Sunday, June 15, 2014
In December 2011 at Fort Bragg, Barack Obama boasted of his grand achievement in ending the war in Iraq as the last U.S. troops were removed. “We knew this day would come,” he said. “We’ve known it for some time. But still there is something profound about the end of a war that has lasted so long. It’s harder to end a war than begin one. Everything that American troops have done in Iraq – all the fighting, all the dying, the bleeding and the building and the training and the partnering, all of it has landed to this moment of success. … We’re leaving behind a sovereign, stable and self reliant Iraq with a representative government that was elected by its people. We’re building a new partnership between our nations and we are ending a war not with a final battle but with a final march toward home. This is an extraordinary achievement.”
Today, the news coming out of Iraq is yet another sad reminder of the utter failure of Barack Obama’s leadership on the world stage. The jihadist group known as Islamic State of Iraq and Syria (ISIS) seized the Iraqi cities of Mosul and Tikrit this week in lightning fast strikes that sent unprepared Iraqi security forces scrambling. ISIS has made steady progress in its campaign against government forces in recent months, having seized much of Anbar Province earlier in the spring. Its forces are now poised less than a hundred miles from Baghdad. By the way, Abu Bakr al-Baghdadi, the new leader of ISIS, was released from U.S. custody in 2009. Anyone still think those five Taliban leaders “are not a threat to the United States”?
America’s national security team assures us that Baghdad will not fall because of the high concentration of military forces there. But U.S. embassy officials are laying out contingency plans for evacuation. Last one to the helicopter on the roof can turn out the lights.
It’s a stunning turn of events, particularly for those gullible enough to believe Obama’s claims about his “extraordinary achievement.” For instance, let’s recall his boast upon pulling U.S. forces out of Iraq: “Al-Qaida is decimated.” Former Defense Secretary Leon Panetta declared in July 2011 that the U.S. was close to “strategically defeating” al-Qaida. It turns out that al-Qaida in Iraq (AQI), the major jihadi force that U.S. troops were fighting before Obama’s ignominious retreat, was not actually defeated. It just morphed into something else that is even more of a threat.
As recently as Wednesday, responding to the news of ISIS’s military gains, our Nobel Peace Prize-winning president maintained, “The world is less violent than it has ever been.” Perhaps true when compared to, say, World War II, but his statement is willfully ignorant of realty. Iraq is unraveling, Ukraine is fighting for its very existence against a resurgent Russia, and Boko Haram continues to terrorize Nigeria, just to pull three examples from the headlines.
The Middle East is a raging battlefield once again, with al-Qaida at the center of the conflagration. Call the brand of al-Qaida whatever you like, the blame for this rapidly unfolding disaster lays squarely at the feet of this president. Obama was so eager to end George W. Bush’s “dumb war” that he ignored the advice of senior Pentagon officials to leave a sizable American force in Iraq. He doesn’t seem to comprehend that leaving a battlefield is not synonymous with victory on the battlefield.
The growth and success of ISIS is a direct result of Obama’s complete foreign policy malfeasance. The Islamic militant group is made up of Sunni fighters from Syria and Iraq motivated to create a Pan-Islamic caliphate stretching from the Mediterranean Sea to the Iranian border. The civil war in Syria, which Obama refused to dirty his hands with, inevitably spilled over the porous border with Iraq, and militants traveled back and forth in that region for the last two years or more, causing death and destruction and growing stronger by the day.
It’s a mistake to assume that ISIS is just another al-Qaida affiliate that can be neutralized with drone strikes. This is not some ragtag band of fighters roaming the desert in rusty pickups. They are trained soldiers, equipped with more than military hardware left behind by fleeing Iraqi National Security forces and abandoned U.S. military outposts. They are motivated, which is more than can be said for the White House.
Just as Bill Clinton’s willful ignorance of al-Qaida in the 1990s left us unprepared for 9/11, so too Obama’s self-centered hubris has allowed Iraq to come to the brink of anarchy. Headlines say the White House was “caught off guard” by the advance of al-Qaida. Perhaps Obama only found out about ISIS’s military gains from news reports.
Iraqi Prime Minister Nouri al-Maliki has begged the administration to consider air strikes against ISIS staging areas since May. Going back as far as March, American advisers who visited Baghdad had been told by senior Iraqi leaders that air power was sorely needed to turn the tide against the insurgents. Yet the requests fell on deaf ears.
Now, Obama says all options are on the table to help the Iraqis. “I don’t rule out anything because we do have a stake in making sure that these jihadists are not getting a permanent foothold in either Iraq or Syria.” Not getting a permanent foothold? His oblivion knows no bounds. Maybe he can try a few Twitter hashtags on his way to Laguna Beach for golf and a fundraiser.
Things have gotten so bad that Iran is now getting into the fight on behalf of the embattled Iraqi government, sending Revolutionary Guard units to combat its Sunni foes. So, while Iran remains a state sponsor of terrorism, props up Bashar al-Assad’s regime in Syria and continues its quest for nuclear weapons, it’s defending U.S. interests in Iraq better than Obama is. Even Assad is offering to help. To put it conservatively, Iraq is a total mess.
Obama has made it plain he has no intention of correcting his egregious mistakes in Iraq – he’s given away everything we fought for and he’s proud of it. We will likely have to watch chaos spread across the region for another two years until, hopefully, a new president does what’s needed to stabilize the region and protect U.S. national security interests. Thursday’s anniversary of Ronald Reagan’s challenge to Mikhail Gorbachev to tear down the Berlin Wall reminds us that America can be a beacon of freedom and security in the world. Unfortunately, we’ve gone a long way in the wrong direction.
The VA Morass Deepens
With each passing day and new revelation, the Veterans Affairs secret wait-list scandal shows a rotten and decaying system where corruption was rampant and accountability nonexistent. Inspection visits to under-performing facilities were “paused” for two years, bonuses were tossed out like candy at a parade, to the tune of over $100 million in a three-year period, and whistleblowers were threatened with firing – or worse.
All this has led to the opening of an FBI investigation, meaning it’s quite possible that some hospital administrators could fall on the sword for their role in poor patient care and secret “death panel” waiting lists. The Phoenix FBI office is taking the lead, as the story originated from that facility, but this is a nationwide problem – the VA’s own inspector general is looking at a total of 69 facilities, and that number is likely to grow.
Congress is also moving with unusual speed – particularly in light of an oncoming election – to address some aspects of the problem. Bills are on the fast track in both the Senate and House, and they are considered to be similar enough that no more than a perfunctory conference session would be needed. Items likely to make the cut are a prohibition on bonuses to VA executives through 2016, allowing the VA to shift $500 million in its budget to hire more medical staff, and allowing certain veterans who live far from VA facilities to seek out private providers on the VA’s tab. The VA would also be encouraged to contract with private medical facilities as needed to reduce wait times.
Still, if the VA system is the epitome of government-run health care – and it is – the clamor to eliminate ObamaCare should be deafening. The VA’s public relations and patient confidence holes are getting deeper and wider with each revelation, and the millions of veterans and their families who depend on the VA for their health don’t just deserve better care – they deserve answers as to what went wrong and why.
Mother Jones shoots and misses at Dave Brat on Fannie, Freddie
Formerly unknown congressional candidate Dave Brat has been in the headlines ever since he ousted soon-to-be former House Majority Leader Rep. Eric Cantor for Virginia’s 7th Congressional District Republican nomination.
Now, Brat faces an even greater challenge in the general election. First up is taking on the left-wing political intelligentsia, which is attempting to eviscerate his election chances.
For example, writing for Mother Jones, Molly Redden and David Corn try to discredit Brat’s critique of government policies that led to the financial crisis.
“An economics professor at Randolph-Macon College in central Virginia, Brat frequently has repeated the conservative canard that Freddie Mac and Fannie Mae brought down the housing market by handling the vast majority of subprime mortgages,” write Redden and Corn, adding, “That is, he absolves Big Finance and the banks of responsibility for the financial crisis that triggered the recession.”
Redden and Corn are referring to Brat’s frequent refrain on the campaign trail that “Fannie and Freddie made two-thirds of all subprime mortgages.”
At this point, it is probably best to defer to American Enterprise Institute resident fellow Edward Pinto, former Fannie Mae executive vice president and chief credit officer, on this count. After all, he literally wrote the book on how Government Sponsored Enterprise (GSE), congressional, and Department of Housing and Urban Development (HUD) policies were among the primary causes in the build-up of hundreds of billions of dollars non-traditional mortgages that nearly crashed the global economy.
Now, even if one takes a broad view of “subprime” as “residential mortgages issued to high-risk borrowers, such as those with a history of late payments or bankruptcy,” as the Financial Times does, or simply, mortgages that are not prime, a better term would be Pinto’s non-traditional mortgages.
Also, it would be more accurate to say more than two-thirds of the crappy loans were Fannie, Freddie, the Federal Housing Administration (FHA), Federal Home Loan Bank, and Community Reinvestment Act (CRA) required loans.
Per Pinto’s forensic study: “As of June 30, 2008 over 70 percent of the 26.7 million NTMs with weak or high risk characteristics — 19.25 million loans – were owned or guaranteed by (a) Fannie Mae and Freddie Mac (11.9 million), (b) the Federal Housing Administration and other federal agencies (4.8 million); (c) Federal Home Loan Bank (FHLB) investments in Alt-A and Subprime Private MBS (0.3 million) or (d) banks and other lenders originating loans pursuant to CRA requirements and HUD‘s Best Practices program (2.2 million, net of CRA loans already accounted for in (a) and (b). These numbers suggest that government policies and requirements were the source of the loans with weak or high risk characteristics, and thus the cause of the financial crisis.”
Those quibbles aside, Brat is pretty much right. The federal government was responsible for more than two-thirds of the risky mortgages that were made in the bubble.
Adding to the trouble, the GSEs were undercapitalized as a matter of policy, and enabling them to lead the market in low-income borrowing, according to Pinto: “The GSEs only needed $900 in capital behind a $200,000 mortgage they guaranteed — many of which by 2004-2007 had no borrower downpayment. In order for the private sector to compete with Fannie and Freddie, it needed to find ways to increase leverage.”
When Americans for Limited Government reached out to Pinto in 2010 about a draft version of his forensic study, he told us that the GSEs were driving the market for non-traditional mortgages and that the “market response was: if it’s okay with Fannie and Freddie (the de facto standards setters) it must be okay for us.”
The build up by Fannie and Freddie was deadly, would have never been possible without HUD mismanagement, and had unquestionably negative feedback throughout mortgage markets, Pinto notes: “HUD’s policy of continually and disproportionately increasing the GSEs’ goals for low- and very-low income borrowers led to further loosening of lending standards causing most industry participants to reach further down the demand curve and originate even more NTMs. As prices rose at a faster pace, an affordability gap developed, leading to further increases in leverage and home prices. Once the price boom slowed, loan defaults on NTMs quickly increased leading to a freeze-up of the private MBS market. A broad collapse of home prices followed.”
Together with the HUD and the FHA, Fannie and Freddie helped to cause the crisis by weakening underwriting standards, lowering down payments, and generally degrading the quality of credit in both government and private backed loans. Also, because of the implicit backing of taxpayers, the GSE-issued securities were automatically granted AAA bond ratings, and the Fannie and Freddie were even able to misrepresent the quality of mortgages that underlined those securities.
As if that was not bad enough, Fannie and Freddie crafted a marketing plan that promised a higher rate of return than treasuries, but with the same risk associated with a taxpayer guarantee.
It was that implicit guarantee that enabled the GSEs to sell some $4.7 trillion of mortgage-backed securities, $1.5 trillion of which were sold overseas to investors, as reported by the New York Times. As more securities were sold, Fannie and Freddie bought more mortgages and bundled them into securities. As a direct result, Fannie and Freddie were able to acquire about half of all mortgages as of July 2008.
By 2008, Fannie and Freddie held $1.835 trillion in higher-risk mortgages and mortgage-backed securities: $1.646 trillion, were GSE-issued mortgage-backed securities, and $189 billion of subprime and Alt-A private mortgage-backed securities.
Brat is correct to lay the crisis largely at the feet of Fannie and Freddie. They, along with HUD, FHA, and Congress were the ones that loosened the underwriting standards. Private sector leverage was largely a response to what Fannie and Freddie were doing in the market.
To see which institutions had the larger role to play, just look at the size of the bailouts. To date, the Federal Reserve has bought back more than $1.6 trillion of mortgage backed securities (MBS) that were issued by the GSEs, including Fannie, Freddie, and also Ginnie Mae (which guarantees FHA and VA loans), according to the 2010 Federal Reserve audit of the MBS purchase program. In addition, the GSEs received $187 billion directly from taxpayers.
Therefore, the GSEs were responsible for approximately $1.8 trillion of the crisis. Comparatively, AIG needed an infusion of $182 billion of loans from the Federal Reserve and TARP for its role in insuring subprime and other risky loans against default. The Bear Stearns deal was $25 billion. Another $289 billion in TARP loans were made to affected institutions, too. So, on a bailout scale, $1.8 trillion was spent on GSEs in direct bailouts and about $500 billion was lent to the private sector. More than 3 to 1.
The difference is the private sector paid back their emergency loans. The $1.8 trillion spent on Fannie and Freddie was a direct subsidy from the Fed and from Congress. How it will be recouped, for example, if the Fed will simply hold the mortgages to maturity, transmitting interest earned to the Treasury, or the securities are sold to private sector actors, remains to be seen.
But on Brat’s primary contention, yes, government policies, including the GSEs, were responsible for 72 percent of the risky lending. Private institutions on their own accounted for 28 percent.
Brat was not absolving anyone, but he could be more specific — perhaps just include Ginnie in the statement “Fannie and Freddie made two-thirds of all subprime mortgages” — but the general idea that the government was responsible for the vast majority of the risky lending is spot on accurate.
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Posted by JR at 12:33 AM