The future of housing finance

[Stolen from behind the WSJ pay wall...]

We'll never get a rational mortgage system until the government's affordable housing mandates are ended.

By EDWARD PINTO

Today the Obama administration will begin a discussion on how to overhaul our nationalized housing finance system. Moderated by Treasury Secretary Timothy Geithner and Shaun Donovan, secretary of the Department of Housing and Urban Development (HUD), the "Conference on the Future of Housing Finance" seeks answers to what went wrong in the U.S. housing market. This promises to be the next big domestic policy debate—one that could mold housing finance for a generation or more. But the early signs of where policy makers might be headed are not promising.

A consensus is building around a three-part grand bargain:

• An explicit federal guarantee of a large portion of the mortgage-backed securities created to finance American's home mortgages;

• A tax on these securities to fund low-income housing initiatives; and

• A requirement that issuers of securities meet affordable housing mandates.

This is a dead end for two reasons. First, while supporters of an explicit federal guarantee tell us it will never be called upon, Americans have read this book before and know how it ends.

The second is much less well known but equally deadly: the central role in the recent real estate collapse that was played by the federal affordable housing policy created by Congress and implemented since the 1990s by HUD and banking regulators.

In 1991, the Senate Committee on Banking, Housing, and Urban Affairs was advised by community groups such as Acorn that "Lenders will respond to the most conservative standards unless [Fannie Mae and Freddie Mac] are aggressive and convincing in their efforts to expand historically narrow underwriting."

Congress made this advice the law of the land when it passed the inaptly named Federal Housing Enterprises Financial Safety and Soundness Act of 1992 (GSE Act of 1992). This law imposed affordable housing mandates on Fannie Mae and Freddie Mac.

Thus, beginning in 1993, regulators started to abandon the common sense underwriting principles of adequate down payments, good credit, and an ability to handle the mortgage debt. Substituted were liberalized lending standards that led to an unprecedented number of no down payment, minimal down payment and other weak loans, and a housing finance system ill-prepared to absorb the shock of declining prices.

In 1995, HUD announced a National Homeownership Strategy built upon the liberalization of underwriting standards nationally. It entered into a partnership with most of the private mortgage industry, announcing that "Lending institutions, secondary market investors, mortgage insurers, and other members of the partnership [including Countrywide] should work collaboratively to reduce homebuyer downpayment requirements."

The upshot? In 1990, one in 200 home purchase loans (all government insured) had a down payment of less than or equal to 3%. By 2006 an estimated 30% of all home buyers put no money down.

"[T]he financial crisis was triggered by a reckless departure from tried and true, common-sense loan underwriting practices," Sheila Bair, chair of the Federal Deposit Insurance Corporation, noted this June. One needs to look no further than HUD's affordable housing policies for the source of this "reckless departure." If the mortgage finance industry hadn't been forced to abandon traditional underwriting standards on behalf of an affordable housing policy, the mortgage meltdown and taxpayer bailouts would not have occurred.

Compounding HUD's forced abandonment of underwriting standards was a not-unrelated move to increased leverage by financial institutions and securities issuers. They were endeavoring to compete with Fannie and Freddie's minimal capital requirements. The GSEs only needed $900 in capital behind a $200,000 mortgage—many of which had no borrower down payment. Lack of skin in the game promoted systemic risk on both Main Street and Wall Street.

How should we go about repairing this dysfunctional housing finance system?

The goals should be larger down payments, stricter underwriting standards, reliance on the private sector and private capital, and the removal of affordable housing mandates. If there is to be an affordable housing policy, it should not be implemented by hidden subsidies and loose lending standards, but instead made transparent and funded on budget by the government.

Getting there will take time—probably a 15-year rebuild that fosters an orderly phase-out of government guarantees and a transition to a deleveraged, market-based system. This will require both long- and short-term policies.

Long-term we should consider ideas such as: the proposal by Columbia University's Charles Calomiris to increase minimum down payments by 1% per year over 15 years, bringing them back to 20%, where they had been for decades. Peter Wallison of the American Enterprise Institute has suggested that the private sector be encouraged to grow by reducing the GSEs' maximum mortgage amount by a percentage every year until it matches the Federal Housing Administration's (FHA) reduced limit, at which point the GSEs disappear. I have suggested that the FHA be returned to its former role of serving the low-income market over a five-year period, but with a higher minimum down payment so borrowers have more skin in the game.

Finally, the property appraisal process should be re-engineered along the lines suggested by the Collateral Risk Network, an organization representing the nation's leading appraisal experts. The boom was promoted by appraisal practices that relied on one input—the latest prices that were the result of an overheated market. A return to traditional appraisal theory based on price trends, replacement cost and value as a rental is necessary.

To get the housing finance system out of intensive care, short-term policies need to be implemented that promote deleveraging. Perhaps some of the excess supply of foreclosed properties should be sold to buyers who agree to put 40% down and use the properties as rentals. Josh Rosner, managing director of the research firm Graham Fisher, has suggested that homeowners who voluntarily pay down a portion of the principal on their underwater mortgage receive a tax credit also applied to their mortgage principal. In return, they would forgo future tax deductions of their mortgage interest payments.

While the road to housing hell may have been paved by the government, the road back will be built by the private sector.

Mr. Pinto, a consultant to the mortgage finance industry, was executive vice president and chief credit officer at Fannie Mae in the late 1980s.

[The long, 183-page PDF version of Mr. Pinto's paper is here.]

Photos of the day

Physically challenged Chinese swimmer Xuqing Jin dived into the pool as he competed in the men’s 400-meter relay race at the Basavanagudi Aquatic Centre in Bangalore on Tuesday. More than 800 athletes from 43 countries are participating in the weeklong International Wheelchair and Amputee Sports Federation’s World Games. (Dibyangshu Sarkar/AFP/Getty Images)

QUADRIPLEGIC HUNTER: James Cap, a quadriplegic since a 1979 high school football accident, held the tube in his mouth that he uses to aim and fire his shotgun in a shed where he hunts in Manville, N.J., Tuesday. Mr. Cap recently won a court battle to use the contraption.

Pigovian economics

WSJ - Mr. Pigou's intellectual legacy is being rediscovered, and, unlike those of Messrs. Keynes and Friedman, it enjoys bipartisan appeal. Leading Republican-leaning economists such as Greg Mankiw and Gary Becker have joined Democrats such as Paul Krugman and Amartya Sen in recommending a Pigovian approach to policy. Much of President Barack Obama's agenda—financial regulation, cap and trade, health care reform—is an application of Mr. Pigou's principles. Whether the president knows it or not, he is a Pigovian.

Mr. Pigou pioneered the study of market failure—the branch of economics that explores why free enterprise sometimes [fails]. During the 1930s, Mr. Keynes lampooned him as a reactionary because of his suggestion that the economic slump would eventually recover of its own accord.

But while Mr. Pigou believed capitalism works tolerably most of the time, he also demonstrated how, on occasion, it malfunctions. His key insight was that actions in one part of the economy can have unintended consequences in others.

(continued)

Photos of the day

Former servicemen cried as they said goodbye to their fellow soldiers, at the end of their army-service term, at a railway station in Shijiazhuang, Hebei province, China, Wednesday.



Rabbi Avraham Berkowitz climbed stairs at Chabad House in Mumbai Wednesday. The site, home to the Mumbai chapter of the Chabad-Lubavitch Jewish movement, was one of several sites attacked by gunmen on Nov. 26, 2008. The coordinated attacks claimed 166 lives. A Pakistani court has indicted seven people in the terrorist acts.



Fans, one holding a painting of former Alaska Gov. Sarah Palin, cheered as they listened to her speak before she signed copies of her book “Going Rogue” in The Villages, Fla., Tuesday.

(via WSJ)

Jeffrey Flier on health reform

The Dean of Harvard Medical school writes:

Health 'Debate' Deserves a Failing Grade

Our health-care system suffers from problems of cost, access and quality, and needs major reform. Tax policy drives employment-based insurance; this begets overinsurance and drives costs upward while creating inequities for the unemployed and self-employed. A regulatory morass limits innovation. Deep flaws in Medicare and Medicaid drive spending without optimizing care.

Speeches and news reports can lead you to believe that proposed congressional legislation would tackle the problems of cost, access and quality. But that's not true. The various bills do deal with access by expanding Medicaid and mandating subsidized insurance at substantial cost—and thus addresses an important social goal. However, there are no provisions to substantively control the growth of costs or raise the quality of care. So the overall effort will fail to qualify as reform.

In discussions with dozens of health-care leaders and economists, I find near unanimity of opinion that, whatever its shape, the final legislation that will emerge from Congress will markedly accelerate national health-care spending rather than restrain it. Likewise, nearly all agree that the legislation would do little or nothing to improve quality or change health-care's dysfunctional delivery system. The system we have now promotes fragmented care and makes it more difficult than it should be to assess outcomes and patient satisfaction. The true costs of health care are disguised, competition based on price and quality are almost impossible, and patients lose their ability to be the ultimate judges of value.

Worse, currently proposed federal legislation would undermine any potential for real innovation in insurance and the provision of care. It would do so by overregulating the health-care system in the service of special interests such as insurance companies, hospitals, professional organizations and pharmaceutical companies, rather than the patients who should be our primary concern.

In effect, while the legislation would enhance access to insurance, the trade-off would be an accelerated crisis of health-care costs and perpetuation of the current dysfunctional system—now with many more participants. This will make an eventual solution even more difficult. Ultimately, our capacity to innovate and develop new therapies would suffer most of all.

There are important lessons to be learned from recent experience with reform in Massachusetts. Here, insurance mandates similar to those proposed in the federal legislation succeeded in expanding coverage but—despite initial predictions—increased total spending.

German deer still stuck in the cold war

Odd stuff

Link blag

DIA: The fierce urgency of whatever

NYT: It's a fork, it's a spoon, it's a...weapon?

ABC: Tennessee woman arrested for poking someone over Facebook

WSJ: Reagan's secretary of state says the drug war is not working

Cato: Paul Krugman continues to be wrong

And the award of "best headline for something I skipped reading" goes to:
"Will Stimulating Nominal Aggregate Demand Solve our Problems?"

Recession declared over; expansion begins

WSJ:

The majority of the economists The Wall Street Journal surveyed during the past few days said the recession that began in December 2007 is now over.

After months of uncertainty, economists are finally seeing a break in the clouds. Forecasts were revised upward for every period, with 27 economists saying the recession had ended and 11 seeing a trough this month or next. Gross domestic product in the third quarter is now expected to show 2.4% growth at a seasonally adjusted annual rate amid signs of life in the manufacturing sector, partly spurred by inventory adjustments and strong demand for the "cash for clunkers" car-rebate program. Economists expect GDP growth to remain above 2% at an annualized rate through the first half of next year.

Perry adds: Welcome to the economic expansion of 2009, the 12th economic expansion in the U.S. economy since WWII.

However, unemployment, a lagging indicator, is expected to rise to 9.9% through December 2009, and Fed rates are expected to remain low for awhile longer (guesses vary)...

How to improve health-care without spending other people's money

John Mackey, CEO of Whole Foods, offers 8 ways to improve healthcare, with no effect on the deficit:

Health care is a service that we all need, but just like food and shelter it is best provided through voluntary and mutually beneficial market exchanges. A careful reading of both the Declaration of Independence and the Constitution will not reveal any intrinsic right to health care, food or shelter. That's because there isn't any. This "right" has never existed in America

While we clearly need health-care reform, the last thing our country needs is a massive new health-care entitlement that will create hundreds of billions of dollars of new unfunded deficits and move us much closer to a government takeover of our health-care system. Instead, we should be trying to achieve reforms by moving in the opposite direction—toward less government control and more individual empowerment. Here are eight reforms that would greatly lower the cost of health care for everyone:

1. Remove the legal obstacles that slow the creation of high-deductible health insurance plans and health savings accounts (HSAs).

2. Equalize the tax laws so that employer-provided health insurance and individually owned health insurance have the same tax benefits.

3. Repeal all state laws which prevent insurance companies from competing across state lines.

4. Repeal government mandates regarding what insurance companies must cover.

5. Enact tort reform to end the ruinous lawsuits that force doctors to pay insurance costs of hundreds of thousands of dollars per year.

6.  Make costs transparent so that consumers understand what health-care treatments cost.

7. Enact Medicare reform.

8. Revise tax forms to make it easier for individuals to make a voluntary, tax-deductible donation to help the millions of people who have no insurance and aren't covered by Medicare, Medicaid or the State Children's Health Insurance Program.

Ezra Klein is dismissive and wants to talk about the effectiveness of subsidies. Done properly, subsidies are useful for making sure the poor have some minimal level of care, but I fail to see how they would improve care for the vast majority of (non-poor) people.

Which is probably why, as Wilkinson points out, Ezra doesn't normally spend a lot of time talking about expanding Medicaid in the context of reform, because it's a separate issue.  The problem of poverty, while important, does not bear on the problem of reforming care for the rest of us--which is also important.

KY-Sen update: Bunning drops out

WSJ:

Sen. Jim Bunning, the Senate Banking Committee member who has castigated Federal Reserve chairmen for years, won’t be around after next year.  The Kentucky Republican said today he won’t run for reelection in 2010 because he can’t raise enough money.  Our friends at WashWire have the details.

Mr. Bunning was the only committee member to vote against Ben Bernanke’s confirmation as Fed chairman almost four years ago. It wasn’t personal: He also was the lone vote against Alan Greenspan’s confirmation for his final term leading the central bank.  The former Major League Baseball pitcher, inducted into the Hall of Fame in 1996, could always be counted on to spend his seven minutes at a hearing attacking the Fed for its monetary policy, its bailouts and just about everything else it did.

He’ll still be around for a year and a half to attack the central bank. And among the GOP candidates for the Bunning seat: Rand Paul, the son of Texas Rep. Ron Paul, whose anti-Fed sentiment is gaining traction among lawmakers.  (Imagine what the father-and-son team could do from both sides of Capitol Hill.)

The Post:

On the Democratic side, state Attorney General Jack Conway's $1.3 million haul over the last three months established him as the frontrunner against Lt. Gov. Dan Mongiardo in next year's primary.

"Democrats will be will be targeting this seat whether we are running against Ernie Fletcher acolyte Trey Grayson, Ron Paul's son Rand, or George Bush fundraising Ranger Cathy Bailey," promised Democratic Senatorial Campaign Committee communications director Eric Schultz

Cathy Bailey doesn't seem to have a website yet, though the cathybailey.org domain has been registered. Trey Grayson's blog is here, and Rand's is here.

Jack Conway isn't a shoe-in for the Democratic nomination:

A Garin-Hart-Yang Research Group (D) poll; conducted 5/12-13 for '04 nominee/LG Dan Mongiardo (D); surveyed 336 Dem RVs; margin of error +/- 5.3% (McArdle, Roll Call, 5/28).

Tested: Mongiardo and AG Jack Conway (D).
Primary Election Matchup
D. Mongiardo 43%
J. Conway 28
Undec 29

But that could just be initial name recognition; with a year to go before the primary, these numbers don't mean much.

Kentucky is a conservative state but has many more registered Democrats than Republicans (holdover from the Dixiecrat era) so it's difficult to guess how this race will play out.

Rand Paul is organizing a money bomb for August 20th. The goal is to raise $1,000,000 by getting 10,000 people to donate $100 apiece. I will be one.

How Obama stumbled on healthcare

Take it away, WSJ.

Basically, if Obama hadn't taken the politically convenient route of lambasting McCain during the campaign for taking the economically sound position of repealing the benefits tax exclusion, and hadn't insisted the public option was a good idea, and had been more insistent early in the legislative process that the bill bend the cost curve down, we could be passing some positive reforms.

Instead we get more weeks of uncertainty and the possibility that the final bill will become even worse as the Dem leadership scrambles for ways to buy off increasingly reluctant blue dog districts with more handouts.

Keith Hennessey has more analysis.

The "perfect" Democrat?

Ted Van Dyke writes in the WSJ: Obama Needs to 'Reset' His Presidency. It resonated with me.

But at memeorandum, I see The Plank dug up Dyke's long history of being an "enraged Democrat". I'm not sure how this should make his op-ed less compelling. But I guess I place more value in the worth of an idea than who's saying it.

There are some things in the piece that that don't stand up to scrutiny, such as comparing Obama's margins of victory and congressional majorities to those of FDR and Johnson, from well before the advent of the recent micro-targeting, hyper-polarization, and precision gerrymandering.  But from a centrish perspective, I sure think the overall points in the piece are sound:

- Cut back both your proposals and expectations.
- Talk less and pick your spots.
- Conform your 2009 politics to your 2008 statements.

Peggy Noonan annihilates Palin

Via LG, I hear:

She penned a double-barreled torpedo against Sarah Palin today in the WSJ that has to be read to be believed.

And wow, it really does. I had to punch some air as I read it.

Mythical administrative cost savings of socialized health-care

Megan with another good post:

...while people commonly think of administrative costs as "wasted", in fact, they are an important part of the market system. As Alex Tabarrok points out, and I have myself from time to time, many of the arguments in favor of national health care are literally socialist. And no, I am not using that term to apply to "anyone who is in favor of redistribution" or "government programs". But consider the following common arguments:

National health care will be cheaper because we will reduce administrative overhead
National health care will reduce wasteful competition in the form of me-too drugs
National health care will reduce wasteful competition in the form of advertising and other marketing expenses
National health care will allow us to rationally distribute care to where it does the most good rather than the current messy, wasteful hodge-podge
National health care will use resources for production instead of profits
National health care will achieve economies of scale in purchasing and record-keeping
People will not overuse free goods because there are hard limits to desired consumption

These were all arguments advanced in favor of socialism. Contrary to popular conservative belief, socialists were not unfamiliar with either the incentive problems of communism (people will not work hard if there's no benefit to doing so) or the Hayekian argument about the value of prices, aka the Socialist Calculation Problem. Rather, smart socialists thought that they could overcome these problems with a combination of status competitions (Hero of the Soviet Union, Second Class) and massive efficiencies gained by wringing all that fragmented, wasteful competition out of the system. Economists who would be ashamed to make these sorts of arguments about Proctor and Gamble or the used car market suddenly start parroting these things as if they hadn't been thoroughly discredited by the last seventy years.

But why were they discredited? That list looks really, really good on paper, even to my jaded libertarian eyes. A lot of the answer lies in the reason that we don't like monopolies--even though that list is just as true of monopolies as it is of the government. Monopolies, government or private, are risk averse, slow to innovate, and generally run things for the benefit of themselves rather than their customers. Hamstringing them with regulations can limit measurable outcomes, like excess profit-taking, but not unmeasurable ones, like the people who might have been cured by a drug the system didn't invent. And the political system introduces its own problems. As Robert Heinlein pointed out years ago, systems that have only positive feedback loops tend to fail catastrophically.

My critics will want me to explain why, then, Europe can do it cheaper. The answer is threefold. First, most European nations have better governance than we do--the American political system is a Public Choice disaster. Second, they pay people less money in a way that's hard to replicate here (and even if it wasn't, would be a one time savings that wouldn't check the rate of growth). Third, we're still driving quite a bit of product innovation. Our messy, organic, wasteful, unfair, irrational system allows experimentation, and they cherry pick the best results. If we stopped doing this, their system would stop looking so good.

For some details, here's the WSJ on nationalized rationing:

Take the United Kingdom, which is often praised for spending as little as half as much per capita on health care as the U.S. Credit for this cost containment goes in large part to the National Institute for Health and Clinical Excellence (NICE). Americans should understand how NICE works because under ObamaCare it will eventually be coming to a hospital near you. NICE has established the principle that the only way to control health-care costs is for this panel of medical high priests to dictate limits on certain kinds of care to certain classes of patients.

For example:

1. In March, NICE ruled against the use of two drugs, Lapatinib and Sutent, that prolong the life of those with certain forms of breast and stomach cancer.

2. This followed on a 2008 ruling against drugs -- including Sutent, which costs about $50,000 -- that would help terminally ill kidney-cancer patients.

3. In 2007, NICE restricted access to two drugs for macular degeneration, a cause of blindness. The drug Macugen was blocked outright. The other, Lucentis, was limited to a particular category of individuals with the disease, restricting it to about one in five sufferers. Even then, the drug was only approved for use in one eye, meaning those lucky enough to get it would still go blind in the other.

4. NICE has limited the use of Alzheimer's drugs, including Aricept, for patients in the early stages of the disease.

5. NICE rejected the use of Kineret, a drug for rheumatoid arthritis.

6. NICE rejected Avonex, which reduces the relapse rate in patients with multiple sclerosis;

7. NICE rejected Lenalidomide, which fights multiple myeloma.

NOTE: Private U.S. insurers often cover all, or at least portions, of the cost of many of these NICE-denied drugs.

NICE has also produced guidance that restrains certain surgical operations and treatments.

8. NICE has restrictions on fertility treatments.

9. NICE has restriction on procedures for back pain, including surgeries and steroid injections.

10. Several young U.K. women developed cervical cancer after being denied pap smears by a related health authority, the Cervical Screening Programme, which in order to reduce government health-care spending has refused the screens to women under age 25.

Update: Megan has a follow-up sigh

Quote of the day

Via Andrew, worth repeating...

Karl Rove should have been named Man of the Year at some point by the Democratic National Committee. The political consultant/Bush adviser played a big role in expanding the burden of government, convincing Bush to saddle the nation with fiscal disasters such as the “no-bureaucrat-left-behind” education bill, the corrupt farm bills, the pork-filled transportation bills, and the horrific new entitlement for prescription drugs. He also helped ruin the GOP image with his inside-the-beltway version of “compassionate conservatism,” thus paving the way for big Democratic victories in 2006 and 2008.

I can understand why libertarians have no desire to listen to his advice, but I’m baffled why Republicans or conservatives would give him the time of day. Yet he is a constant presence on FOX News and has a weekly column in the Wall Street Journal. With no apparent irony, his latest WSJ column is entitled “How to Stop Socialized Health Care.” Too bad he didn’t follow his own advice in 2003 when pulling out all the stops to enact the biggest entitlement in four decades," —Daniel Mitchell, CATO at Liberty.

Good news! The war on drugs is over!

We're changing the name.

Fmr. CIA Director and Attorney General defend torture

Gen. Hayden was director of the Central Intelligence Agency from 2006 to 2009. Mr. Mukasey was attorney general of the United States from 2007 to 2009. If you care to understand justifications for the CIA's torture and interrogation program, they've published a must-read piece in today's WSJ.

Towards the conclusion:

[..] anyone in government who seeks an opinion from the [Office of Legal Counsel] as to the propriety of any action, or who authors an opinion for the OLC, is on notice henceforth that such a request for advice, and the advice itself, is now more likely than before to be subject after the fact to public and partisan criticism. It is hard to see how that will promote candor either from those who should be encouraged to ask for advice before they act, or from those who must give it.

Eeek, criticism! Perhaps it will promote responsibility and accountability? What Hayden & Mukasey call candor, I call providing secret and illegitimate legal cover for the use of torture in CIA interrogations.

In his book "The Terror Presidency," Jack Goldsmith describes the phenomenon we are now experiencing, and its inevitable effect, referring to what he calls "cycles of timidity and aggression" that have weakened intelligence gathering in the past. Politicians pressure the intelligence community to push to the legal limit, and then cast accusations when aggressiveness goes out of style, thereby encouraging risk aversion, and then, as occurred in the wake of 9/11, criticizing the intelligence community for feckless timidity. He calls these cycles "a terrible problem for our national security." Indeed they are, and the precipitous release of these OLC opinions simply makes the problem worse.

It seems Hayden & Mukasey don't like the results of our democratic process. As their president joked on multiple occasions: "If this were a dictatorship, it would be a heck of a lot easier". Go figure.

Economist points out flaws in their argument. Ordinary E.D. Kain has more.

Americans happier with taxes

A new Gallup Poll finds 48% of Americans saying the amount of federal income taxes they pay is "about right," with 46% saying "too high" -- one of the most positive assessments Gallup has measured since 1956.

So much for the tea party protests.

But the WSJ thinks everyone should pay income taxes, and I agree. 

Here's a chart of effective rates from Cato:



If you're in the left of that chart, the bottom 50% of income levels, you ought to be relatively happy with the portion of your income that's going to taxes.  If you're in the right half, not so much.

On the other hand, progressives will point to data like this:

Link blag

The Post: Short '06 Lebanon War Stokes Pentagon Debate...

A war that ended three years ago and involved not a single U.S. soldier has become the subject of an increasingly heated debate inside the Pentagon, one that could alter how the U.S. military fights in the future.

When Israel and Hezbollah battled for more than a month in Lebanon in the summer of 2006, the result was widely seen as a disaster for the Israeli military. Soon after the fighting ended, some military officers began to warn that the short, bloody and relatively conventional battle foreshadowed how future enemies of the United States might fight.

Drezner: 13 Unexpected Consequences of the Financial Crisis...

7. Skirts will get longer. Here’s a piece of Wall Street folk wisdom: There is a rough correlation between bull markets and bare knees. During boom times, skirts get shorter. In these bearish times, prepare for hemlines to head south. Somewhat in relation, we’ll see something else go north: the age and weight of Playboy centerfolds. Evolutionary biology encourages people to seek “more mature” mates during times of economic insecurity, argue Terry F. Pettijohn and Brian J. Jungeberg in one of the more interesting studies published recently in the Personality and Social Psychology Bulletin. To support their claim, the researchers showed that during recessions, centerfolds get older and, well, rounder. Similar studies have confirmed an identical trend in movie comedies—male and female leads get older during recessions.

Unreligious Right: Another Strange Poll...

Sixty-five percent of conservative Republicans have an unfavorable view of Islam. I'm surprised it's not higher. But what about liberal Democrats? Sixty percent of them have a favorable view of Islam. Really, 60% have a positive view of Islam. Is it any wonder liberals are so clueless? What causes this favorable view? Simple ignorance? Living in a dream world? Blaming problems involving Islam on the U.S.?

FiveThirtyEight: Whigs, Federalists Strongly Differ on Support for Obama...

[..] measurements of the partisan split in support for the President, as Pew Research has done here (they found a record partisan split in Obama's approval ratings, with 88 percent of Democrats but just 27 percent of Republicans approving of Obama's performance) are not quite as straightforward as they might seem. This is because partisan identification is at least somewhat fluid. The Republicans, in particular, have lost quite a bit of support over the past several years; those persons who continue to identify as Republicans are a hardened -- and very conservative -- lot. Just 24 percent of voters identified as Republican when Pew conducted this survey in March, which is roughly as low as that total has ever gotten.

Radley reminds you that libertarian free market proponents are not corporate apologists:

The U.S. Chamber has released its rankings of “business-friendly” members of Congress. Next time someone accuses libertarians and other free market proponents of being corporate apologists, send them this Tim Carney analysis of the Chamber’s list. Ron Paul, for example, scored lower than 90 percent of the Democrats in the House. Pro-free market, anti-tax Republicans scored lower than left-liberal Democrats like Hillary Clinton, Barack Obama, and Joe Biden. When you look at the issues the Chamber considers pro-business, it pretty quickly demolishes the notion that free markets and big business have much of anything to do with one another.

Why did the housing crash ruin the financial system while the dot-com collapse did not? WSJ has a longish article by a 2002 Noble laureate.

NewMajority tells Wall Street Bankers how to be capitalists.

It's not often I get to say this, but The Weekly Standard's budget recommendations are better than both Obama's and the House GOP's. Apart from defense spending, of course, where they're as nuts as ever.

TMV rounds up opinions on Obama's European tour.

NY Gov. Paterson is toast, voters say 63-22 he does not deserve election to full term.

Farm subsidies won't be cut? Fraking bastards.

The next Alien vs. Predator?

Police in Detroit break up pillow fight. NYC has better luck.

The GOP's alternative budget

April Fools?

- Spending. Our budget gives priority to national defense and veterans' health care. We freeze all other discretionary spending for five years, allowing it to grow modestly after that. We also place all spending under a statutory spending cap backed up by tough budget enforcement.

Yglesias comments:

If, superficially, this seems like a warmed-over version of the McCain campaign economic agenda that the voters rejected just a few months ago, you need to pay more attention—McCain was just calling for a one-year freeze on discretionary spending after which reductions in government outlays would be achieved by magic. Ryan, by contrast, is proposing a five-year freeze.

Basically, you can imagine a school that today is serving a certain number of children and has a certain budget. Well, over the course of five years the population will grow and the number of kids in that school will also increase. But the school won’t get any additional money. Instead, because there’s inflation, the school will actually be getting less money even as it needs to teach more children. And so on across the board for federal programs. If you think that there’s literally nothing in the entire federal budget that’s useful, this may strike you as an appealing idea.

It's totally unserious.  Cutting spending during a recession caused by a crisis of demand (not supply)  is crazy anti-stimulus, and after the recession plenty of programs the public considers valuable will need more money.  If we want to cut spending post-recession it basically needs to be done by ending unhelpful programs, not underfunding across the board.  But that's not as pretty sounding as a "spending freeze" (which is really an increasingly large cut due to inflation).  And when you propose cutting specific programs their interest groups lash out at you, so polticians are often unwilling to single them out unless they think the name sounds silly enough (recently mentioned in GOP speeches: mice control, bear DNA research, volcano monitoring)

Except for the magnitude of revenue, I liked theses tax ideas:

- Tax Reform. Our budget does not raise taxes, and makes permanent the 2001 and 2003 tax laws. In fact, we cut taxes and reform the tax system. Individuals can choose to pay their federal taxes under the existing code, or move to a highly simplified system that fits on a post card, with few deductions and two rates. Specifically, couples pay 10% on their first $100,000 in income (singles on $50,000) and 25% above that. Capital gains and dividends are taxed at 15%, and the death tax is repealed. The proposal includes generous standard and personal exemptions such that a family of four earning $39,000 would not pay tax on that amount. In an effort to revive peoples' lost savings, and to create an incentive for risk-taking and investment, the budget repeals the capital gains tax through 2010 for all taxpayers.

The 10%-25%-15% figures are distributed well relative to each other -- flatter and better for the economy than anything Democrats will do for us -- but the total revenue is simply too low unless Republicans find a realistic way to cut spending that is not an across the board freeze.  So you'd have to increase all those rates between 5-10% for this to work  (15-30-20 or similar)

Yglesias continues:

Meanwhile, the op-ed is a bit unclear on this point, but it appears to include a proposal to scrap Medicare in favor of a system of vouchers. The idea here is to “solve” the problem of health care cost inflation driving higher Medicare costs by replacing a guarantee of health care with a guarantee of a lump sum of money that would not grow as rapidly as the cost in health care. Basically, we would “solve” the problem of paying for senior citizens’ health care by just . . . not paying for senior citizens’ health care. Demonstrating a lack of commitment to the underlying principle, Ryan promises not to actually afflict anyone currently over the age of 55 with this policy. The hope is that everyone born since 1954 is too short-sighted to actually care about what fate awaits them upon retirement, while the guarantee of continued actual Medicare for those born before 1954 is supposed to immunize Ryan from their wrath.

Hmm. Well speaking as someone born well after 1954, I would love to gradually phase out Medicare in a similar fashion. I don't think it demonstrates a lack of commitment to an underlying principle, I think it is the principle: get rid of Medicare, lower taxes, and let people manage their own health insurance.  Medicare only appears to be cost effective because it underpays for proceedures, which in turn increases healthcare costs for everyone who's not on Medicare. That's part of why we have a healthcare problem in this country -- it's not because the government isn't covering enough people, it's because it's underpaying market rates for the coverage of some.  But once you provide some people with "free" healthcare and conceal its real costs, that group loves and will never give it up.  So this plan is a politically infeasible promise that I don't think they'll ever be able to deliver upon.

Finally the "glimpse of our future" chart is just laughable. Projecting up to 2015 involves plenty of guesswork, but going out to 2080? For all practical purposes these numbers were just made up by Republican staffers, with worst-case assumptions made for the Democratic proposals and best-case for the Republican ones. April Fools, indeed.

Conor Clarke:

As near as I can tell, Paul Ryan and his staff just took the CBO projections that ended in 2019 and drew a random line, extending upward at about a 45 degree angle, until 2080. There's no real attempt to make it look scientific.

publius:

There’s a lot more that must and will be said about the GOP’s April Fool’s Day budget. But there’s one hilarious tidbit that needs mentioning.

As we already knew (because it was the one specific detail in the last “budget”), the plan has a massive tax cut for the wealthy – lowering the highest marginal rate to 25%.  Higher-earning taxpayers can, however, voluntarily opt to pay the old higher rate.

Here’s the kicker – the GOP’s deficit assumptions assume that everyone will opt for the older higher rates.  Take it away Steve Benen:

The hilarious angle to this is that the House Republicans run enormous budget deficits while assuming the top earners would voluntarily pay the higher rate.

Ryan Grim adds:

A Republican budget committee aid said that the revenues assumed in the GOP budget are based on the current tax structure that resulted from those cuts.

In other words, Republicans are assuming that given the choice between a higher rate and a lower rate, Americans will choose the higher rate.

Sigh. Crazy stuff.

Firstly Republicans need to show us a realistic plan to cut spending, and secondly they need to commission a real CBO report on their alternative budget. It won't look anything like this ridiculously misleading chart their staffers produced.