I haven’t written much on Fannie Mae and Freddie Mac yet, because I’ve covered it and basically predicted it previously, and because I knew someone would put out a better column more quickly than I could.

First, here are excerpts from that better column, by Arnold Kling at Pajamas Media (bold is mine):

Fannie Mae and Freddie Mac are known as government-sponsored enterprises (GSEs) because they were created by the government and have enjoyed special regulatory privileges. However, they are both privately owned, with shares traded on the New York Stock Exchange.

Fannie Mae was created during the Depression, as an institution that would purchase mortgage loans. At the time, many regional banks failed, and Fannie Mae was like a giant national bank specializing in home mortgages.

Freddie Mac was created in 1970, to address a different problem. California was chronically short of mortgage money, and other states’ lending institutions had excess capital but were precluded by law from lending across state lines. Freddie Mac was chartered to create a “secondary mortgage market,” which would allow a mortgage lender in one state to purchase securities backed by mortgages originated by other lenders in other states. To do so, Freddie Mac guaranteed repayment of the loans.

Neither Freddie Mac nor Fannie Mae originates mortgage loans. As a home buyer, you will never deal directly with a GSE to obtain a loan. Instead, the GSEs buy mortgage loans that are originated by other firms, including banks and mortgage bankers.

….. Congress and regulators gave the GSEs a regulatory advantage in purchasing investment-quality loans, meaning loans to highly-qualified borrowers making substantial down payments (20 percent of the value of the home to avoid having to pay for mortgage insurance, or 10 percent of the value of the home if additional private mortgage insurance was obtained). Through regulatory differences, primarily in the form of capital requirements, banks were put at a disadvantage relative to the GSEs when it came to holding investment-quality loans.

However, the GSEs have recently suffered large credit losses on loans that were not of investment quality. These low-down-payment loans were similar to the subprime mortgage loans that fueled the boom and bust cycle in housing. It is not clear why the GSEs chose to purchase these loans, since they are outside of the GSE charters. One story has it that they were afraid of losing market share. Another story I have heard is that the GSEs were under pressure from Congress to do more to provide funds for “affordable housing,” and the GSEs interpreted this as requiring more high-risk lending.

Stop the tape, so to speak.

Fan and Fred looked to expand its mission, as government agencies or government-backed entities usually do. Because going to riskier, low down-payment loans was “outside of their charter,” I think it’s fair to ask if it was also illegal. In terms of why they did this, I choose the “affordable housing” pressures.

When real businesses go to far afield into areas they aren’t familiar with and fail, the market punishes the owners. This means that owners usually know better than to let their managers go too far outside their expertise. But when government agencies or government-backed entities do this, all too often, as is the case with Fan and Fred, there’s no penalty. Instead, there’s a bailout.

Back to Kling, who refers to a former member of the vice-presidential search committee of Democratic presidential candidate Barack Obama (link within excerpt is in original; bolds are mine) who has, like so many others, been thrown under the bus:

In hindsight, Freddie and Fannie were allowed to grow too large. They used political connections to fend off any attempt to rein them in, as can be seen in a 1997 story on James Johnson, then-chairman of Fannie.

The plan that Treasury Secretary Paulson announced on Sunday appears designed to shore up the GSEs and to return to the status quo prior to the recent loss of confidence by investors. In fact, however, I think it is unrealistic and undesirable to return to the status quo.

….. In my opinion, the playing field should be leveled as soon as possible so that banks can begin to buy assets from the GSE’s. Let the banks feed off the carcasses of Freddie and Fannie, just as Freddie and Fannie once fed off the carcasses of the S&Ls.

….. I see the GSE crisis as a failure of central planning. The GSEs were the victim of no one, unless you count the meddling by the Congressional meddlers whom the GSEs needed to please. Anyone could see that the GSE dominance of the mortgage market was unhealthy. But the political process was unable to get the job done. What the central planners tend to forget is that political failure is even more entrenched than market failure.

Many (although not all) of the GSEs’ enablers over the past decade have been Democrats.

….. The Treasury plan shows that the response to a failure of central planning is likely to be more central planning. Intellectually, those of us who prefer markets have a good case. Politically, we are in the process of getting steamrollered. The Treasury plan is being attached to a housing bill that was rife with corporate welfare and unsound subsidies. It ought to be vetoed, but instead it will be fast-tracked.

In other words, we’re, like, taken to the cleaners yet again.

If there’s anything to be learned from this going forward, it should be this: “No more bureacracies.” Not health care. Not energy crap and trade (not a typo). Not “industrial development.” Forget it. What government effort besides the military has ever worked as intended, or even if it has sort of worked, hasn’t cost exponentially more than intended?

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Now, here are selected previous posts on the Fan and Fred, with occasional selected quotes.

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Obviously, Alan Greenspan and the hedge-fund firm he is joining don’t particularly care about the appearing to be independent, or conveying the impression that they have access to insider information. In fact, that is probably going to be one of the firm’s selling points.

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There are thugs, dictators, horrible multiple murderers, and depraved people all around, but Keith Olbermann earlier this week decided that someone else should be his nominee for “Worst Person in the World”:

No, according to Keith Olbermann — that blinkered liberal extremist who plays a newsman on TV — Wendy Wright, President of Concerned Women for America (CWA), is “the worst person in the world.”

While discussing abstinence education during a recent interview on the Fox News Channel’s Special Report, Wright accurately pointed out that the most strident devotees of that abysmal failure tagged “comprehensive sex education” are most likely to benefit financially when children and teens become pregnant or contract sexually transmitted diseases.

Well they are, Keith.

It gets better, as Olbermann tried a “joke” that actually reflects an unfunny reality:

Toward the end of his decidedly obtuse monologue, Olbermann — whose joke writer is also apparently on strike — smugly quipped, “And the condoms the sex educators keep trying to make available to the kids, those are for what … water balloons?”

Well, Pinfeather, yes, in fact. That’s precisely what kids are using them for. Take the African AIDS epidemic. As CWA reported a few years back, Dr. Margaret Angola of Kenya testified at two United Nations conferences that, “‘family planners’ have put so many condoms into Kenya that the children use them as balloons and play with them in the streets.”

Tragically, we all know how “comprehensive sex education” has worked-out in Africa.

Unfortunately, it’s no better right here at home.

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From the “Where’s the outrage?” file —

California wants to control home thermostats

Next year in California, state regulators are likely to have the emergency power to control individual thermostats, sending temperatures up or down through a radio-controlled device that will be required in new or substantially modified houses and buildings to manage electricity shortages.

….. The changes would allow utilities to adjust customers’ preset temperatures when the price of electricity is soaring. Customers could override the utilities’ suggested temperatures. But in emergencies, the utilities could override customers’ wishes.

Final approval is expected next month.

Rush made the excellent point last week that the state could declare “global warming” an emergency, and that “emergency” would become a permanent condition. If that were to happen, expect a run on relatively inefficient room air conditioners and, in colder areas, space heaters.

How does Schwarzenegger see this and not stop it?

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Ho hum hiring headline — Columbus, Georgia, has heard about the possibility of a recession, and has decided not to participate:

(There are) major projects in the development pipeline that should ease any economic ills that come the city’s way this year, and virtually makes it immune from a downturn over the next five years.

Supplemental insurer Aflac, headquartered in Columbus, is in the middle of an expansion that should add 2,000 jobs, while the Kia auto assembly plant in nearby West Point will begin hiring the first of 2,500 workers this year. Another 3,000 auto supplier jobs are anticipated in the region.

The thick icing on the cake is the congressional Base Realignment and Closure process that ordered the U.S. Army Armor School be moved from Fort Knox, Ky., to Fort Benning. It will generate about 10,000 jobs on the local post and 5,000 off post.

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Hot Air put on the hazmat suit, headed over to the Huffington Post, and found someone who wrote a column about the death of Ann Coulter’s dad — and used it as an occasion to tastelessly bash her. No, I’m not linking over to HuffPo.

“Waste Ted” Stevens’s polling data is disastrous for an incumbent, showing that he either should have resigned, which I advocated two years ago, or spared everyone the spectacle of another Senate run. Is it too late for the GOP to get someone who isn’t so obviously corrupt? Alaska Congressman Don Young appears to have the same problem.

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Mortgage fraud is a two-way street, which people who are knee-jerk supporting John Conyers’s bankruptcy rewrite ought to consider (link requires paid subscription):

The larger problem with this and many of the other subprime bailout plans is that they conceive of every troubled borrower as a victim. No doubt some borrowers were coaxed to sign loans they didn’t understand. But a Treasury report due out next month suggests that the fraud often works the other way around.

One indisputable fact is that mortgage fraud skyrocketed during the Federal Reserve’s easy-credit era. When financial institutions see potentially criminal activity in customer transactions, they are required to send a Suspicious Activity Report (SAR) to the Treasury’s Financial Crimes Enforcement Network (FinCEN). From 2000 to 2006, SARs related to mortgage fraud increased by almost 700%.

SARs and resulting federal investigations are often aimed at “frauds for profit,” in which the goal is typically to take cash out of a closing. Often orchestrated by unscrupulous mortgage professionals, these scams are frequently the subject of media coverage. However, a new report soon to be released by FinCEN shows that borrowers are almost as likely to be implicated in such cases as the crooked brokers so frequently profiled in the press.

Arnold Kling at TCS Daily definitely has an opinion:

Over the past few years, the housing market became riddled with bogus lenders funneling mortgage money to bogus owners of houses with bogus prices. Attempting to prop up this phony baloney is a pointless exercise. What the housing market needs in order to get back to normal is a strong dose of reality.

Before I’m convinced, I’d like to see the percentage of mortgages, and of subprime mortgages, involved in the shadiness described. If it’s a ridiculously small, as was shown to be case with bankrupcty fraud (not that it prevented that mistaken legislation from passing), then we’re wasting our time talking about it. But I suspect that it’s not.

I believe some kind of relief might make sense for people who are upside-down on their mortgages (owing more than the house is worth). But the excerpted info at least suggests that some borrowers currently claiming ignorance are trying to play the system again. If Conyers gets what he wants, a lot of them will get away with it.

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The breathtaking arrogance of University of Georgia prof David Hazinski reminds us why circulation at papers like the Atlanta Journal Constitution, where his column appears, has dived 18.6% in the past 2-1/2 years:

Citizen journalism allows them to involve audiences, and it is a free source of information and video. But it is also ripe for abuse.

….. Citizen reports can be a valuable addition to news and information flow with some protections:
• Major news organizations must create standards to substantiate citizen-contributed information and video, and ensure its accuracy and authenticity.
• They should clarify and reinforce their own standards and work through trade organizations to enforce national standards so they have real meaning.
• Journalism schools such as mine at the University of Georgia should create mini-courses to certify citizen journalists in proper ethics and procedures, much as volunteer teachers, paramedics and sheriff’s auxiliaries are trained and certified.

Hazinski appears to the be one who needs these “protections.” Instituting them may be the only way he can assure himself of a job.

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Late addition: Yes, I am aware that former District Judge and US Supreme Court nominee Robert Bork has endorsed Mitt Romney. I’ll have more to say on this, but it will have to wait until Monday, because it needs to be integrated with what Mitt Romney has said and done, up to and including his Meet the Press interview this morning.

In the meantime, if anyone can name another former Circuit Judge of the U.S. Court of Appeals who has formally endorsed a presidential candidate, I’d like to find out about it in a comment or e-mail.

From the “I Don’t Think So” Department:

(Hillary Clinton) is in danger of losing all four early contests, including Nevada and South Carolina – probably to Sen. Barack Obama, who is now, in momentum terms, the Democratic frontrunner.

Drudge yesterday linked to another article about Mrs. Clinton asking “Is It the End?” That’s an alltime record for premature e-celebration or premature e-desolation, depending on your point of view.

It’s possible that it really looks that bad for her. But given Fineman’s and his magazine’s bootlick-level support of the Clintons over the years, I believe this is an orchestrated attempt at expectations management (yes, with a dash of desperation) — to be (she hopes) followed by “The Comeback Kid,” Part II.

Interestingly, and contrary to popular folklore, the PBS “Comeback Kid” link does NOT give any credit to Hillary for coming up with Part I.

Update: More expectations management — Bill Clinton told Charlie Rose Friday night that “It’s a miracle she even has a chance” to win in Iowa.

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Having said that, Hillary definitely did not have a comeback for this (a YouTube vid with just the exchange below is here. A NewsBusters link to longer vid is in third para at this post, where the sequence below is near the very end. The rest of the NB clip is worth watching, just to see Mrs. Alan Greenspan [Andrea Mitchell] and Tim Russert piling on the Clinton campaign):

Carolyn Washburn (Worst debate moderator — ever — twice): Senator Obama, you have Bill Clinton’s former national security adviser, State Department policy director, and Navy Secretary, among others, advising you. With relatively little foreign policy experience of your own, how will you rely on so many Clinton advisers and still deliver the kind of break from the past that you’re promising voters?

BOOHOO (Barack O-Bomba Overseas Hussein “Obambi” Obama): Well, the uh, you know, I am …..

(interrupted by extremely loud and sustained Hillary Clinton-patented “ooh, she got him with that one” cackle)

Hillary Clinton (with taunting “going in for the kill” tone): I want to hear that!

(followed by extremely loud and even longer-sustained Hillary Clinton-patented “ooh, now we’ve got him by the short ones” cackle)

BOOHOO: Well, Hillary, I’m looking forward to you advising me as well.

(sustained laughter and applause)

BOOHOO: I, I, I want to gather up talent from everywhere.

This may be BOOHOO’s “Where’s the beef?” moment.

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The same New York Times that did its part for fauxtography is now propping up a faux spokesperson (HT Instapundit).

In totally related news, NYT stock, which closed at $26.55 on June 8, closed Friday at $16.53. That’s a loss of over $1.4 billion in market value in five months. Roughly 5-1/2 years of Bush Derangement Syndrome has exacted a terrible price.

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Though I can’t find a link (typically annoying — the CNNMoney April 16 original isn’t there), I thought Alan Greenspan promised, after the last go-round, to lay low on offering what are now no more than the observations of an educated but well-informed outsider whose influence is beyond what is justified. But he didn’t.

Alan, have you ever asked yourself how YOUR predecessor, Paul Volcker, managed to zip it during and after that 508-point market plunge (a one-day, 22.7% decline) on October 19, 1987 during your watch? And, more importantly, why he zipped it?

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I never knew Triticale, and he never knew me. I just looked it up; he posted 47 comments here over two-plus years. He passed away on Thursday (HT Jay via Instapundit). I will miss his “rye” style, and offer prayers for the repose of his soul, and his family.

After seeing this (HT Hot Air), I’m starting to wonder if the list of audience questions for Hillary Clinton that aren’t planted is shorter than the list of those that are.

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Saddam could have had nukes by 2007, says Scott at Flopping Aces. Yeah, easily.

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Benny Peiser has a great piece at BBC on globaloney and other doomsday-predicting, with a great term: neo-catastrophism.

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Yeah, this was tough to predict: “Hillary Clinton Takes Cash From Recipients of Husband’s Controversial Pardons” (HT Instapundit).

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Wow (”Dems: No More Transparency”). This congress really does want to see if they can bring their approval ratings down into single digits. William “Cold Cash” Jefferson is doing his part too, as he attempts to dodge convictions on bribery charges (bold is mine):

Jefferson has based a major portion of his defense on the vagueness of the current definition. He said that while he might have been paid to exert influence as a member of Congress — including writing letters, visiting foreign dignitaries, appearing before a federal agency on behalf of a business client — his actions didn’t amount to “official acts” within the meaning of the bribery law.

The freezer where he had $90,000 in cash stashed must not have been an “official” freezer.

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It’s official: Trying to do somehting charitable for soldiers overseas in Cambridge, Massachusetts is considered a pro-war action (HT Weasel Zippers via Instapundit).

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David Wessel, in a subscription-only column at the Wall Street Journal, on dealing constructively with foreclosures:

So the public-policy questions are: Who should be helped, and how?

Some folks should lose property if they can’t make payments: those who lied on applications or speculated by buying properties for investment (although tenants may deserve help). Temporarily cutting mortgage payments for those who never will be able to afford houses they bought is unwise and doomed to failure.

It’s the folks in the middle who need and deserve help from the industry and, if need be, the government: those who are making payments, would have refinanced easily if not for the housing bust and dysfunction of mortgage markets and can’t afford the reset payments.

Douglas Elmendorf, a Brookings Institution economist, argues that government “should encourage and subsidize refinancing” for households that can keep their homes “with a modest amount of help,” even though “many might not own homes today if risks had been recognized fully” when the mortgages were made.

I don’t disagree with any of that, or with exploring the idea of making bankruptcy laws a bit more lenient for people in situations where the mortgage loan balances are higher than the value of the home itself. What I do object to is treating everyone in the lending business as presumptive criminals, making getting into the lending business so difficult that you have to provide fingerprints (seriously) just to be in it, and imposing impossible-to-comply-with regulations on new loans that will keep all but the most golden of potential of borrowers on the sidelines. All of that will lead to industry consolidation, less competition, higher rates, and higher fees.

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Matt at RAB is right: Marc Dann owes Ohio Christians and all Ohioans of good will an apology for his “Jesus had it better on Good Friday” message to a staff member. That Governor “Preacher Ted” Strickland doesn’t seem to think so is unfortunately not surprising.

Fellow SOBer Justin at Right on the Right got some nice and deserved free pub at the Youngstown Vindicator.

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Who could possibly be surprised at this?

Or this? Or (excluding the hopelessly naive Jerid) this? Candidates of both parties desperately want to control their messages, and especially who gets to hear what. Whether they still can is the big question mark of the 2008 elections.

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John Edwards’ haircuts, apparently ranging in price from about $400 - $1,250, are a lot less than Hillary Clinton’s reported “$3,000 in fees and travel for two sessions with stylist Isabelle Goetz.” Yet Edwards is taking the hits. You would think that for as much as Hillary is spending, that she’d loo- ….. never mind.

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The young man written up in this story probably hasn’t really surprised his parents. I wish all involved the best in working through it, but it may be too late to avoid paying the piper.

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First quarter 2007 bankruptcy filings, at 193,461, came in pretty close to the 800,000 high end of what I projected late last year. The level of filings is a bit over half of what it was in the earlier part of this decade. But when combined with rising foreclosures and punitive lending, I’m not at all convinced that “Bankruptcy Reform” has accomplished what it intended. The more they go past my projected peak, if that indeed happens, the more suspect the law’s success will be.

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File this story (”Obama’s Campaign Headquarters Burglarized — 2 Laptops and Campaign Literature Taken”) into memory in case you see a negative story about BHOO (Barack Hussein “Obambi” Obama) that seems to have come out of nowhere between now and the first couple of presidential primaries.

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Republicans across Louisiana have to be praying that this comes true:

New Orleans Mayor Ray Nagin might be making a run for the governor’s mansion.

….. “There’s a wide open governor’s race, and we’ll take a look at it,” Nagin said, when asked to clear up rumors about a possible bid.

The radio station reported that Nagin could announce his candidacy in the next seven to 10 days.

Emergency shipments of antacid tablets were reportedly on their way to the offices of US Senator Mary Landrieu.

The Institute for Policy Innovation made some interesting observations about AARP in its most recent TaxBytes missive (USA Today link added by me):

$185 million!

That’s how much AARP estimates it makes on average in royalties and revenues from the sale of health insurance products, according to an article in USA today.

And the organization says that future sales will probably garner about $1.5 billion over the next seven years.

Now, a number of interesting questions arise from this revelation—questions the media never seem to raise.

For example, you will frequently hear the media and liberal politicians complain about the cost of health insurance, asserting that if we removed the profit from health insurance coverage would be more affordable. And remember, AARP isn’t bearing any risk; it just serves as a middleman between insurers and seniors.

And yet we can’t recall seeing any criticism of AARP for siphoning off $185 million from the system.

Second question: Is AARP committed to the privatization of Medicare?

One of the reasons AARP is making so much money is that seniors are moving into its Medicare Advantage programs—private sector HMOs that provide seniors with comprehensive coverage for a defined contribution from the federal government.

That success has liberals worried, especially Rep. Pete Stark (D-CA), who heads the House’s health insurance subcommittee. The fear is that a successful Medicare Advantage program would eventually transform Medicare into a “privatized,” defined-contribution program. (We can only hope!)

….. Now if we could just figure out a way for AARP to make millions of dollars off personal retirement accounts, maybe we could make some progress on Social Security reform.

AARP is turning into a business conglomerate disguised as an advocacy organization.

Do the businesses affect the advocacy? The IPI seems to think so. Additionally, one of my earliest posts over two years ago was about how AARP was making millions off of its co-branded credit card with Bank One (now part of Chase), and that it was disgracefully apathetic about the card industry-backed “Bankruptcy Reform” law that was in the process of whipping through Congress at the time — even though seniors were at the time the group with the fastest rate of growth in bankruptcy filings.

Challenge: Name the only US senator who did not vote when the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA; also known as “Bankruptcy Reform”) came before the World’s Greatest Deliberative Body for a final vote on March 10, 2005.

The answer (click “more” if you are on the home page):

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From Biz Weak’s January 8, 2007 issue (requires subscription):

The Defense Dept. is about to become a major financial regulator, and that’s throwing lenders for a loop. Pentagon officials and consumer advocates pushed Congress this summer to help the many thousands of service members incurring excessive debt, some of whom have lost security clearances as a result, making them ineligible under Defense rules for deployment to Iraq. The main culprit, the Pentagon said, are so-called payday lenders, which cluster around military bases and charge as much as 800% interest to provide soldiers with cash advances against their paychecks. Congress gave the Pentagon broad new authority to cap interest rates on most consumer loans to more than 1.4 million active-duty personnel and their families.

….. Now even mainstream lending institutions and traditional financial regulators say they fear the hastily written law will have unintended consequences. “From our perspective, the scope of the measure that was enacted is so broad that we’re still trying to get our arms around it,” says Diane Wagner, a spokeswoman for Bank of America. Among the uncertainties: whether the law applies to existing loans, and also what happens when any of the 1.2 million reservists or National Guardsmen are called to active duty.

….. Kevin Mukri, spokesman for the Office of the Comptroller of the Currency (OCC), which regulates national banks, adds: “To my knowledge, this is unprecedented—giving consumer credit regulation to the Defense Dept. I wouldn’t know how to write a regulation for bombers.”

….. The law, which was attached to a defense bill last fall and will take effect on Oct. 1, 2007, establishes a 36% cap on interest rates for most loans to military members and their families. Unlike most credit regulations, the new law requires the annual percentage rate for military loans to include all fees. Factoring in fees can push the APR beyond the law’s cap. Home mortgages, auto loans, and credit secured by personal property are exempt.

With all due respect (i.e., very little), if the OCC had been doing its job all these years and had been regulating national banks properly, our military wouldn’t be facing absurdities like universal default, sky-high rates, and out-of-control fees. A Congress with a brain (yes, that means the GOP Congress that was in power for 12 years) would have done something to prevent lending opportunists taking from advantage of patriotic but less than financially savvy soldiers, and for that matter less than financially savvy citizens throughout the nation. It had a golden opportunity to do just that in 2005, when it could have demanded reciprocity in return for the industry-written bankruptcy “reform” legislation it passed (with plenty of Democratic help, by the way).

But nooooooo. Instead, the OCC, and most regulation of lending practices in general, is a laughingstock that lets lenders put almost anything they darn well please into loan agreements.

(Note: In an ideal world where high-schoolers received a decent education about money and personal finance before graduation, or in this day and age before age 16, none of this would be necessary. But, thanks to the education system as it currently exists, it is. Solve that, and this post wouldn’t be necessary. Good luck.)

I’ll acknowledge that Defense will probably stumble a bit in this area, but at least they’ll try, and their default posture will usually be to take the soldier’s side. And although it would never happen, there’s also a small of amount of satisfaction in imagining stormtroopers occupying the worst of the payday-lending operations.

If OCC wants to regulate, it’s going to have to show some teeth, and a willingness to use them. Otherwise, I’d just as soon let DOD take on the task of protecting our soldiers from domestic loan-shark attacks.

It shouldn’t have been legislated into Bankruptcy “Reform” at all:

Judge rules against 2005 bankruptcy law
Restrictions on lawyers’ advice, ads cited
December 9, 2006

A portion of the new U.S. bankruptcy law unfairly restricts attorneys and violates the First Amendment, a U.S. District Court judge in Minneapolis ruled this week.

Ruling in a lawsuit that challenges the bankruptcy law’s provisions, Judge James Rosenbaum noted that part of the law “forbids truthful and possibly efficacious advice” from an attorney to a client. “If this is the government’s view of legal ethics, it is a form of ethics unfamiliar to the Court.”

….. Specifically, Rosenbaum’s ruling addressed a provision in the 2005 law that says attorneys can’t advise their clients to take on more debt as the clients consider filing for bankruptcy. The law also dictates what attorney advertisements must say, and Rosenbaum noted that such regulation is done at the state level. He said the provisions would be unconstitutional if applied to attorneys.

The next step in the case is now up to the U.S. Department of Justice. Officials with the department couldn’t be reached for comment Friday.

“I think it will go up through the appeals process,” said Larry Ponoroff, dean of the law school at Tulane University in New Orleans.

I don’t see why. It’s such an obvious restriction on free speech (and free commercial speech, which has as much right to be heard as political speech) that the DOJ should just give it up.

From CardTrak:

1Q06 filings: 116,771
2Q06 filings: 155,833
3Q06 filings: 171,146

The 3rd quarter figure annualizes to about 685,000. The numbers are well on their way to the 750,000 - 800,000 peak that I estimated previously, and still believe, will take place in the 1st or 2nd quarter of next year.

These figures need to be looked at in conjunction with home foreclosures (which have been rising and bear watching), not only to get an idea of whether so-called bankruptcy “reform” reduced filings permanently, which it probably has, but also to see if the suffering has merely been shifted to those who decide that losing their homes is a better financial strategy than filing. If that’s what results, especially in the absence of meaningful lending reform, it will be hard to call that an improvement.

Last week, I pegged off of Jeff’s post at Credit/Debt Recovery about lending reform ideas, particularly relating to credit cards, that might have a reasonable chance of passing because of the change in Congressional control. Of the five major ideas, I applauded three (banning retroactive rate increases, banning universal default, and banning abusive fees, particularly most over-the-limit fees), and was neutral on two. I noted that reform is overdue, and really should have occurred when Bankruptcy “Reform” passed in April 2005.

Leave it to the “progressive” community to take some good ideas and go off the deep end beyond what will be acceptable (link requires subscription; para breaks added for readability):

(Michigan Senator Carl) Levin was the keynote speaker at a nonpartisan program aimed at creating an incentive-based system of disclosures for the credit card industry. The Center for American Progress, a Washington, D.C.-based think tank, organized the program.

Derek Douglas, the center’s associate director, called on Congress to give the Federal Trade Commission the authority to rate credit cards on their “risk” to consumers, and for issuers to display the rating on the card’s face. The center proposes, for example, that the FTC consider whether a card program applies universal default provisions when changing the cardholder’s APR.

The FTC would award the card a red, yellow, or green rating that would be stamped on the card. Issuers would not be required to submit their cards for review but it might be advantageous to earn a top rating, Douglas tells CardLine. “The incentive to produce safer cards is entirely self-imposed, as companies reasonably might expect that consumers will be more inclined to sign up for a green-rated card rather than a red-rated card.”

Douglas says he hasn’t begun lobbying members of Congress on his idea, but notes the shift from Republican to Democratic leadership opens a world of possibilities.

Mr. Douglas ought to acknowledge two things, the first which I believe he knows and won’t admit, and the second which I believe he doesn’t seem to understand:

• The red-yellow-green idea, never minds its merits, will soon face heavy pressure to go from optional to mandatory once it is “voluntarily” put into place (never mind the insufferable haggling that will ensue over what color code a given card deserves).
• The more over-the-top ideas get tacked on to the reasonable ones, the greater the chance that either a bill won’t come out of Congress at all, or that the president will veto it, and come out of the veto looking good.

Earth to those controlling the 110th Congress: Not that you want advice from me, but the less loony you seem, the more likely you are to stay where you are.

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UPDATE: It doesn’t take too much imagination to see Leno, Letterman, Stewart or Colbert having fun with the red-yellow-green credit-card ratings.

UPDATE 2, Dec. 8: Jeff — “…. this is what government thinks of you; they think you’re a stone imbecile who needs a simple color-coded scheme to tell you how to borrow money. One day they’ll make Garanimals mandatory.”

One of the promises that supposedly enticed many who supported Bankruptcy “Reform” in April of 2005 to vote as they did was that since the financial industry had basically gotten what it wanted in the bill, something would be done about abusive lending practices “later.”

“Later” was meant to mean during the 109th Congress. “Later,” as anyone could have predicted (and yours truly did), never happened.

Thanks to the 109th’s inertia, this gives the 110th’s new majority a chance to work on, pass, and take credit for credit card abuse legislation such as that advocated by the quite liberal Center for American Progress (CAP) and identified/reviewed yesterday by Jeff at Credit/Debt Recovery (web link not available, though the American Bankruptcy Institute has a “cold fusion” link that doesn’t work and will hopefully get fixed; Dec. 2 — here it is). The problem is that CAP, though its rhetoric is a bit over the top, is advocating common-sense measures that both I and Jeff agree with, and that I believe any free-marketeer with a sense of perspective should support.

The key measures:

(1) enact legislation to ban retroactive application of interest rate increases so credit card companies can no longer raise a customers’ interest rate and then apply that higher rate to earlier purchases;

Basically, what reformers want is to say that “a deal’s a deal.” So of course I agree with this, with the “exception” that if the customer agrees to a variable rate pegged to a lending index (e.g., “Prime Plus 2%”), that rate CAN go up with the index, even on previous purchases. This is consistent with how other variable rate loans are treated. I also believe that if a borrower’s credit situation deteriorates, the lender should be able to lower credit limits and close accounts (i.e., prevent future charges) at their discretion, with adequate notice.

(2) ban the practice of universal default to prevent credit card companies from changing the terms of a card based on a customer’s experiences with another issuer.

Doh. I’ve been railing about the outrageousness of “universal default” for quite some time. As Moderate Mainstream has roughly said (but I can’t find the link for the exact quote), “Your landlord doesn’t raise the rent because you’re late with your electric bill.” (Don’t give ‘em any ideas.)

(3) ban what it deems to be abusive and excessive fees (such as unilateral over-the-limit fees when the issuer approved the over-the-limit transaction, and processing fees when consumers pay their bill by phone or online).

What Jeff said here is really good: “It’s an act of fraud for a creditor to approve a purchase and then charge the consumer a fee for going over the limit. I’m a little less sure about processing fees. If it’s a lot cheaper for the creditor to process payments by mail, I don’t see why they shouldn’t charge a fee for payments by phone. That is, if the consumer is talking to a live operator.”

I would go a little further and say that if finance charges are the only reason you went over your limit, and you pay your balance down below the limit by the next due date, there is NO justification for an over-the-limit fee.

The last two of CAP’s ideas, to improve disclosures and strengthen the FDCPA (Fair Debt Collection Practices Act), don’t grab me. Disclosures won’t end up being as complex or lengthy if the first three items are enacted; some of the disclosure ideas I have seen ether have a “cure worse than the disease” look to them, or appear to be close to babysitting. The biggest problem with debt collectors is that they violate existing laws, which I believe are adequate if enforced; making the penalties for continuing to do that tougher would make more sense that piling on additional laws that would also be ignored without tougher penalties.

If a Democrat-majority Congress passes legislation limited to these five items, President Bush would be out of his mind to veto it. Otherwise the prediction I made last year when I suggested that he veto bankruptcy “reform” might actually come totally true:

As a political calculation, the (bankruptcy) bill is a disaster that has the potential to jeopardize much of the rest of the GOP agenda during the rest of your presidency, cause the GOP to lose the White House in 2008, and leave the party of Lincoln in the political wilderness for years to come.

Veto sensible lending reform, and it will indeed be “hello, wilderness” time.

From a subscription-only article at CardForum.com (para breaks added by me):

….. executives at two large issuers predicted recently a decline in consumer credit quality. “In 2007, we would expect bankruptcy filings to return to more normal levels, and potentially, a worsening in the credit environments,” David Sidwell, executive vice president and chief financial officer at Morgan Stanley, said of its Discover card business.

Fifth Third Bancorp President Kevin T. Kabat said the overall credit environment in 2007 “won’t be as favorable” as it has been. “We would expect some mild deterioration going forward.”

A recent report from Bernstein Research forecasts the net loss ratio on credit card portfolios–estimated at 3.5% for 2006–will rise to 5.2% in 2007 and 5.95% in 2008.

“Normal” levels of bankruptcies would be the pre-”reform” 1.5 million per-year average of 2001-2004, as opposed to the (somewhat educated) guess of 700,000 to 800,000 I predicted in late August. The level of losses indicated above could be enough to slow down the economy, even if everything else is going right. If the research turns out to have foreseen events accurately, lenders will to an extent be paying the price for deliberately throwing money at people who they knew probably couldn’t repay, or who would they knew would run into problems if there were even a minor financial disruption. That will be little consolation to borrowers who theoretically should have known better, but thanks to more factors than I can cover here, didn’t.

SHAMELESS PLUG: People who are concerned about becoming part of an unfortunate financial statistic should go here, figure out where they stand, and, if necessary, take action to prevent it.

Moderate Mainstream effectively works up a complete critique in the process of fisking a column by Martin E. Segal, the alleged “Doctor Law” at the Miami Herald.

Segal’s column is so riddled with errors and inaccuracies that ModMain essentially rewrites it, which is why it is probably the best review of the first year of “B-R” (or “BARF,” as she likes to call it) that exists.

That’s why I’m not excerpting it, and why I’m suggesting you read the whole thing.

Which brings me to an important point that needs to be re-emphasized every once in a while.

ModMain is NOT an unbiased observer and, unlike the poseurs in the 527 Media, doesn’t pretend to be. That doesn’t mean that she can’t put together a comprehensively effective critique, because she has, while STILL taking a look at the facts and circumstances in as fair a manner as possible. You know where she is coming from, and you can evaluate her work accordingly. The 527 Media insults our intelligence on a daily basis by acting as if they’re coming from nowhere, i.e., that they are totally detached and objective, when we all should know by now that it’s not the case.

I prefer learning from people like ModMain who don’t feign detached “objectivity,” yet apply their knowledge as subject matter experts (ModMain works in the field; Segal most certainly does not, or he would have starved to death by now) with their known predispositions to the issue at hand. What I pick up is almost invariably wider and deeper than what I get from the people who try to fool us into thinking that, because of a mindset they claim to have that doesn’t really exist, their facts, and especially their interpretations, are the only ones that are possible.

Not that I would have celebrated Tuesday if I had remembered.

Here’s some of an interesting look, with clear biases in the full article, at what has happened since the law’s enactment:

Supporters of the new bankruptcy law claimed that there would be a precipitous drop in filings after the law was enacted, as those trying to evade their debts through liquidation would find the process too difficult to pursue.

Initially, that seemed to be the case, as filings dropped to slightly over 100,000 in the first quarter of 2006, as opposed to over 600,000 in the last quarter of 2005 and a year-round total of over 1.6 million.

But the statistics were measured against an abnormal spike in bankruptcies, as debtors rushed to get their petitions in before the new law took effect. Now bankruptcy lawyers and courts are noticing a slow rise in filings around the country.

True enough, but as I have mentioned a couple of times (here and here), I think filings under the new law will peak in the 800,000 per year range. Continuing:

In surveying credit counseling agencies for information on why petitioners were filing after the law, NACBA found 79 percent of those seeking credit counseling prior to filing bankruptcy were doing so due to circumstances beyond their control, such as job loss, home loss, serious medical illness, and so on.

Though it was one of the main topics at the time of the legislation, I haven’t seen any mention of reducing fraud or catching scam artists since the new law took effect. I thought all along that the fraud argument was bogus, as an FBI task force devoted to fraud got very little in the way of results after many years of trying.

One thing I didn’t expect is in a MarketWatch piece from Tuesday (requires free registration):

About 95% of consumers who filed in the eight months following the law’s effective date earn below the median income, said Clifford White, acting director of the Executive Office for U.S. Trustees, at a conference looking at the law convened Monday by the American Bankruptcy Institute in Washington.

More consumers are filing Chapter 13, under which the debtor pays back a portion of debts over a period of usually five years, instead of Chapter 7, under which a debtor can eliminate most debt. Chapter 13 filings are now about 40% of the total, compared with a historic average of 27%, according to White’s presentation.

First, I thought the new law was very clear that if you had sub-median income, Chapter 7 was the only permitted way to go. I re-read the language of the bill, and it still looks that way to me.

Nevertheless, as noted above, it appears that a lot of people are voluntarily signing on to the payments regime of Chapter 13, and that such voluntarism is being allowed. Unless they are being forced to do so by creditors (which in theory under the new law should never happen unless there is bad faith on the part of the bankrupt person or family), the high percentage of Chapter 13s is more evidence that the truth about what “reform” backers claimed, that large numbers of people filing for bankruptcy before the new law took effect were simply gaming the system, is really the opposite.

From AP:

Mortgage foreclosures climbed in the spring as higher interest rates and energy prices made monthly payments harder for some homeowners.

The Mortgage Bankers Association, in its quarterly mortgage survey released Wednesday, reported that the percentage of mortgages that started the foreclosure process in the April-to-June quarter rose to 0.43 percent. That was up from 0.41 percent in the first quarter and was the highest in just over a year.

The association’s survey covers 42.5 million loans.

Even with the increase, the new foreclosure figure is still low by historical standards and thus not overly worrisome to lenders. But it suggests that some borrowers are feeling pinched.

One potential trouble spot for the housing industry and home prices I am concerned about would be a raft of foreclosures brought on against people who, before Bankruptcy “Reform” took effect last October, might in many cases have been able to file for Chapter 7 bankruptcy and avoided losing their homes. The reason foreclosures against families on the brink could increase would be their reluctance to go into the new law’s overly onerous “Means-Tested” partial-payments regimen under Chapter 13, their avoidance of filing because of higher costs, delays in being able to file because of pre-filing counseling requirements, and a misguided belief that bankruptcy is almost impossible.

But so far, the bad-news scenario isn’t materializing (crossing fingers). Even the 30-day late numbers, which if rising might foreshadow an increase in foreclosures down the road, are holding steady.

______________________________

UPDATE: Tracy makes some very good points in her comment below, especially that you can’t file for Chapter 7 unless you are current with your mortgage.

I also paid a visit to RealtyTrac.com, a site for people looking to buy foreclosed properties. Though it may be a marketing item that’s not kept up to date, the bottom left at RealtyTrac’s home page indicates that there are 650,000 foreclosed properties nationwide.

RealtyTrac told the press that over 115,000 properties entered foreclosure in August. Even though that was the highest monthly total in 6 months, I have reason to believe that Tracy’s cite of 500,000 foreclosures in the first half of 2006 (83,000 per month average) needs to be looked into — because it may be low.

Though I saw it after I put up this post yesterday, the testimony of FDIC economist Richard Brown at the U.S. Senate’s Committee on Banking Housing, and Urban Affairs gave me some comfort that it’s not time to sound the alarm — yet. You can find and download a PDF of his testimony by going here. Though the items charted are not the same as actual foreclosures, Brown’s graphs on Pages 20 and 21 of charge-offs and non-current loans are still flat or declining.

All of that said, Tracy is closer to the action on the ground than I can ever hope to be, so it’s worth noting that someone in her position (able to pick up warning signs sooner than me, the FDIC, or anyone else in the government) is painting a much less than rosy picture.

For the quarter ended June 30 (considered third quarter by the courts, as their fiscal year ends on September 30), the official number of bankruptcy filings was 155,833. The detailed stats at the US Bankruptcy Court web site (available as Excel downloads at the indicated link) show that 150,975 were non-business (i.e., individual and family).

The article discussed at this previous post said that total non-business (”individual”) filings was 142,815. I have no explanation for this annoying difference.

Observations in general, from looking at the court’s spreadsheets and at this CardTrak article:

• This quarter is the last one in which anyone can try to claim that last year’s rush to file ahead of the October 17 effective date of last year’s law change had any role in suppressing the quarterly results.
• The monthly numbers continue to climb. Annualizing the June-July numbers according to CardTrak would lead one to predict that the ongoing annual filing rate will be 700,000 to 750,000 — about half the annual rate that occurred in 2002 through 2005. Factor in an expected increase in filings that will occur after the upcoming Christmas shopping season, and the annual number will probably be closer to 800,000.
• The mix of filings has changed substantially. Chapter 13 filings requiring partial payments of creditors for a 3-5 year period, which were 27% and 23% of all filings in the second quarters of 2004 and 2005, respectively, shot up to over 40% of all filings in the second quarter of 2006. The Bankruptcy Abuse and Consumer Protection Act (BAPCPA) specifically intended to force more filers into a partial-payments regimen, and it appears to have succeeded in doing just that. Though it might appear to be obvious that such a change would be for the better, the real results of Chapter 13 filings, which include failures about 60% the time (see Point 9 at link) to carry through with the payment plan, make the desirability of this change very debatable. In fact, I believe that the forced calculations inherent in BAPCPA’s “Means Test” will cause the Chapter 13 failure rate to be even higher.
• The biggest surprise to me, and something I predicted would go in the other direction, is that the rate of Chapter 13 filings in southeastern districts has gone up. For example, more than half of the second quarter 2006 filings in FL, AL, and GA, were 13s, up from about 26% in 2005. I expected a reduction, because southern districts have traditionally placed many filers in 13s even though they would have qualified for Chapter 7 (total discharge of all unsecured debt). The 2006 result makes me wonder if those districts are still doing that, even though BAPCPA’s formula-driven calculation of who can and cant’ file Chapter 7 supposedly has no flexibility.

There are a few unknowns in this that will be very difficult to get a handle on. First, how many people who figure out that they would be forced to go through Chapter 13 decide not to file after seeing what the Means Test will do them? Second, how many people, either because of the fact that attorneys’ fees under the new law are significantly higher, or because they (erroneously) have the impression that filing for bankruptcy has become impossibly difficult, are deciding not to look into filing? Third, how many people discussed in the first two questions are contributing to what appears to be a significant increase in home foreclosures — and if people who would have filed for bankruptcy under the old law are instead losing their homes under the new law, is that really what we want to see happen?