatewaypundit.blogspot.com/2008/09/bush-called-for-reform-of-fannie-mae.html

Lesson: Don't Panic But Let Prices, Not Queuing Up or Over-Regulation, Ration Out Goods in a Crisis
Read here how the City of Nashville panicked about a non-existent gasoline shortage and how gasoline station operators FAILED to hike gas prices to calm down the panic.  Pasadena officials would be wise to read this article to prepare for the possibility of a similar occurrence here locally given the public's nervousness about the economy.  Read here: http://www.lewrockwell.com/north/north655.html 

Liberal Economist Says "No Deal" to the Financial Bailout Plan
Read here: http://krugman.blogs.nytimes.com/2008/09/20/no-deal/

What If the Bailout Plan Doesn't Work? What's Next if anything?
Economist Robert Samuelson on "The Big Con" - here
http://www.realclearpolitics.com/articles/2008/09/the_great_confidence_game.html

Diary of Subprime Loan Fraud
Fascinating newspaper case study - not to be found in the Pasadena Star News
Excerpt:
"In July 2007, Vijay and Supriti Soni of Corona del Mar paid $440,000 for a home at 2129 W. Civic Center Drive in Santa Ana. Five weeks later, they resold the house to Javier Hernandez - the family gardener and handyman - for $660,000. That's a 50 percent gain in 38 days - at a time when real estate prices in Santa Ana were plunging."
Read the whole ugly story here:
http://www.ocregister.com/articles/soni-washington-mutual-2163800-sonis-family

Recession Depends on Red or Blue Location, Location, Location 
Excerpt:
But for the moment, let's humor the critics and allow for the possibility that the economy as a whole has somehow slipped into recession during the current quarter. If so, where have the stumbles occurred?

Certainly not in red states Texas, Florida, or Arizona (though the Grand Canyon State has a Democratic governor, it went solidly for Bush in 2004, and has relatively conservative GOP legislative majorities). As Phil Gramm and Mike Solon noted in their weekend Wall Street Journal column (HT to Alo at Brain Shavings for the heads-up), those states created one-third of all U.S. jobs in the past 10 years, and their per-capita income growth far outpaced the national averages.

Most other red states have until very recently done very well. Some are still doing just fine. For example, the seasonally adjusted July unemployment rates in Utah, North Dakota, South Dakota, Idaho, Nebraska, and Oklahoma averaged well below 4%.

If you're looking for troubling times, visit the blue states. You'll find plenty.

Looking for high unemployment?

• First, go to California (Kerry by 10% in 2004, Democrat-dominated legislature, and might-as-well-be-Democratic governor). Its seasonally adjusted August unemployment rate was 7.3%, up from just 5.4% a year ago.

• Then go east to Michigan, where things have gone from bad to really bad during Democrat Jennifer Granholm's tenure. Wolverine State July unemployment was 8.5%.

• Move on to Ohio, which went from pseudo-red under Bob Taft to
  blue in 2006, with the election of a Democratic governor, who has been aided and abetted by a mostly complacent GOP legislature. July unemployment: 7.2%.

• Finally, skip over red state Indiana, which is still holding its own, and you'll get to Obama's home state of Illinois, whose Democratic governor, legislature, big-city mayor, and U.S. senators have all played a part in creating the Land of Lincoln's 7.3% July unemployment rate.

For decidedly Democrat-driven government bailout situations like Freddie Mac and Fannie Mae ? referred to as "Barney's Rubble" in Wednesday's Wall Street Journal ? visit true-blue Metro DC.

To find brokers, bankers, and insurers taking unjustified risks with depositors' and others' money, go to the blue-state triumvirate of New York, New Jersey, and Connecticut, and its Democrat-heavy investment banking industry.

Within certain states, the red-blue contrast is stark. In Ohio, if you want out-of-control foreclosures and general economic doldrums, visit bluer-than-blue Cleveland, Akron, Canton, Youngstown, Toledo, and Dayton. If you want areas that are largely holding their own, stick with Cincinnati and Columbus, especially the GOP-dominated rings around each city. The same holds for economically distressed southeastern Michigan vs. the rest of that state, and Chicagoland vs. most of the rest of Illinois.

So if there is indeed a recession taking place, blame it on the blue states and blue regions, with their high-tax, high-regulation, high-giveaway environments. The lower-tax, more economically free red states and the red regions within otherwise blue states are certainly not the culprits.
Source:
http://pajamasmedia.com/blog/very-different-economic-times-in-red-vs-blue-states/2/

10% Medi-Cal Cuts Remain in State Budget Assuring That Hospital Emergency Rooms Will Be Congested. 
The new budget retains the current 10 percent cut in Medi-Cal payments for most providers - including doctors, nurses, dentists, home health providers - through Feb. 28, 2009. Smaller rate cuts would begin March 1, reducing the state's savings by $110 million. A federal judge last month ordered that full payments be restored - the state is appealing the ruling. Medi-Cal funds health care for 6.6 million low-income people. But some doctors, pharmacists and other health care professionals may decide not to accept Medi-Cal patients due to the low reimbursement. That will continue to force Medi-Cal recipients to use hospital emergency rooms as their primary health care provider and pharmacist.  More here:
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/09/20/MN3Q131AJB.DTL
Note: In Pasadena the problem of congested emergency rooms is not solved by building an Urgent Care Center in East Pasadena. Should Pasadena start indirectly subsidizing Medi-Cal recipients?   

Biden Biding His Time?
Here: http://www.snopes.com/politics/obama/vpchange.asp

40% of Mutual Funds Post Zero Percent Return
Read here:
http://moneynews.newsmax.com/streettalk/money_funds/2008/09/19/132476.html

13-Week T-Bill Interest Rate Collapses by Over 90%
Excerpted from Q&O Blog
A quick post for a fast developing market situation. Today (Sept. 17) the Fed went to the Treasury and asked for a line of credit. You know, the lender of last resort has had to turn to our Treasury to protect their balance sheet.

Want to see something weird. Go here and look at the treasury market. In the bond world, a 1% move is huge. So check out what has happened in the US Treasury market. Especially the 13 week Treasury bill. It's yield has collapsed by over 90% at this moment in time.

Astounding, truly astounding.

My father who invested (and very successfully) through the late sixties/early seventies nifty fifty era, the bear market of 72-74, the market low in 1981 and Black Monday in 1987 says this is the most incredible market in all of his experience. It certainly eclipses anything I have seen from 1980 forward.

Update: Courtesy of Eddie Elfenbein:

At one point today, the yield on the three-month Treasury bill (^IRX) hit 0.01%!!

One Freakin Bip!!

This means that the risk-free rate is now in direct competition with the underside of your mattress.

Birds Of A Feather Flock Together
-By Dan Scott
Give credit where credit is due, blame the Democrats for their equality of outcome incompetence. A blind person could see more than the Democrat cronies who were running Fannie Mae and Freddie Mac (FMs) up to now. There is none so blind as those who refuse to see. The Democrat's ideological blinder was the Equality of Outcome policy they implemented to push home ownership to people who simply weren't capable of being homeowners. In 2003, the Bush Administration tried to head off the problem with the FMs but Democrats would have none of it, the NYT recorded their excuses for posterity. Significant details must still be worked out before Congress can approve a bill. Among the groups denouncing the proposal today were the National Association of Home Builders and Congressional Democrats who fear that tighter regulation of the companies could sharply reduce their commitment to financing low-income and affordable housing.

??These two entities ? Fannie Mae and Freddie Mac ? are not facing any kind of financial crisis," said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. "The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing."

Let's be very clear about this, the reason why financial companies like Bears Sterns and Lehman Bros went down were the Collateralized Debt Obligation (CDO) valuations based on the supposed soundness of FM and Bank mortgages. Had the mortgages been sound, the CDO problem wouldn't exist. This is not the simple "greed" of CEOs on Wall Street (while it did involve some on many Dem supporters part as you will see), this was mostly the incompetence of liberal Democrats and their idiotic Equality of Outcome policy inappropriately extending home ownership to people who simply weren't able to handle that responsibility. We shouldn't entirely blame the banks for the incompetence of the Democrat's Equality of Outcome policy. Who do you think set the rules for granting mortgages to be bought? The FMs. The banks and other financial institutions based their CDOs on mortgages of these two institutions. Who ran these institutions until recently? CLINTON cronies! Together these two companies amount to about 70% or so of the total secondary market for home mortgages in which mortgages are bought from the originating lenders and then packaged into tranches which are sold to investors in what is known as a Collateralized Debt Obligation.

. Well, Fannie Mae has long been the sinecure where Democratic Party functionaries have gone to get rich. The most well-known figures are former chairman Jim Johnson (once the head of Barack Obama's vice presidential search committee before being replaced by Caroline Kennedy), 9/11 Commission member and former deputy attorney general Jamie Gorelick who served as Fannie Mae's vice chairman from 1997 to 2003. But the most notorious former Democratic apparatchik in this respect is former Clinton OMB director Frank Raines. Under his leadership Fannie Mae was accused of cooking its books to boost the multi-million dollar bonuses paid to its top executives and Raines settled with regulators for the astonishing sum of $24.7 million. But the story doesn't end there as we found out this last spring with the sweetheart loan deals offered to Democratic Senators Kent Conrad and Christopher Dodd by former Countrywide Home Loan chief Angelo Mozila in what was aptly title the "friends of Angelo" program.

It was the prosecutors under the Bush Administration that went after the Clinton cronies running the FMs The politically appointed cronies got away with the scandal as long as they did because the FMs are not subject to the Sarbanes-Oxley Act as they are quasi-government institutions. Any bank that attempted to behave the way the FMs behaved would have been taken over long ago and the CEOs prosecuted for fraud.

What the FMs did under the Equality of Outcome (affordable housing) policy was to essentially eliminate the requirement to be a credit worthy home owner. It shouldn't have come as a surprise when a renter buys a home on overly generous credit terms, when find themselves in trouble they are going to walk and default on the mortgage. The fact is some people are only able to be renters due to their economic background and lifestyle. Why is that? In their experience, when a renter found they couldn't continue to pay the rent, they moved out and doubled up with someone else until they found a cheaper place, it's the landlord's problem to find another tenant. Other than sometimes losing the security deposit, there were no immediate negative financial repercussions. I call this "renter's mentality". A renter with no history of home ownership and NO vested interest (no down payment), i.e. nothing to lose (risk free), purchases a house, they don't see it's their responsibility to be able to afford the place and they're off the hook if they can't. If you have to put your own money on the line and face possibly loosing it, you are far more careful as to your decisions. As far as the renter's mentality is concerned, they are moving out of an apartment and see the Bank (FMs) as the landlord. In the renter's mentality, the bank has the property and it's the bank's problem to find another buyer.

In 2005 the Bush Administration tried again to reform the system this time with Barack Obama's opposition added.

The administration did not accept half-measures. In 2005, Republican Mike Oxley, then chairman of the House Financial Services Committee, brought up a reform bill (H.R. 1461), and Fannie and Freddie's lobbyists set out to weaken it. The bill was rendered so toothless that Card called Oxley the night before markup and promised to oppose it. Oxley pulled the bill instead.

During this period, Sen. Richard Shelby led a small group of legislators favoring reform, including fellow Republican Sens. John Sununu, Chuck Hagel and Elizabeth Dole. Meanwhile, Dodd ? who along with Democratic Sens. John Kerry, Barack Obama and Hillary Clinton were the top four recipients of Fannie and Freddie campaign contributions from 1988 to 2008 ? actively opposed such measures and further weakened existing regulation.

Which brings us to Barack Obama's connection to the FM mess and the demise of Lehman Brothers and Bears Sterns. Obama received a grand total (per Open Secrets) of $1,223,737.00 from Fannie Mae, Freddie Mac, Lehman Brothers, AIG, and Bear Stearns while John McCain received only $258,075.00.

John McCain $6,550 (Fannie Mae) $9,100 (Freddie Mac) $117,500 (Lehman Bros.) $36,875 (AIG) and $88,050 (Bear Stearns)

Barack Obama $137,950 (Fannie Mae) $68,750 (Freddie Mac) $370,524 (Lehman Bros.) $75,899 (AIG) and $570,614 (Bear Stearns)

Now at first blush why would the FMs and other financial service giants give to Barack Obama when he doesn't have any committee assignments that were even remotely connected to their industry? Let's think about that and consider some facts. Now clearly Barack Obama under the campaign finance rules could not receive a single source contribution of $137,950 from Fannie Mae or any of those other amounts previously listed. These amounts were the sum total of employees working for Fannie Mae, i.e. Democrat contributors. Fannie Mae's large aggregate contributions were not isolated, most of Barack Obama's top contributors are from the financial services industry.The financial record of contributions shows that liberal Democrats are heavily involved in the financial services sector and thus have a vested interest in free wheeling markets. Contributions to John McCain from Republican employees are puny in comparison and therefore contrary to the liberal myth Republicans aren't the greedy minions of Wall Street. Obama was friends with Franklin Raines, the former CEO of Fannie Mae whom by the way was also an economic advisor to his campaign. And Raines wasn't the only one.

From Rev. Wright to Franklin Raines it seems Barack Obama's continual poor choice in associates and heavy support reflects the old adage of "birds of a feather, flock together. " Why should anyone vote for a guy who takes advice from someone who helped damage the US financial system and stuck it to the taxpayer (you and me) to clean up the mess? Why should anyone believe Barack Obama has the answers to the current economic issues when he and his buddies caused the mess? Why should anyone believe the Democrat Party has any answers at all when they and their high flying contributors are part and parcel of the problem?

Other reference web links of interest
Federal Election Commission Contributor Database
Contribution limits

Congressional Irrelevance
Todd Zywicki @Volokh Conspiracy  
One interesting aspect of the recent government bailouts has been the complete irrelevance of Congress. The operation and decision-making seems to be run almost entirely by the Secretary of Treasury and Federal Reserve. Congress appears to lack the ability, the will, and the decisiveness to play any role except spectator, as a handful of senior executive branch officials have nationalized major portions of Wall Street.

What is further interesting is that Congress is not missed in the slightest. No one is clamoring for a greater role for our elected representatives in dealing with these problems. I haven't heard anyone saying, "We really need to get Congress more involved in this. They'll know what to do."

The other day, I offered my view that Congress today is fundamentally a silly place stocked with silly people. This latest situation illustrates the principle. I don't know whether Paulson and Bernanke are doing the right thing (I tend to think not). But I know for certain that I'd rather that they be making these decisions than Congress.

Moreover, this problem has become systemic. A recent Wall Street Journal article noted that the current Congress has enacted less legislation than any Congress in recent history--and that includes its many symbolic pieces of legislation such as renaming Post Offices. The output of administrative agencies dwarfs that of Congress. The Senate's behavior on judicial nominations is preposterous.

I sense a vicious cycle at work here. As Congress has become more dysfunctional and unable to address matters of public importance, the Executive Branch has stepped in to fill the gap. In turn, this allows Congress to behave in an even less-serious manner, which in turn necessitates further action by the Executive Branch. If the Executive waited for Congress to do anything, nothing would get done. So Congress essentially spends its time bloviating and posturing, while the unelected beavers in the bowels of the bureaucracy crank out federal regulations.

Put more generally, Congress's ridiculousness has increasingly caused it to forfeit its status a co-equal branch of government. 40 or 50 years ago it might have been plausible to imagine Congress addressing important public policy issues like entitlement reform or health care reform (I'm not saying they would have done it, but it seems like it was more plausible then). Serious people were in the Senate then--Taft, Johnson, etc. Today, however, the idea that serious solutions to pressing social problems might originate in Congress is hard to suggest with a straight face.

In the abstract, I am no fan of the administrative state and see the theoretical value of political accountability. But if I have to choose who I'd trust to deal with the big decisions, it is hard to make the case that Congress as it actually exists is who we want in charge. Over the past few years, the Executive and Courts have increasingly filled the gap that they perceive as existing because of Congress's incompetence. One would like to say that if the Executive or Judiciary won't step in Congress will step up. But that doesn't seem like a realistic scenario to me. It is a vicious cycle and it is hard to see how that cycle can be broken.

But I'm sure that there will be much ballyhooed Congressional hearings in a few months to "get to the bottom of this." Congress's last effort on this was Sarbanes-Oxley, and a lot of good that seemed to do (see Larry Ribstein).

As I said last week, John McCain has seemed to remain a serious person despite his service in the Senate, not because of it. And that it is not clear on Barack Obama. On Joe Biden it seems reasonably obvious that he long ago succumbed to Senator-itis. I think that this latest episode, and Congress's irrelevance in it, nicely illustrates my points.

CO2 Cap and Trade is Really Tax and Charade
Read here:
http://sciencepolicy.colorado.edu/prometheus/tax-and-charade-4576

Water Wise or Water Wisdumb for Pasadena?
An oft-repeated phrase used by public agencies in California to market water conservation programs is to "be water wise."  But recent punitive water conservation policies being enacted at the municipal level in California in response to California 's "perfect storm" of a physical and political drought reflect what might more appropriately be called "water wisdumb." 

Northern California is presently suffering from a "perfect storm" of a physical and a political drought. A judge has shut down water shipments to Southern California through the state water interchange in the Sacramento Delta because a tiny fish, the Smelt, reportedly has vanished purportedly due to the action of the pumps on the California Aqueduct. No mention has been made by environmentalists that the Delta Smelt, like the Three Spine Stickleback fish, plausibly may have gone into hiding to protect themselves from natural predators due to man-made improvements in Delta water quality.

Because of this "perfect storm," local municipalities in Southern California now must reduce water usage by 20% or face higher wholesale water rates or other sanctions. In response, cities such as Los Angeles and Pasadena are enacting fines ($50 or more) for the following water wasting practices:

 

1.  Hosing or washing sidewalks, driveways or parking areas.
2.  Filling decorative fountains, ponds, etc. unless equipped with water recycling system.
3.  Serving drinking water at restaurants and other commercial establishments, unless customer requested.
4.  Failing to repair leaks in plumbing or sprinkler systems.
5.  Allowing water to run off from landscaping areas into streets.
6.  Allowing water to run off from washing vehicles.
7.  Watering landscaping from 10 a.m. to 5 p.m.
8.  Filling or refilling swimming pools.

The emphasis on water saving efforts is on the highly visible measures that might provide bad photo ops for the media.  However, cities run the risk of being notoriously embarrassed if they fine residents and businesses who have reduced water use for example by 20% to 50%, but are caught hosing their walks!  Could such unreasonable fines be considered an illegal "taking" without public necessity in violation of the 5th Amendment to the U.S. Constitution?  Even if such a practice is legal, it may be perceived by the public as abusive as eminent domain. Any City enacting such a water conservation ordinance should consider including a circuit breaker clause which would commute fines if a resident or business owner has reduced overall water use by 20% or more.

Local water agencies and City councils have failed to address another potential political embarrassment - fining residents for wasting water when their water rates are already illegally overcharged in violation of Proposition 218 in order to subsidize the City's General Fund budget.  Many cities in Southern California, such as Pasadena , continue to illegally overcharge for domestic water and divert the excess into their General Funds for essential public services without first obtaining a vote of the electorate. Even shrewd politicians would not want to add a fine on top of an illegally overloaded water rate. Most residents are not even aware that their water rates are illegally overcharged. Drawing attention to this illegal tax might backfire or provoke a lawsuit.  

Even Niccolo Machiavelli, the 15th Century Italian who wrote the book on political shrewdness ("The Prince") said it is better for a politician to be perceived merciful than cruel and to avoid rapaciousnes and unjustly seizing the property of their subjects. The rank amateurs at Southern California's city halls should reconsider their proposed unthinking punitive water conservation policies. The negative political perception that might result from such overkill water ordinances is critical especially since even Southern California environmentalist and water activist Dorothy Green has recently stated in the Los Angeles Times that the so-called water shortage is artificial and political.  New punitive water conservation ordinances may be "water wise" but they may also indicate that there is no drought on political wisdumb in California.    

Pasadena Has $7.8 Million At Risk for Transfer to Plug State Budget Deficit, Reflecting about 1% of City Financial Reserves
The California Redevelopment Association is estimating that Pasadena's Redevelopment Agency would be hit with a $2,243,129 transfer payment to make up for the State budget deficit.  See here: http://www.californiacitynews.org/
This is roughly ten times the amount estimated previously on this website using a formula of the City's own posted gross revenues for each redevelopment project area x 5% tax levy. To put this in relative perspective, however, this is only about 0.04% of Pasadena's two-thirds of a billion dollars in financial reserves. 

However, total City funds at risk from State "borrowing" from Pasadena from property taxes under Prop 1A and from Prop. 42 obligations to meet the State budget deficit could total as much as $7,868,167.  Link:   http://www.californiacitynews.org/
This would reflect approximately 1.18% of the City's financial reserves.  Note: Pasadena earns perhaps about $30 million per year on interest on its investments.   

Pasadena would get $235,848 back from the State for special law enforcement program under the COPS Citizen Options for Public Safety and $1,350,557 for street and road improvements under Prop. 42.  Link: http://www.californiacitynews.org/

Sarah Palin Skips California Visit - Why? Because It Is a Lost Cause
Read here:
http://www.mercurynews.com/ci_10499742?source=most_viewed 

Buyer Beware - Don't Buy Treasury Inflation Protected Securities (TIPS)

Something's fishy in Washington, DC.  Read here:
http://liberty.pacificresearch.org/press/tips-have-underforecasted-inflation

Did Eliot Spitzer Bring About Demise of AIG Insurance?  
The New York Sun newspaper thinks so.

Read more here:
http://www.nysun.com/editorials/bring-back-greenberg/86042/

Obama Once Dated Fannie (and even Freddie)
Obama doesn't pass the smell test when it comes to the failure of Fannie Mae and Freddie Mac.  Read here:
http://online.wsj.com/article/SB121158607794919005.html?mod=googlenews_wsj

The Lehman Bros. - Environmental Connection
Lehman Brothers, like Enron, pursued trading in highly artificial cap and trade markets based on the social fiction of global warming.  Read here:
http://www.openmarket.org/2008/09/17/lehman-bros-the-environmentalist-connection/

Also read these two Lehman Bros. reports: 
http://www.lehman.com/who/intcapital/#

A Cartoon is Worth a Thousand Words