Regulate the Credit Ratings Agencies

The Obama Administration Prefers Fishing Expeditions to Structural Change

Looking to refinance your mortgage with a shiny, new rate, but your FICO score is a few points shy of the minimum requirement? Why, just hire Experian to review your financial details and they will find ways to tweak the results on your behalf. For a few hundred dollars you can save thousands in interest costs!

Wait! You can't do that, can you? Isn't that illegal??

Well, yes, if you are a consumer, where credit ratings are regulated by the Fair Credit Reporting Act (FCRA), but not if you are a corporation who is planning a bond issue.

But, isn't that a serious conflict of interest? I mean, shouldn't the credit rating agencies be working for the institutions and individuals who rely on their ratings to decide whether or not to subscribe to the bond issue?

Of course it is, but there is no FCRA for credit ratings agencies like S&P, Moody's, Fitch, or even Dun & Bradstreet, which tracks small and medium-sized business credit-worthiness. They operate in a completely unregulated environment where they can say whatever they want, with legal impunity.

Wait, they completely missed the collapse of Bear Stearns and Lehman Brothers, among others. Pension funds lost millions, but they are not liable for their mistakes?

Nope. If you ask them, they are simply expressing "opinions" which are shielded by the First Amendment, and a long series of court decisions has supported them in this position. And, now the Obama Administration is taking them back into court on a $5 billion dollar fishing expedition, alleging that S&P knew more than it told and so are therefore liable to those who lost money by following their advice.

However, what the Administration should be doing instead of seeking to hit S&P with a slap on the wrist or extract some face-saving settlement is to radically alter current public policy and give the Treasury Department or the Securities and Exchange Commission the authority to regulate any company that wants to provide credit ratings on U.S. institutions.

Why is the credit worthiness of households important enough to have regulations on how the information is collected and disseminated, including how this process is financed, but money market investors are left to the wolves? Why are our pensions less important to our government than our credit card accounts? Why is the process leading up to the mortgage loan highly regulated, but when an investment bank packages these mortgages and sells them to investors is the process without oversight?

Failing to regulate the commercial credit reporting agencies led to bad decisions and a financial perfect storm. If we don't draft new authorities to structure these businesses, change how they collect their fees, and make them responsible for the reports they issue it is just a matter of time before it is 2008 all over again.

Where is Our Peace Dividend?

Faced with a gargantuan federal budget deficit, the U.S. government will have to find ways to trim the budget by cutting discretionary spending. And, what discretionary spending category tops the list? The budget of the Department of Defense. The Pentagon commanded $683 Billion discretionary dollars in the 2012 budget, nearly TEN TIMES as much as any other discretionary spending category (the Dept. of Health and Human Services, including Medicare and Medicaid, was a distant second at $84 Billion).

Why, at a time when one could argue that we are not really in open war with anybody, anywhere, are we spending over $2,000 per man, woman and child in America for our nation's defense? Is this level of spending during peacetime not a form of tyranny of which our Founding Fathers warned us? And, aren't we at MUCH GREATER RISK OF WAR AND CONFLICT in the future if we maintain such a large military complex WITH NO GOOD WAY TO OCCUPY ITSELF APART FROM WAR?

I do not question the patriotism of the men and women who volunteer to serve in our Armed Forces, but I do question a paradigm that makes cycles of war and conflict a self-fulfilling prophecy while not truly advancing U.S. economic interests in any significant way.

It is my opinion that, if there ever were a time when we should reap a "peace dividend" by making major cuts to our defense budget, that TIME IS NOW.

Note: People will argue that I am wrong here, that we ARE at war, in fact the "War on Terror", which includes Operation Enduring Freedom (currently in the Phillipines, Afghanistan, Horn of Africa, Trans-Saharan Aftrica), and Operation Freedom Eagle in North-West Pakistan. However, these operatinos, which are as much CIA intelligence and drone operations as military engagements, and which are open-ended without any clear timetable or measurable objectives, do not rise what I would classify as "open war", which is defined as "any overt and demonstrative combat employing conventional forces and legitimate resources, as opposed to covert or clandestine operations."

Where We Are Today

 

"In time of actual war, great discretionary powers are constantly given to the Executive Magistrate. Constant apprehension of War, has the same tendency to render the head too large for the body. A standing military force, with an overgrown Executive, will not long be safe companions to liberty. The means of defense against foreign danger, have been always the instruments of tyranny at home. Among the Romans it was a standing maxim to excite a war, whenever a revolt was apprehended. Throughout all Europe, the armies kept up under the pretext of defending, have enslaved the people."

-- James Madison, Addressing the Constitutional Convention
Philadelphia, June 1787

How Best to Accessorize for the Upcoming Assault Weapons Ban

At the same time that the U.S. government is pushing to disarm the general population, the Department of Homeland Security (DHS) is dramatically increasing the hardware and firepower that it has at its disposal to use in domestic federal law enforcement operations:

• DHS has acquired at least 16 MRAP vehicles, such as the one displayed above, and has outfitted them for use on U.S. streets, courtesy of the U.S. Dept. of Defense (DoD). The DoD has another 2,700 of these that are going to be out of work after the U.S. withdrawal from Afghanistan, so I suspect more will be getting a new paint job and heading to DHS.
• DHS has ordered over 1.6 billion rounds of ammunition of various calibers, or five rounds for every American citizen.
• DHS has ordered over 7,000 "Assault Weapons", the same exact weapons they seek to ban, except these are "select-fire" which means they can fire semi-auto, 3-round burst, or full-auto, while civilian models are limited to semi-auto only.

It seems that the President, and DHS Secretary Janet Napolitano, are concerned about "righwing extremism", and are arming themselves in anticipation of armed conflict with large groups of disgruntled American citizens. Some insight into their reasoning can be found in this unclassified April 2009 DHS report, "Rightwing Extremism: Current Economic and Political Climate Fueling Resurgence in Radicalization and Recruitment".

As I mentioned in the previous post, I would add that DHS is also concerned about their ability to enforce U.S drug policy when more and more states are legalizing the recreational use of marijuana.

Either way, this helps explains the virulent backlash to gun control legislation this time around, something that was largely absent in 1994 under Bill Clinton.

Update 3/6/13: My original report that DHS had acquired over 2,700 MRAP vehicles for use in their domestic operations seems to be false. The original total was based on a Business Insider report by Paul Szoldra. Paul, in turn, had based his article on a propagandized report by Russia Today, which I believe was essentially a twist on an old Firedoglake blog report. I contacted Paul Szoldra when I became suspicious of the 2,700 number; he followed-up with his DHS contacts which is how we came up with the new number of DHS MRAPs in service.

The Tools of Insurrection

This simple graphic, which was produced by California Governor Jerry Brown in 2009 when he was his state's attorney general, is the result of a survey of crimes involving firearms. The results show that the vast majority of firearms used in crimes were handguns. However, almost all the focus in the gun control debate is on so-called "assault weapons", which count as rifles.

In California, rifles were used in only 8.8% of crimes, and of those rifles less than two thirds were classified as assault weapons. Therefore, assault weapons are used in a miniscule fraction of crimes in which a gun of any kind is used, as can be seen in the following graphic (from the same 2009 report):

[click on the image for a larger view]

So, from this data we can safely conclude that an assault weapons ban will have little impact on crime and public safety in America. In fact, studies after the last ban, in 1994, have shown no discernible correlation between the assault weapons ban and gun crime, which we would expect based on the low percentages involved.

Why, therefore, is this such an important issue for the Federal Government? To answer that question, you have to look at the proposed assault weapons ban in the context of an unprecedented explosion in federal government authority and economic influence in the past few decades. For example, as I've mentioned in a previous post, the U.S. Federal Government now controls nearly five times more money per person today than they did in the last year under Bill Clinton (2000). All of this money translates into government action, some of which is popular and some of which is unpopular. Clearly, as the trend continues, there will come a time when citizens in various parts of the country say, "Enough!" and take steps to try to impede the intrusion of federal authority in their lives and livelihoods.

One example is Colorado. Currently, Colorado law (which makes recreational use of marijuana legal) is at loggerheads with U.S. policy, with unpredictable results. In California, armed federal agents have stormed legal, licensed and peaceful medical marijuana growing operations to destroy the crop and arrest the operators. As marijuana cultivation and sale becomes widespread in Colorado, how will the Feds respond, and what will the citizens of Colorado do about it? This is an open question, and one that the federal government wants to stay ahead of, which is why they are banning so-called "military style" weapons, which not so ironically are exactly the weapons they carry when they storm legal medical marijuana growing operations in California.

Statewide Gun Registration - An Idea Whose Time Has Come

State governments need to know who owns what guns.

For a long time I agreed with the NRA position that gun registration proposals should be opposed at all costs, for they are the first step in gun confiscation. However, I have come to believe that well-regulated gun registration schemes, on a STATE-BY-STATE basis, are now needed.

PLEASE ALLOW ME MAKE IT PERFECTLY CLEAR THAT I OPPOSE ANY EFFORTS TO IMPOSE A FEDERAL GUN REGISTRATION SCHEME.

The problem that we are faced with, which calls for firearm registration, is how to know when someone who can no longer own a gun does, in fact, own one. Expecting the mentally ill, or those subject to protection from abuse orders, or those convicted of felonies, to VOLUNTARILY inform the authorities of what guns they own is naive.

Therefore, I support the notion that individual state government need to develop a firearm registration regime that will permit the authorities to know what guns are out there, and who is responsible for them.

This is the only way, as I see it, that we can effectively keep legally purchased firearms out of the hands of those who cannot safely possess them.

Firearms and the Mentally Ill -- We've Got to Do Something NOW

The world's deadliest sniper was killed by a troubled vet he was trying to help.

If there ever were a tragic event that should bring into focus the fact that gun safety is not about outlawing guns but about controlling who has access to them, it is the death of ex-Seal sniper Chris Kyle at the hand of a young Iraqi War veteran who was suffering from post-traumatic stress disorder (PTSD).

At this moment, individuals who are suffering from emotional or mental disorders who have not been involuntarily committed by court order are not restricted from owning, or coming into contact with, a firearm. However, allowing veterans suffering from PTSD access to their weapons has resulted in countless suicides, and now a tragic double murder.

We need legislation requiring individuals who are suffering from severe depression, paranoia, schizophrenia, or a similar ailment to sell, transfer, or surrender their firearms until they can be deemed fit. Legislation such as this would have legally prevented Chris Kyle from bringing his murderer to the gun range that day, and he would still be alive. Similarly, it would have impeded Adam Lanza's mother from providing her troubled son with access to the weapons he used in the Newtown massacre, and twenty-six people, including twenty young children, would still be alive.

We really need to spread the word that guns and emotional or mental instability cannot coexist. If we live with someone who suffers any of these ailments we need to do whatever we can to separate them from their weapons so that they are less likely to hurt themselves and others.

However, this is often incredibly difficult to do. Someone suffering from paranoia will likely become severely agitated if you try to take away a gun that makes them feel safe, perhaps with violent results. Currently, the authorities cannot intervene until the mentally ill person has done something that demonstrates that they are a danger to themselves or others. However, this threshold may be too high to increase public safety.

As a starting point, we should lower the threshold by which someone's actions initiate a process of court-ordered psychological review. For example, as I write this a deranged man in Alabama is holding a five year old boy hostage, who he took off of a school bus after shooting and killing the bus driver. However, this man showed numerous signs of mental instability, such as beating to death a dog that wandered onto his property and shooting into the air to scare off neighbors who ventured too close to his property line. The local authorities in Alabama should have been empowered to order an immediate psychological evaluation for this man. However, this did not happen, and now a bus driver is dead and a family is in anguish because they may never see their son again.

Also, we need to start a discussion with school administrators and the medical community about how they can help us identify those individuals in our midst who are not equipped to be allowed to own or otherwise possess a firearm. For example, the Ph.D student in Aurora, Colorado who unleashed a barrage at a midnight showing of a Batman movie had written a letter to his psychiatrist expressing a desire to inflict pain on others. Sadly, since no prompt action was taken twelve people were killed and over fifty others were wounded.

What is it going to take before we take the measures that need to be taken to identify those people around us who are literally "ticking time bombs" and disarm them??

Gun are ubiquitous and gun control is not the answer. The answer is cooperation by school officials, mental health professionals, law enforcement, and the courts to get these at-risk people identified, evaluated, and kept away from dangerous weapons.

Amnesty for the Employers of Illegal Immigrants

This does not need to happen anymore.

The Obama Administration is proposing amnesty to the approximately 11 million immigrants who have succeeded in crossing the border illegally, or who have stayed beyond the time limit of a tourist visa. In addition to amnesty, the Administration is recommending stricter border enforcement and increased raids by federal agents of employers who hire illegals, with increased penalties.

I see major problems with the Administration's proposals, especially as it applies to the crack-down on employers who pay illegals under the table. The path to legalization of foreign nationals currently here without authority will take a long time to complete. What does Obama want these people to do in the intervening period? Steal to eat?

Basically, the Administration is saying that illegal immigrants must not work here illegally, but they can stay and apply for a work permit and possibly citizenship as long as they are here illegally and unemployed.

The fact of the matter is that illegal immigrants cross the border because they know that there is huge untapped demand for their services in a range of industries where U.S. citizens prefer not to work, or where the wage that would have to be paid to attract a U.S. citizen would make the product being produced too expensive to sell competitively. Are you going to pay $8/lb. for California grapes? Because that might be what they would cost if you didn't have illegals picking them for you.

The Obama Administration is drawing attention to the rates of capture of illegal immigrants, which declined dramatically during their first term in office. However, this decline was not due to more border agents but rather to the worst economy since the Great Depression. During Obama's first four years many Mexicans went back to Mexico because they could not find work in the U.S., and this trend discouraged others from risking the sometimes dangerous crossing.

So, the issue is not illegal immigration, per se, but rather jobs and who is going to fill them.

RATHER THAN AMNESTY FOR IMMIGRANTS HERE ILLEGALLY, I PROPOSE AMNESTY FOR THE EMPLOYERS THAT HIRE THEM.

As I mentioned earlier, there are numerous industries in the U.S. that would suffer or fail if the supply of willing low-wage laborers were cut off. I recommend that the federal government expand existing visa programs so that these employers can request certain numbers of workers from different countries, to work LEGALLY at their facilities in the U.S. If these workers are already working illegally, upon approval of their application the employer could decide if they want to keep these workers and initiate a process of documentation of these workers without risk to the employer of prosecution.

Obama's proposal is a formula to put workers on the street while they wait to see if they can stay here legally or not, while my proposal is a way to codify the status quo and insure that the U.S. businesses that truly need these workers can prosper without fear of prosecution.

Common-Sense Solutions

Instead of abusing the Newtown tragedy by twisting it into an opportunity to undermine the 2nd Amendment and restrict legal gun ownership, we should pursue SENSIBLE POLICY IMPROVEMENTS THAT WILL MAKE US SAFER. In that vein, I am sharing an editorial written by the staff at USA Today that I think is a very good basis for conversation and debate. I believe that measures similar to these, which do not conflict with the rights of law-abiding citizens are where we should be looking to improve the system:

The following opinion was written by the editorial board of USA Today and published on January 30, 2013

Fight on assault-weapon ban shouldn't get in the way of other common-sense solutions.

As Congress starts hearings today on gun violence, even the most ardent supporters of a new ban on assault weapons and high-capacity magazines concede they face an uphill battle. That doesn't make the ban a lost cause, or an unworthy one, in the wake of last month's school massacre in Newtown, Conn.
But the assault-weapons fight shouldn't get in the way of other common-sense, common-ground ways to curb gun deaths. Here are five that command bipartisan support and could make a significant difference without any injury to the rights of law-abiding gun owners:

1. Background checks. The nation's otherwise effective background check system has a critical loophole: The instant checks must occur only when a gun is purchased from a federally licensed firearms dealer. Buyers who can't pass a check — such as felons or people with a history of mental illness, substance abuse or domestic violence — can buy weapons from private sellers who aren't required to run a check. These private transactions are a key way that criminals get guns. The White House has proposed mandatory background checks for all purchases, with logical exceptions such as gun transfers between family members. National Rifle Association leaders are deliberately misrepresenting the idea and claiming it's a Trojan Horse for gun taxation and confiscation. Yet a poll last summer showed 74% of NRA members in favor of expanding background checks. And a CBS News/New York Times poll this month showed 92% support for background checks on all potential gun buyers.
2. Mental health database. Virginia officials were appropriately shamed when they learned that the student gunman who killed 32 people at Virginia Tech in 2007 had legally bought his two handguns after breezing through background checks — despite being so obviously disturbed that a judge had ordered him to get mental health treatment. Ordinarily, that sort of mental history would disqualify someone from buying a gun, but Virginia had done such a slipshod job of passing along mental health records that the shooter's history never turned up in two background checks. Virginia has since cleaned up its act, but a shocking number of other states have not. As of late last year, one-third of states had reported fewer than one mental health record for every 100,000 residents. Rhode Island had failed to report any. Five states — Alaska, Hawaii, Massachusetts, North Dakota and Pennsylvania — had each reported only one. States offer numerous excuses for their inaction, but the real reasons boil down to ineptitude or indifference. That's shameful.
3. Straw purchases. The deranged shooter in upstate New York who killed two firefighters last month couldn't legally buy weapons himself; he had served prison time for killing his grandmother with a hammer. Prosecutors say he got a neighbor who could pass a background check to go to the gun store with him and buy the assault rifle and shotgun he later used in the attack. Still other "straw buyers" purchase numerous weapons at gun stores and then sell them at a handsome markup to people who can't legally buy weapons themselves. Quirks in the law make this kind of blatant gun trafficking hard to prove and hard to prosecute. Prosecutors are often relegated to trying to convict a straw buyer of a paperwork violation, which can carry minimal prison time. In a welcome sign of bipartisanship, Sens. Kirsten Gillibrand, D-N.Y., and Mark Kirk, R-Ill., are co-sponsoring a proposal that among other things would make straw purchasing a federal crime with punishment of up to 20 years in prison, with up to an additional 15 years for conspiracy and organizing a ring of straw buyers.
4. Rogue gun dealers. The great majority of federally licensed gun dealers are scrupulously law abiding, but a tiny minority flagrantly flout the law: They "lose" guns that they then sell off the books to criminals, abet obvious straw purchasers and otherwise abuse their federal licenses to profit by funneling firearms to people who will pay serious money as long as there's no background check. The number of such bad actors is small and easy to identify: A study by the Bureau of Alcohol, Tobacco, Firearms and Explosives (BATF) showed that 1.2% of gun dealers accounted for 57% of guns traced to crimes. This suggests that a big part of the gun problem can be addressed by cracking down on these rogue dealers. That's easier said than done. In Milwaukee, for example, the BATF has been pursuing one dealer for years. According to the Brady Campaign to Prevent Gun Violence, which is co-counsel in lawsuits on behalf of four Milwaukee police officers shot with guns that the dealer allegedly sold illegally, the business has thrived since 1987 despite numerous attempts to shut it down. In 1998, 2000 and 2005, the dealer — which has changed names several times — led the nation's gun shops in selling guns traced to crimes. Current laws hobble the BATF and deliberately make it difficult to restrain rogue dealers. That could and should change.
5. Public responsibility. One of the least controversial but potentially most effective ways to cut gun violence could be to encourage the owners of the nation's roughly 300 million guns to take personal responsibility for keeping them safe. The NRA emphasizes safe and responsible gun handling, and a mostly overlooked part of the Obama administration's plan is to start a "national responsible gun ownership campaign" to encourage gun owners to secure their guns. Many do that, by using trigger locks or storing firearms in gun safes. But too many do not, and the results can be disastrous.
   

If Nancy Lanza had locked her Bushmaster rifle in a gun safe, for example, her son Adam might never have managed to kill her with it, then carry it to Sandy Hook Elementary School. And 26 first-graders and educators might still be alive.

Liberty, Once Lost, Is Lost Forever

John Adams, circa 1798

"But a Constitution of Government once changed from Freedom, can never be restored.

Liberty, once lost, is lost forever."

-- John Adams, July 1775

Back to the (Fiscal) Future

Don't worry -- this isn't rocket science, guys.

As the Federal Government faces the imminent need to once again extend the budget cap, there is ample hand-wringing to go around. However, the solution to this problem is quite simple: take per capita federal spending back to the level it was during the last full year of President Bill Clinton's second term (2000).

U.S. Budget

2000: $2.4T
2012: $3.7T
% Change: +54%

U.S. Population

2000: 281M
2012: 315M
% Change: +12%

In other words, federal spending has increased almost 5X faster than the population has grown in only the past 12 years! Why, because President Clinton was a horrible president and he gutted the Federal Government during his two terms forcing presidents Bush and Obama to inflate spending? Hardly. I would argue that the country was in much BETTER shape in 2000 than it is today, and for HALF THE MONEY (what a bargain)!

Are you the head of a federal agency and want to know how much your budget should be for the next fiscal year? Look it up here, and then just multiply by 1.34 to correct for inflation.

An Alternate Interpretation to the Second Amendment

I happened upon an essay written in 2008 by Terrell Prude, Jr., and he presents a very interesting interpretation of the "Well-regulated militia" clause of the Second Amendment.

I have always struggled with the language of this amendment, which to me is unnecessarily confusing. Supreme Court Justice Antonin Scalia, writing for the majority in Heller and finding that the Second Amendment was an individual right, and not the right of a group, or "militia", pointed out that every time a "right" was attributed to "the people", it was meant to be interpreted as an individual right, which makes the two parts of the amendment seem to be in conflict with one another.

Terrell Prude, Jr. offers the idea that the Framers were referring to the Army itself when they used the word "militia". In fact, in the earliest documented use of the word, Sir John Smythe in his Certain Discourses Military (1590), used the word to mean "a military force". Therefore, this interpretation, at least linguistically, is not so far-fetched.

If we take the "militia" to refer to the U.S. Regimental Army controlled by the Commander in Chief, then the "well-regulated" clause also takes on whole new meaning. Instead of telling us that the "citizen militia" must be well-regulated, it seems to be telling us that the Army itself must be "well-regulated". Based on this interpretation, what I am hearing is something akin to the following:

"Since an Army that ventures beyond the limits placed upon it by the Constitution threatens the Free State, the people must be allowed to keep and bear arms in order to act as a deterrent to a government who would turn against its own people."

If this interpretation is correct, why would the Framers have couched the Second Amendment in such obtuse language? I think that they did this for the same reason that the National Rifle Association uses all sorts of arguments in defense of the amendment, but rarely, if ever, do they refer to it as a "license to armed insurrection": because saying as much must have seemed as inflammatory and potentially treasonous then as it does in our day. So, perhaps the Framers were intentionally vague and wrote "well-regulated" when they meant "well-behaved" and "militia" when they meant the U.S. Army.

If this is true, then it is a shame since the Second Amendment is of critical importance in that it is the backstop to all the other rights we cherish, and the vagueness in the language has given entre to all those within and without the government who would like to see the people stripped of their right to "keep and bear arms". In any event, the operative clause of the Second Amendment, as Justice Scalia correctly pointed out, is "The Right of the People to keep and bear Arms shall not be infringed", and differing interpretations over the meaning of a "well-regulated militia" do not change that.