Freedom Line Blog

As I note in my new weekly column, out today, President Obama’s State of the Union address on Tuesday night was littered with risible claims, not the least of which was his defense of the hundreds of billions of dollars poured into the financial and auto industries at the height of the nation’s economic crisis (efforts, in fairness, that began with the Bush Administration). Contrary to the president’s rosy recitations, however, the bailouts were not an unimpeachable success. As the AP reports today:

A government watchdog says U.S. taxpayers are still owed $132.9 billion that companies haven’t repaid from the financial bailout, and some of that will never be recovered.

The bailout launched at the height of the financial crisis in September 2008 will continue to exist for years, says a report issued Thursday by Christy Romero, the acting special inspector general for the $700 billion bailout. Some bailout programs, such as the effort to help homeowners avoid foreclosure by reducing mortgage payments, will last as late as 2017, costing the government an additional $51 billion or so.

This report won’t get much attention, simply because of the fact that a majority of the money has been paid back. That fact, however, reveals what may be the most damning legacy of the bailouts’ gonzo economics: the ability to think of a $133 billion shortfall as a rounding error.

A sobering column by a Greek politician in today’s Wall Street Journal shows that Stalin-style Communism is making a comeback in a nation teetering on the edge of financial meltdown.  The breakdown in policing has led to countless acts of violence – including murder – that go unpunished:

Many argue that Greece’s disintegration is the unavoidable consequence of the government’s attempt to enforce fiscal austerity. This seems doubtful. This meltdown can be seen as the product of the totalitarian left’s open attempt to exploit the economic crisis and destroy Greece’s existing democratic and economic institutions. What we are witnessing is not a descent into chaos, but a descent into organized lawlessness. Sowing pandemonium and forcing Greece to default will, according to Greek Stalinists’ analysis, bring the revolution nearer.

What makes the situation worrisome is not so much the political strength of this movement. After all, the Communist Party and the Coalition of the Radical Left together claim no more than 13% popular support.

The problem, rather, lies with the political and ideological passivity of the parties that do represent Greece’s broader middle classes. The tolerance these democrats have shown toward their totalitarian counterparts has allowed the latter to play a leading role in shaping Greek public discourse. Do they imagine the favor would be returned if the Coalition of the Radical Left were in charge?

Unless Greece’s political elite realizes the seriousness of what’s happening and acts now to re- establish the rule of democratic law, their efforts to deal with Greece’s economic problems will have been in vain.

While the federal government continues to create moral hazards for people trying to stay in their soon-to-be-foreclosed homes, TwinRock LLC is giving those same people a reason to hope: letting former homeowners rent their foreclosed properties at reduced rates.

So far TwinRock has purchased 22 homes in Moreno Valley, Riverside, Corona, Rialto, San Bernardino, Highland, Murrieta, Wildomar and Temecula, and the company has plans to buy several hundred more, said Meyer.

Earlier this year, TwinRock put together a $6 million fund to enable the company to buy about 40 Inland homes and it is getting ready to raise another $15 million, Philips said. The firm’s investment model primarily calls for buying houses with cash at trustee auctions conducted each weekday at Inland courthouses, he said.

There’s another benefit to keeping people in their homes:

Letting former homeowners remain in the foreclosed homes as tenants also eliminates the potential that the homes will be vandalized by angry former owners facing eviction, Meyer said.

TwinRock’s solution isn’t for everyone.  Some homeowners are so indebted in other areas they need to declare bankruptcy and restart their financial history.  For many others, however, renting one’s home with the possibility of buying it back later is much more attractive than waiting for a temporary government bailout.

H/T: Riverside (CA) Press-Enterprise

When every opposition group voted down his austerity budget earlier this week, Portugal’s prime minister resigned.  Now, the European Union is preparing to bail out a third member nation in just over a year.  (The other two are Greece and Ireland.)

While the Portuguese mess probably won’t have an immediate fiscal impact on the United States, the EU’s crisis of federalism could soon be felt over here.

States like Illinois and California are teetering on the edge of insolvency after spending like a bunch of reckless European countries.  Because of the EU’s shared currency and the effects a default would have on the rest of the federation, the EU feels pressed into covering the costs of some members’ excess.

The same thinking seems likely to migrate across the Atlantic.  Members of Congress are mulling options like bankruptcy for failing state governments, though that risks undermining state sovereignty.  Also, bailouts run the risk of prolonging hard decisions, as well as deepening the dependency of states on the feds.

There are no easy answers, but there are some necessary decisions.  Time will tell if those in Sacramento and Springfield can come to better resolutions that the parliament in Lisbon.

It’s nice to see a piece in Time Magazine worthy of linking to. Over the last few years, Time has led the charge of weekly news magazines becoming equal parts liberal opinion journals and People Magazine derivatives. Newsweek isn’t much better (only George Will and Robert Samuelson redeem it). And U.S. News and World Report has become entirely virtual, while simultaneously losing its only compelling columnist (Michael Barone, who’s now with the D.C. Examiner).

But Time’s new issue features a piece called “What’s Still Wrong With Wall Street” by financial journalist Allan Sloan. If you can get past the purple prose of his first few paragraphs (including a breathless passage about the “green shoots” appearing in the cracked driveways of the newly impoverished) and the occasional populist nonsequitur (Mr. Sloan apparently thinks the financial crisis should relieve him of the need to pay overdraft fees), it’s worth your time.

With great analytical clarity, Sloan explains how TARP wasn’t the real bailout (new federal lending standards were); how the bonuses that the public is crowing about aren’t really bonuses; and how it was incompetence much more than greed that drove the financial collapse.  One exemplary passage:

The two divisions at AIG that brought down the firm — financial products and stock-lending — didn’t understand what they were doing. Financial products wrote credit-default swaps — sorry I’m not pausing to explain them, but most eyes would glaze over if I did — that they thought were riskless but turned out to be ultra-risky.

The stock-loan department, AIG’s other disaster, took the cash it got for lending out stock owned by AIG and invested the money in esoteric securities rather than in risk-free Treasuries, the standard practice. The idea was — I’m not kidding — to make an extra one-fifth of 1% in interest. When the esoterica, which the stock-loan folks thought was riskless, crumbled, so did the firm.

It’s an admittedly uneven piece, but the good outweighs the bad.  Read the whole thing here.