Friday, December 26, 2008

Commentary 53- Mulshine on Social Security

The Ponzi scheme that Baby Boomers are waiting to cash in on

Posted by Paul Mulshine December 26, 2008 11:19AM
(Note: This column ran in the Star-Ledger on Christmas Day)

I think it is fair to say that 2008 has been the worst year in the history of the Republican Party. Every conservative columnist in America has weighed in with a theory on how to rescue the right. So here's mine: Stop treating the young people of America the way Bernie Madoff treated his investors.

A lot of people have been comparing the Ponzi scheme allegedly run by Madoff to the Ponzi scheme run by the U.S. government, also known as Social Security.

That's entirely unfair.

To Madoff.

From what I can gather, Madoff at least made an attempt to invest the money he got from early investors to give them the returns he promised. Those investments failed to bring in enough money and the scheme was doomed to fail sooner or later. But if Madoff had been a more brilliant investor, it might have worked.

The federal government, on the other hand, never tried to make the Social Security system work. The feds didn't invest the money in the market. They took the money that we gave them and lent it to themselves, promising themselves interest. To be paid by themselves.

This scheme is even more crooked than Madoff's. But try and explain that to adults, especially Baby Boomers. The math is complicated, but the typical boomer seems to understand that he or she is on the winning side of the curve in this scheme. We will get a good return on our Social Security payments and a fantastic return on our payments into Medicare.

But try talking to kids about it. I do so regularly, often in college classes that I visit.
Whenever I am before a class, I make it a point to tell the students the truth about Social Security. And the truth is that when the current crop of college kids are in their peak earning years, each will be supporting half a retiree. "I'll be on the beach sipping a margarita and you'll be paying my bills," I tell the kids.

And those bills won't be cheap. When you look at the projected costs of Social Security and Medicare 20 years out, you see that each kid in that class will have as much as $500 a week deducted from his paycheck to support his half of a retiree.

"And you have to adjust that for inflation," I tell them. "In other words, you'll have to pay $1,000 or so a week to keep me in tequila and triple sec. I might pay for the lime juice, but that's about it."

But what about the trust fund? The government owes that money to itself. Therefore these kids will be paying our retirement costs both in their payroll taxes, which will go to Social Security and Medicare, and in their income taxes, some of which will go to pay back the money the feds are borrowing from Social Security today.

In a typical college class, half the kids are daydreaming or sending instant messages on their laptops. But they all pay attention when I tell them this. From the reaction, I can see that no one has explained this to them before. Neither political party will tell the truth about the trust fund for the same reason Bernie Madoff didn't tell the truth about his trust fund.

The only major-party presidential candidate who ever addressed this issue honestly was Republican Barry Goldwater in 1964. He wanted to make Social Security voluntary and he was opposed to Medicare, which was then in the planning stages.

Goldwater lost in a landslide. It's not hard to see why. Everyone who voted in that election was on the winning side of the Ponzi scheme.

That was still the case for the majority of voters in this year's election. But it won't be the case for long. If we assume that Barack Obama gets re-elected in 2012 - a likely assumption given the ineptitude of the current GOP leadership - then the next presidential election of consequence will be in 2016. By then a majority of Americans will be on the losing side of the scheme.

The party that first figures out a way to appeal to these voters will have a decisive advantage in the future. It won't be the Democrats. Obama proposes to "save" Social Security by raising taxes rather than trimming benefits.

As for the Republicans, they treated Texas congressman Ron Paul as a pariah in the presidential primaries for reviving the Goldwater worldview. But the oldest candidate in the GOP field had the youngest supporters. So that should be a word to the wise.

Or perhaps the Republican leadership will decide to dismantle this Ponzi scheme simply because they are honest and they realize it's the right thing to do.

And maybe Santa really did come down your chimney last night. Merry Christmas.

My Commentary:

Posted by Zemack on 12/26/08 at 7:35PM
My wife and I have paid precisely $312,551 in Social Security taxes over our working lives as of 12/31/07, according to our latest S.S. statements (not counting Medicare!!). This includes the employers' "share", a grossly dishonest means of camouflaging how much money each of us actually pays. If those taxes (dating back to 1966) had been placed into a personal, balanced investment account earning a reasonable, modest rate of return, we would have probably upwards of three-quarters of a million bucks, of our own money, to start drawing on in a few years. Instead, that money was spent by congress or transferred to other retirees who did not earn it.

Now, when we begin to collect in a few years, we will have to depend on other workers' taxes to collect on our contributions. This will include our own children and, eventually, our grandchildren. No honest person would voluntarily submit to such a scheme. This is the horrendous position that that hideous program forces on its "contributors".

Social Security turns everyone into first a slave, then a parasite.

If that is not a Ponzi scheme, then there is no such thing.

Social Security is thoroughly immoral, violates individual rights to life and property, and should be phased out and abolished.

Sunday, December 21, 2008

Commentari 52-Hirsh, Newsweek on the Fed

The Anti-Greenspan

He's probably the least-noted member of Barack Obama's new financial regulatory police, but Dan Tarullo may end up having the most impact. Think of Tarullo as the anti-Greenspan, or perhaps as a pro-regulation virus planted in the heart of a Federal Reserve System that for two decades has been predisposed to letting markets self-correct. Certainly Tarullo—who was named Thursday to fill one of two open spots on the seven-member Board of Governors—is far from you run-of-the-mill Fed official. Most governors have been academic economists, bankers or businessmen. Tarullo, a Georgetown law professor who specializes in bank regulation and international monitoring, is basically a high-toned cop. "Our regulatory system has let us down," he said on PBS's Lehrer show last April, before the worst of the subprime fallout hit. "We've had multiple opportunities in the last 10 or 15 years to take account of the new forms of financial activity. We haven't done so."

Most media attention is focused on Obama's nomination of Mary Schapiro, a tough-minded former futures regulator, to head the Securities and Exchange Commission, and Gary Gensler, a Treasury undersecretary in the Clinton administration, to chair the Commodities Futures Trading Commission. But those two may end up waiting on direction from the new super-empowered Fed. Many experts agree that one reason the subprime securitization disaster occurred is because it cut across so many once-segregated sectors; mortgage lending and securitization were once entirely separate practices. The SEC, for example, is only supposed to oversee publicly issued securities, and can't do anything about lending practices. Only the Federal Reserve Board can monitor the entire financial landscape. As a result, Tarullo could potentially play a bigger role than either Schapiro or Gensler in the future financial system, some experts say. "It just depends on what deal was made" with Federal Reserve Chairman Ben Bernanke, "or whether there was a deal," says Ted Truman, a former senior Fed official. "It's not automatic that someone with that kind of expertise would immediately have a role in banking policy. Board members are assigned in terms of seniority."

Bernanke, a conservative, has already expanded regulation. Under the Home Ownership and Equity Protection Act passed by Congress in 1994, the Fed was given the authority to oversee mortgage loans. But then-Chairman Alan Greenspan, an Ayn Rand libertarian who by his own admission believed that markets could mostly self-correct, kept putting off writing any rules and stoutly resisted other efforts to regulate derivatives on Wall Street. Bernanke, by contrast, earlier this year instituted "Regulation Z," which created common-sense rules such as forbidding loans without sufficient documentation. Bernanke has also vastly expanded the Fed's lending powers to deal with the crisis. He believes the Fed should at some point return to its old modest role as a regulator of the money supply and inflation. But since he is also known to want re-appointment as chairman next year—and incoming Obama economic advisor Larry Summers is said to covet the post—it's likely that Bernanke will go out of his way to satisfy Tarullo.

And that may mean a whole new regulatory structure that will dwarf anything Schapiro does at the SEC or Gensler can accomplish at the CFTC. Those who who've worked with the soft-spoken Tarullo says he brings the right blend of save-the-world zeal and balanced judgment. "I think it's a great choice," says a former senior member of the Clinton administration. "It's the right person with the right skill set and the right judgment at right time."

The question is whether Tarullo will push for too much regulation. In his 2008 book on international banking regulation, "Banking on Basel," Tarullo repeatedly argues that the subprime crisis is a once-in-a-lifetime opportunity to regulate. "The crisis has—at least for a time—altered the political environment for financial reform by placing banks on the defensive," he wrote. "Domestic reformers may have the upper hand if they move quickly." The debates at the Fed should tell us a lot in the coming months.

My Commentary:

Mike Hirsh's reference to Dan Tarullo as a "pro-regulation virus" is ingenious…and perfectly apt. Government economic regulation is a virus, and the cause of the current crisis is a whole swarm of such viruses having evolved over past years and decades. The resulting infections have made for a very sick patient.

In a free, unregulated, "uninfected" market:

*There is no central bank with monopoly power over money creation, interest rates, or to act as lender of last resort. An unregulated financial industry under the control of a government-imposed central bank is a logical impossibility.

*There are no government-created, politically pressured quasi-private GSEs like Fannie and Freddie, buying up untold $billions in unsound mortgages originated by imprudent private lenders and borrowers, for packaging and resale to the public with implicit government guarantees of safety.

*There is no Community Reinvestment Act to impose "flexible lending standards" in order to guarantee an alleged "right" to homeownership.

*There is no federal deposit "insurance" or government mortgage guarantees to encourage excessive lending risk, discourage prudent banking, and shift liability for bad banking to government…i.e., taxpayers.

*There is no excessive, artificial money creation (inflation) engineered by a central bank unconstrained by a gold standard to fuel asset bubbles such as the house-price explosion of the past number of years, which amounted to gasoline being poured onto a raging sub-prime fire.

*There is no government-imposed mark-to-market accounting rule (imposed under Sarbanes-Oxley, the disastrous regulatory law, passed after the Enron scandals, that punished the thousands of innocent companies that didn’t cook the books). Under mark-to-market, which Steve Forbes calls an accounting "weapon of mass destruction", many sound financial institutions with positive cash flow and mostly performing mortgages were driven into artificial insolvency "requiring" a government bailout. This may be the greatest "insider trading" scheme in history.

*Profits are privatized, as they should be, but so are losses, as they most certainly should be. Profit and loss, or risk and reward, are the countervailing market forces that work to the advantage of prudence long term. The socialization of risk and loss brought about by government intervention severed that connection, unleashing the quick-buck artists on a massive scale.

*Banks are not shielded from bankruptcy.

Part 2:

I could go on and on here. The private lenders and borrowers of bad mortgages, and any fraudsters that may have operated, are just the superficial face of the financial debacle. Their irresponsible behavior need not be excused to understand that it was taking place within the context of a myriad of market-distorting government interventions, which does not constitute laissez-faire in any way, shape, or form.

Any semblance of a free market in finance, housing, and the mortgage market have long since disappeared behind decades of ever-growing government efforts to "encourage" homeownership. The veritable conveyor belt of imprudent credit expansion revolving around the housing bubble is a creation of government, and wouldn’t have been able to remotely approach today’s levels in a free market. In a free market, bad private financial practices are regularly weeded out by bankruptcy, foreclosure, and investment losses long before they can infect the entire system. The common denominator of the entire financial crisis is the government.

This massive financial crisis represents the collapse of a heavily regulated and controlled financial industry operating in a housing and mortgage sector beset by massive government intervention. It is not a failure of a non-existent free market. The alleged "deregulation" is no such thing. There can be no deregulation as long as the government retains its market-distorting regulatory powers, whether or not it happens to have exercised them in some particular way or not (as the scapegoat-seeking Greenspan well knows). The pseudo-deregulation blamed for the crisis is just a rationalization for expanded government control over the economy, to the detriment of individual rights.

As to the continuing efforts to discredit Rand and Objectivism by linking them to Greenspan, it’s getting old, and it won’t work. Ideas cannot be refuted without openly confronting them, something Rand’s detractors steadfastly refuse to do. Any link between Greenspan and Objectivism has long since been severed when Greenspan accepted the job of monetary dictator in 1987.

Others' Comments:

Posted By: Too late smart @ 12/21/2008 2:35:03 PMThere is nothing in the Community Reinvestment Act requiring lenders to leverage and sell off mortgages. When it was found out that lending in the previously red-lined neighborhoods was profitable they pushed that business beyond all reason valuations went up. When the mortgagers lost jobs in the ressession, well you know what happened then.

My Commentary Response:

You’re technically correct, Too late smart, but only technically. The inherently corrupt nature of government’s arbitrary regulatory authority over the banking industry is the key here. That regulatory power itself was the leverage the government used to coerce banks into sub-prime lending under CRA. The packaging and selling off of risky mortgages was pioneered by Fannie and Freddie, and later emulated by private firms. But it is not innovative products such as mortgage-backed securities that are at fault here. It is the toxic mortgages that ended up in them. The CRA was instrumental in creating them.

When the politicians and their bureaucratic allies that have life and death control over your business tell you to do something…you’re going to sit up and take notice. For a non-complier, the government can call down retribution in a myriad of ways, from criminal investigations under antitrust laws, to tax audits, to fraud or discrimination allegations and prosecutions, to merger permission denials, to congressional subpoenas.

The CRA may not be the primary cause of the crisis, but it is an important piece of the puzzle. When politics, through government’s regulatory powers, mixes with private economic decision-making, the necessary result is corruption of markets. It can be no other way. In the “partnership” between government and business, it’s the guy with the gun…the bureaucrat, politician, or businessman with political connections…that wins over private voluntary economic decision-making. Political power works in mysterious, unpredictable, behind-the-scenes ways.

For example, check out this winter 2000 article in City Journal by Howard Husock, The Trillion Dollar Bank Shakedown that Bodes Ill for Cities, which described the role the Community Reinvestment Act played in the coming meltdown. The predictions here are eerie, but understated. It wasn’t just cities that got infected, but the whole country, thanks to the upcoming inflationary monetary policies of the Greenspan-Bernanke Fed.

Others' commentary and my Response:

Posted By: Too late smart @ 12/21/2008 5:00:40 PM
Zemack: you need a sense of humor. You might have put in an ethnic joke about people who live in ghettos. The fact is people will pay their rent or mortgage before buying food. Any landlord can tell you that.. Now speculators and people who own more than one home can and do default often on million dollars loans. I am glad that you agree with me that it has been the schoolyard bullies that have been making the rules recently.

Posted By: Zemack @ 12/21/2008 6:55:03 PM
I'll leave the ethnic jokes to you. That's not my style. Plenty of low-income folks continue to pay their mortgages on time. The sub-prime crisis spread to all income groups because banks that jumped into that game had to offer them to everyone, due to anti-discrimination statutes. Many banks did so enthusiastically, such as Mazzilo's Countrywide. As I said, CRA did not cause the crisis, but is a piece of a complex puzzle.

Posted By: Too late smart @ 12/21/2008 6:05:45 PM
Democracy and I suppose any other system needs certain quantities of intelligence and altrualism to not fail. An Ann Rand utopia has to have a Titan but what is more likely is a Hitler or a Stalin. Maybe Greenspan was lucky for twenty years. The CRA was not criticized for forty years. Social Security has been called a Ponzi scene for seventy years maybe by Ann Rand.

Posted By: Zemack @ 12/21/2008 7:13:39 PM
Too late smart, it's Ayn (rhymes with mine), not Ann. You should really familiarize yourself with Ayn Rand and Objectivism, so you don???t make uninformed comments like your "Titan" statement. A rights-protecting government under laissez-faire capitalism, which leaves everyone free to live their lives free from the initiation of physical force, makes utopian dictators like Stalin and Hitler impossible.

By the way, Social Security IS a Ponzi scheme. My wife and I have contributed over $300 K over our working lives, according to our S.S. statements, which means that if that money was placed into a personal investment account earning a reasonable rate of return, we would have probably three quarters of a million bucks to start drawing on in a few years. Instead, that money was spent or sent to other retirees. Now, when we begin to collect, we will have to depend on future workers' taxes to collect on our contributions. If that is not a Ponzi scheme, then there is no such thing.

Others' Comments:

Posted By: Too late smart @ 12/21/2008 3:16:41 PM

Any kindergarten teacher knows that there must be rules on the playground. Any good teacher knows that the rules should be fair. The last several years in the big playground in Lower Manhattan any rules there were made by bullies and wise guys. Some of them will be getting a time out of about five years in Club Fed.

And My Direct Reply:

Posted By: Zemack @ 12/21/2008 5:43:28 PM

Under laissez-faire capitalism, the rules are fair because they are based upon objective law designed to fulfill government’s proper role of protecting individual rights equally, for everyone, at all times. This includes the right of consenting adults to contract freely and voluntarily to mutual advantage free from coercive interference by government. Government’s role is to protect those contractual rights, via vigorous prosecution of fraud, enforcement of those contracts, and mediation of contractual disputes.

Your schoolyard bully analogy perfectly describes our mixed economy, where the “rules” are always changing based upon the whims of power-wielding bureaucrats, politicians, and the politically connected special interests of the moment. Rand describes our mixed economy as “…rule by pressure groups. It is an amoral, institutionalized civil war of special interests and lobbies, all fighting to seize a momentary control of the legislative machinery, to extort some special privilege at one another’s expense by an act of government—i.e., by force.” Check out her full description of our mixed economy:

The current crisis occurred in a mixed economy (a government of men), not a laissez-faire one (a government of laws).

Saturday, December 13, 2008

Commentary 51-Yaron Brook at Newsweek

Who Is To Blame?

Can Ayn Rand Survive the Economic Crisis?

By Barrett Sheridan | Newsweek Web Exclusive
Dec 10, 2008

It's not easy being Alan Greenspan these days. As the former Federal Reserve chairman, he urged government regulators to take a light touch while banks like Bear Stearns and Lehman Brothers buried themselves—and the economy more generally—under a mountain of debt. Now that his reputation is plummeting faster than the stock market, he's been forced to admit a "flaw" in his hands-off ideology.

Of course, things look entirely different to members of "free-market advocacy groups," as they like to be called. One such group is the Ayn Rand Institute, named after the matriarch of the movement, whose antigovernment and anti-regulation views are embodied in her best-selling novels "Atlas Shrugged" and "The Fountainhead." Indeed, Greenspan himself was a friend of Rand's, and a devotee of her extreme free-market philosophy, known as Objectivism. NEWSWEEK's Barrett Sheridan spoke with the head of the Ayn Rand Institute, Dr. Yaron Brook, about why he defends free markets while much of the rest of the world has turned away from them, and what he thinks of Greenspan today. Excerpts:

NEWSWEEK: Lack of regulation is being blamed for our current crisis, and free markets are in disrepute. Has Objectivism been dealt a deathblow?
Yaron Brook: No, not at all. From a public-relations perspective, it's been hurt. But in the long term there will be a backlash against what's going on in the markets today—the heavy government involvement, the nationalizations and the move toward socialism. If the free-market advocacy groups position themselves correctly, they can benefit from it.

How can they do that?
What we need to do is really make the case to the American people—and I think it's an easy case to make—that this is not a failure of free markets, this is not a failure of capitalism, but this is a failure of the exact opposite. It's a failure of the regulatory state. It's a failure of all the government policies of the last eight years. Actually, the last 95 years.

Why do you say the last 95 years?
I believe that the No. 1 cause of the current crisis is Federal Reserve policy. [The Federal Reserve was created in 1913.] The Federal Reserve, by necessity, creates economic problems; no matter how good a Federal Reserve chairman is, he's going to create cycles of booms and busts.

How did the Federal Reserve create today's mess?
The current crisis was caused by the housing bubble, and the primary cause of the housing bubble was the Federal Reserve keeping interest rates at 1 percent in 2003. They were asking people to borrow money, basically begging them. The financial problem we face today was a problem of overleverage, of too much debt—but that's exactly what Federal Reserve policy encouraged.

But during that time, the head of the Federal Reserve was Alan Greenspan, a close friend of Ayn Rand and the world's most famous Objectivist.
Yes. Alan Greenspan was quite close to Ayn Rand in the 1960s and 1970s. But from pretty early on, Greenspan was a part of economic policies that I don't think Ayn Rand would have approved of. Yes, he wanted less regulation, but he never talked about rolling back regulation. He never talked about significantly meaningful ways to cut spending, cut taxes. I believe he sold his soul to the devil. Power corrupts, and absolute power—which I think is what you have at the Federal Reserve—corrupts absolutely.

So it sounds like you're not bothered by his admission that he found a "flaw" in his "free-market ideology."
No, the only thing that bothers me is that the press took it to mean, "See, capitalism has failed, even according to this guru of capitalism." He was never a guru of capitalism! At least he hasn't been a guru of capitalism since the 1980s.

Do you have any contact with Greenspan?
No, I don't.

Have Objectivists largely disavowed him?
I think so, but I think he's disavowed us, as well, so it's mutual. I don't think he would have dinner with me if I asked.

What do you think of the various and numerous bailouts?
They're horrible. I think that the biggest mistake that was made was probably the bailout of Bear Stearns. I think they should have let Bear Stearns fail. The fact that everybody else now wants a bailout makes complete sense. Why bailout AIG and not General Motors? General Motors employs more people.

But scholars like Ben Bernanke, current head of the Federal Reserve, says one reason the Great Depression was so severe was that government waited three years before intervening, and let scores of banks fail before then.
Unfortunately, just because economists understand what caused the Great Depression doesn't mean they understand what needs to be done to prevent one. People today mistakenly think that FDR saved us from the Great Depression. But from 1932 until at least 1940, the U.S. was still in a depression. Government grew during the 1930s more than in any decade in history, and yet at the end of the 1930s, we still had more than 15 percent unemployment. So government growth and regulation is not a solution to a depression. I would argue it's the exact opposite.

What does that mean for the current situation?
Everything that [Treasury Secretary Henry] Paulson and Bernanke have done since day one of this crisis has made things worse, not better, if only because they have been so panicky and hysterical, and changed their minds so many times and offered so many different plans. The market has come to the conclusion that they have no idea what they're doing.

You want to do away with the Federal Reserve, but something that radical isn't going to happen, at least not anytime soon. In the meantime, wouldn't more regulation of the financial sector make sense?
No, I think quite the opposite—more financial regulation would be a disaster. Financial regulations created this mess. The Community Reinvestment Act, Freddie Mac and Fannie Mae—they're the institutions and proposals that got us into this. Regulators are not good at managing financial institutions. Think about the [savings and loan] crisis: the S&L industry was the most regulated industry in the United States. Did that stop the crisis from happening? No. Regulations don't prevent crises; they cause them.

But AIG's downfall was due largely to credit-default swaps.
There's nothing wrong with credit-default swaps. If they'd let AIG fold, we would have discovered that. There's been no problem with the credit-default swap-market to date. It's actually working better than the securitized mortgage market, which is a government creation through Fannie and Freddie.

But AIG had too many credit-default swaps on its books, and almost collapsed as a result. Shouldn't we prevent that level of risk-taking?
Yes, AIG made mistakes. And the company should suffer for those mistakes. But do you think that if federal regulators were regulating the credit-default-swap market, things would be better or worse? I suggest that things would probably be worse.

With free markets now in disrepute, what's going to happen to the popularity of Ayn Rand's most famous book, "Atlas Shrugged"?
I think it's going to go up dramatically. I think it already has. [People] are saying, "We're heading toward socialism, we're heading toward more regulation." "Atlas Shrugged" is coming true. How do we get out? How do we escape? Unfortunately, there is no escape. Businessmen are panicking, and I think they should be panicking. Many of them understand that this was not a crisis of free markets. There was no free market to fail. What we have is a regulated market, and the regulated market has failed.

My Commentary:

The introduction to this interview states that Ayn Rand was “anti-government”. This is one of many fallacies believed about her philosophy. Far from being anti-government, Rand understood that government is vital to the very existence of a free society…i.e., one based upon individual rights. That is because its proper, indispensable role is to protect man’s unalienable individual rights to life, liberty, and property under a set of objective laws (a government of laws and not of men, which includes strong anti-fraud laws and enforcement of contracts). This was understood by the Founding Fathers. Without government, no civilized society is possible. It is against a government that steps outside the bounds of protecting rights that Rand…and the Founders…stood opposed to. One can read Rand’s position on individual rights and government and see for himself. Those essays are available at the sight of the Ayn Rand Center for Individual Rights.

Can Ayn Rand survive the financial crisis? Ayn Rand has yet to be discovered by most people…and is deliberately misrepresented or at least misunderstood by her detractors. The era of Ayn Rand, if there is to be one, is still ahead of us.

Friday, December 12, 2008

Commentary 50-Wood on Public Pre-School

Funding pre-K and fighting crime

Posted by Fran Wood/ The Star-Ledger December 10, 2008 5:31AM
Categories: Family & Kids
If you're among the considerable number of New Jerseyans who question the value of taxpayer-funded preschool education, you may want to take note of some astonishing statistics reported in Trenton yesterday.

Fight Crime: Invest in Kids, a national nonprofit anti-crime organization of more than 4,500 police chiefs, sheriffs, prosecutors and violence survivors, unveiled a report touting the results of several studies contrasting violence and crime among children who were enrolled in early childhood education programs vs. those who were not.

Two such studies, conducted over a 40-year period, are particularly persuasive eye-openers.

The first comes out of the High/Scope Perry Preschool Program in Ypsilanti, Mich., begun in 1962 to gather data on the lifetime effects of preschool. It involved a group of at-risk, low-income 3- and 4-year-olds, half of whom were randomly enrolled in an education program of one to two years with a home visiting component. The companion group, also randomly selected, received no such program.

Data released in 2004, according to Fight Crime; Invest in Kids vice president Jeff Kirsch, showed that 23 years later, those who had no preschool program were five times more likely to be criminal offenders.

By age 40, according to the report, those not enrolled in the program were "more than twice as likely to become career offenders (with more than 10 arrests) and twice as likely to be arrested for violent crimes."

They also were more likely to abuse illegal drugs, four times more likely to be arrested for drug felonies and seven times more likely to be arrested for possession of dangerous drugs.

Comparable research in another study, conducted in Chicago, showed similar results.

That study involved 989 3- and 4-year-olds enrolled in the city's federally funded Child-Parent Centers as well as 550 nonparticipants. Comparison of these groups over time showed that those who did not participate in the program were "70 percent more likely to be arrested for a violent crime by age 18" and "24 percent more likely to have been incarcerated as young adults."

The conclusion: The Chicago program "will have prevented an estimated 33,000 crimes by the time the children who have attended the program reach 18."

That's a number that will get your attention.

Nationally, these are the programs with the greatest longevity and thus most convincingly demonstrate the impact of pre-K programs for at-risk children. But they are by no means the only such programs.

Low-income children not enrolled in North Carolina's Smart Start program, for instance, were shown to be twice as likely to engage in "aggressive acts and poor temper control, anxiety and hyperactivity in kindergarten" - behaviors shown to be precursors of "high levels of antisocial and delinquent behavior later in life."

The long-running, federally funded Head Start programs for low-income 3- to 5-year-olds have consistently shown that adults who attended them as children "are less likely to commit crimes than adults from similar backgrounds who did not attend."

It's long been understood that high-quality preschool programs for children who would otherwise get little preparatory training can make an enormous difference in their ability to succeed in school, which in turn makes them far more likely to become successful adults.

What has not been touted sufficiently is that such programs, by providing toddlers with a strong foundation of learning and socialization skills, can also help reduce crime.

"Law enforcement understands this, having dealt with parts of society most of us don't deal with very often," says Kirsch. He emphasizes that his group's members "are very conservative people who don't approach this from let's-help-these-poor-kids. They're hard-nosed realists dealing with very tough populations. They understand kids become who they are based on what happens to them in their early years, and if we miss that, we pay for many years to come."

He concedes the early education approach is not a quick fix.

"We're not saying every kid who gets pre-K is going to stay on the straight and narrow, nor that any kid who doesn't is going to be a criminal. But pre-K for at-risk kids changes the odds."

Here in New Jersey, there has been an abundance of public resentment at spending tax dollars on such programs. But without public programs, pre-K education simply won't happen for most low-income children.

"It's very, very expensive for families to afford quality pre-K," says Kirsch.

Many government programs are promoted as "investments," and it's true that some pay off better than others. Looking at this new data, it's hard to argue that pre-K isn't one of the smartest things we can do with our public dollars.

My Commentary:

Posted by Zemack on 12/12/08 at 4:32PM
The implication here is if you don't submit to a hostile government takeover of pre-schooling, you are pro-crime. This is a classic statist intellectual package-deal. Pre-school is not the issue here. Expanded government power over education, and the consequent violation of individual rights, is the issue.

Whose educational philosophy will be imposed on the parents and children? Will children be trained to subordinate their own judgement to the arbitrary will of some authority, whether the teacher or the class as a group? Or will they be encouraged to think independently? Will they be coerced into "sharing" their learning experiences with any other child who wants to nose in on their current activity? Or will they be allowed the freedom to concentrate their attention on the task at hand without interruption, thus discovering the principle of respect for the rights of others?

Will the government-run pre-schools be used as an indoctrination tool for the purpose of bringing about "social change", as the father of modern "progressive" education advocated...the self-described socialist John Dewey? Or will the pre-schools be an environment where children can develop their individual cognitive mental skills consistent with each child's unique developmental timetable, with the ultimate goal being intellectual independence, as advocated my Maria Montessori? Will children "learn" through rote memorization (i.e., Give them a fish.), or will they learn to use their conceptual, abstract faculty in order to hierarchize and integrate their acquired knowledge according to essential principles (Teach them to fish.)?

What is meant by "public dollars"? There is no such thing. The "Public" dollars of which Ms. Wood refers are the earnings of private citizens taken by force of taxation, to be used by politically powerful groups for purposes that the earners may oppose such as the ongoing hostile pre-school takeover by the coercive government education monopoly. To push public pre-school funded by money confiscated by force from unwilling taxpayers...including those parents taking responsibility for their own children's pre-school...under the pretense of preventing crime is a monumental conceptual evasion. At least street thugs are honest enough not to claim that they are robbing their victims for their own good, or for the good of "society".

Why is it "investment" when politicians spend other peoples' money, but not when spent by those who earned it? Why is it just to force parents to pay for the education of other peoples' children in accordance with someone else's agenda?

Rather than expand the government school monopoly, the pre-school market should be left free. Rather than having their earnings confiscated through taxation, parents should be able to claim a direct credit against their existing school taxes so that they can use their own money for their own child's pre-school education. That some parents would renege on their responsibilities is no reason to violate the rights of all other parents. To sacrifice the responsible parents to the irresponsible is a moral crime. Aiding responsible, but poor, parents is certainly a worthy undertaking, and I commend anyone who chooses to step up in that regard. But charity is a private, voluntary matter, engaged in by people of good will. Good will ends where physical coercion begins. Show me someone who strives to practice charity with other peoples' tax money, and I'll show you a phony.

This much Ms. Wood and I agree on. I believe that the first few years of any child's life is a critical time for mental development. Consequently, pre-school should be a cornerstone of that period. Because learning how to think, the essence of early childhood education, is exclusively a private undertaking, it is a time when the privacy needs of the child must be stringently respected. So the right pre-school, governed by the right philosophy, is critical here. I favor the "concentrated attention" method of Maria Montessori, which focuses on the development of the child's proper method of mental functioning, the conceptual faculty. Homeschooling, which at this age level is well within the means and capabilities of any motivated parent, is far preferable to an inferior pre-school, which can do more harm than good. The responsibility for these decisions rests with the parents.

The public schools should stay out of the pre-school area of education. But if it is going to offer pre-school, it must be offered strictly on a voluntary full tuition basis only. Their should be no taxpayer "public dollars"...whatsoever. Forcing already over-taxed parents (or anyone else) to foot the pre-school expenses of other parents is immoral. Forcing anyone to support educational ideas with which one disagrees is contrary to the principles of a free society. The educational needs of the child are fundamentally the responsibility of the parents who brought that child into the world. A free pre-school market protects the rights of all parents to fulfill their obligations according to their own rational judgement. Pre-school is too important to be placed under state control.

Others' Commentary:

Posted by DiscussedTed on 12/12/08 at 9:19PM

You make me realize how many extraordinary people there are out there among the "common people."

Believe me, I mean this as a compliment. More brains, more thought, and more intellectual honesty than the entire community of newspaper editors.

Whatever the appropriate holiday greetings are for you, I will simply wish you a Merry Christmas, and hope that you understand the intent.

Posted by blarneyboy on 12/13/08 at 2:23AM
Zemack, I echo Discussed Ted's sentiments. If there is a pre-K developed under your guidelines, it should be called "The Zemack School of Common Sense". Don't hold your breath.

My Commentary:

Posted by Zemack on 12/13/08 at 6:57PM

You make me realize how many extraordinary people there are out there among the "common people."

Thank you. You and Blarneyboy, whose thoughtful commentary I have enjoyed reading elsewhere in NJVoices (although we don't always agree), prove that it is obvious I'm not the only one. There is much intelligent commentary on this forum.

I'm sure Ms. Wood is sincere in advocating pre-school. But the equating of "worthy causes" with rights-violating expansions of coercive government control is leading us piecemeal towards an omnipotent state. Package-dealing statists, particularly those on the Left, have been getting away with this tactic for far too long.

Blarneyboy, I'm more hopeful here ("Don't hold your breath"). There are already some good pre-schools out there, as well as many parents silently doing a good job at pre-K homeschooling. What people need to learn is to fight for their rights in this area, which means fighting for a free education market. The principle of individual rights is the crucial ingredient to stopping the pre-school market from being swallowed up by the bureaucratic establishment, thus destroying the existing network of private pre-schools. If I thought the task was hopeless, you wouldn't hear from me again. But fighting for individual rights is never hopeless.

Support for the idea of fighting against the public school monopoly and for parental control is coming from some surprising quarters. Check out Tom Moran's column of 10/13/07 (NJVoices, Vouchers are the obvious choice.). I'm against the government-financed voucher method, but he sees the same threat to private pre-schools as I do.

Though not a Christian, I'd still like to say Merry Christmas!

Others' Commentary:

Posted by plebeyo on 12/16/08 at 1:17PM

Different groups can be blamed for the failure of the educational system in some parts of the country. However, the biggest concern I have is that for decades now, this system has been turning out high school graduates with deficient math, science and language skills. Also, the drop out rates in urban America hovering at about 50 percent should be a alarming.

As far as NJ is concerned, some claim that the present situation is due to the NJEA's inflexible attitude regarding many issues. The blame can be passed around but the outcome of mediocre schools is a generation(s) of poorly educated minorities whose chances of reaching middle class have dwindled.

Whose responsibility is it to provide the citizen of a nation with a quality education? I guess the answer depends on whom you ask. Nevertheless, I feel it is a shame that in the richest country in the world, large segments of the population are receiving a poor education even by third world standards.

My Commentary:

Plebeyo, you are conflating multiple issues here.

The first question is, is the government's proper role to run the schools through the coercion of taxation and compulsory attendance laws, or is it to protect the rights of parents to fulfill their solemn responsibility to educate their own children according to their own values, judgements, and budgets? I believe the latter.

Second, the reference to "the richest country in the world" ignores the fact that the source of all wealth is produced by the efforts of individual people thinking and working productively. America is the "richest" country only figuratively. All wealth belongs to the individuals who make up a nation, who earned it each to the extent of his ability, ambition, and intelligence, essentially...and not to the nation as such; which is only a collection of individual human beings. The proper role of government is not to confiscate private wealth for any purpose it deems vital, but to protect its citizens' property right to their own earnings...on all levels of income.

This leads to the third issue, the most neglected one, the philosophy and method of education. This is the area to look to find the answer to American schools "turning out high school graduates with deficient math, science and language skills [and] the drop out rates in urban America hovering at about 50 percent". A government-run school system does not have to be as poor as ours. But money, I submit, is not the problem. The amount of money that our current system devours...reportedly $15-20,000 per student per year here in N.J., depending on the source (not including capital costs) the proof. A radical new philosophical approach that tosses out the mass production method of "education" in favor of a focus on students as individuals with interests, developmental timetables, and unique strengths and weaknesses is needed. Above all, learning to think...which means, the abstract conceptual level...must be prominent alongside knowledge acquisition. Getting good grades does not prove educational proficiency.

The public school system stifles innovation, as all coercive monopolies must. Ideas are germinated in individual minds, and only a free education market leaves educators and parents free to act on their ideas without begging permission from some board, politician, bureaucrat, or politically connected special interest group.

Sunday, December 7, 2008

Commentary 49- Deregulation [?]

Report: Banks torpedoed rules that could have saved them

By Matt Apuzzo, The Associated Press

WASHINGTON — The Bush administration backed off proposed crackdowns on no-money-down, interest-only mortgages years before the economy collapsed, buckling to pressure from some of the same banks that have now failed. It ignored remarkably prescient warnings that foretold the financial meltdown, according to an Associated Press review of regulatory documents.

"Expect fallout, expect foreclosures, expect horror stories," California mortgage lender Paris Welch wrote to U.S. regulators in January 2006, about one year before the housing implosion cost her a job.

Bowing to aggressive lobbying — along with assurances from banks that the troubled mortgages were OK — regulators delayed action for nearly one year. By the time new rules were released late in 2006, the toughest of the provisions were gone and the meltdown was underway.

"These mortgages have been considered more safe and sound for portfolio lenders than many fixed rate mortgages," David Schneider, home loan president of Washington Mutual, told federal regulators in early 2006. Two years later, WaMu became the largest bank failure in U.S. history.

The administration's blind eye to the impending crisis is emblematic of a philosophy that trusted market forces and discounted the need for government intervention. Its belief ironically has ushered in the most massive government intervention since the 1930s.

"We're going to be feeling the effects of the regulators' failure to address these mortgages for the next several years," said Kevin Stein of the California Reinvestment Coalition, who warned regulators to tighten lending rules before it was too late.

Many of the banks that fought to undermine the proposals by some regulators are now either out of business or accepting billions in federal aid. Many executives remain in high-paying jobs, even after their assurances were proved false.

In 2005, faced with ominous signs the housing market was in jeopardy, bank regulators proposed new guidelines for banks writing risky loans. Today, in the midst of the worst housing recession in a generation, the proposal reads like a list of what-ifs:

•Regulators told bankers that exotic mortgages were often inappropriate for buyers with bad credit.

•Banks be required to increase efforts to verify that buyers actually had jobs and could afford houses.

•Regulators proposed a cap on risky mortgages so a string of defaults wouldn't be crippling.

•Banks that bundled and sold mortgages were told to be sure investors knew what they were buying.

•Regulators urged banks to help buyers make responsible decisions and clearly advise them that interest rates might skyrocket and huge payments might be due sooner than expected.

Those proposals all were stripped from the final rules. None required congressional approval or the president's signature.

"In hindsight, it was spot on," said Jeffrey Brown, a former top official at the Office of Comptroller of the Currency, one of the first agencies to raise concerns about risky lending.

Federal regulators were especially concerned about mortgages known as "option ARMs," which allow borrowers to make payments so low that mortgage debt actually increases every month. But banking executives accused the government of overreacting.

Bankers said such loans might be risky when approved with no money down or without ensuring buyers have jobs but such risk could be managed without government intervention.

"An open market will mean that different institutions will develop different methodologies for achieving this goal," Joseph Polizzotto, counsel to now-bankrupt Lehman Brothers, told U.S. regulators in a March 2006.

Countrywide Financial, at the time the nation's largest mortgage lender, agreed. The proposal "appears excessive and will inhibit future innovation in the marketplace," said Mary Jane Seebach, managing director of public affairs.

One of the most contested rules said that before banks purchase mortgages from brokers, they should verify the process to ensure buyers could afford their homes. Some bankers now blame much of the housing crisis on brokers who wrote fraudulent, predatory loans. But in 2006, banks said they shouldn't have to double-check the brokers.

"It is not our role to be the regulator for the third-party lenders," wrote Ruthann Melbourne, chief risk officer of IndyMac Bank.

California-based IndyMac also criticized regulators for not recognizing the track record of interest-only loans and option ARMs, which accounted for 70% of IndyMac's 2005 mortgage portfolio. This summer, the government seized IndyMac and will pay an estimated $9 billion to ensure customers don't lose their deposits.

Last week, Downey Savings joined the growing list of failed banks. The problem: About 52% of its mortgage portfolio was tied up in risky option ARMs, which in 2006 Downey insisted were safe — maybe even safer than traditional 30-year mortgages.

"To conclude that 'nontraditional' equates to higher risk does not appropriately balance risk and compensating factors of these products," said Lillian Gavin, the bank's chief credit officer.

At least some regulators didn't buy it. The comptroller of the currency, John Dugan, was among the first to sound the alarm in mid-2005. Speaking to a consumer advocacy group, Dugan painted a troublesome picture of option-ARM lending. Many buyers, particularly those with bad credit, would soon be unable to afford their payments, he said. And if housing prices declined, homeowners wouldn't even be able to sell their way out of the mess.

It sounded simple, but "people kind of looked at us regulators as old-fashioned," said Brown, the agency's former deputy comptroller.

Diane Casey-Landry, of the American Bankers Association, said the industry feared a two-tiered system in which banks had to follow rules that mortgage brokers did not. She said opposition was based on the banks' best information.

"You're looking at a decline in real estate values that was never contemplated," she said.

Some saw problems coming. Community groups and even some in the mortgage business, like Welch, warned regulators not to ease their rules.

"We expect to see a huge increase in defaults, delinquencies and foreclosures as a result of the over selling of these products," Stein, the associate director of the California Reinvestment Coalition, wrote to regulators in 2006. The group advocates on housing and banking issues for low-income and minority residents.

The government's banking agencies spent nearly a year debating the rules, which required unanimous agreement among the OCC, Federal Deposit Insurance Corp., Federal Reserve, and the Office of Thrift Supervision — agencies that sometimes don't agree.

The Fed, for instance, was reluctant under Alan Greenspan to heavily regulate lending. Similarly, the Office of Thrift Supervision, an arm of the Treasury Department that regulated many in the subprime mortgage market, worried that restricting certain mortgages would hurt banks and consumers.

Grovetta Gardineer, OTS managing director for corporate and international activities, said the 2005 proposal "attempted to send an alarm bell that these products are bad." After hearing from banks, she said, regulators were persuaded that the loans themselves were not problematic as long as banks managed the risk. She disputes the notion that the rules were weakened.

Marc Savitt, president of the National Association of Mortgage Brokers, said regulators were afraid of stopping a good thing.

"If it seems to be working, if it's not broken don't fix it, if everybody's making money, then the good times are rolling and nobody wants to be the one guy to put the brakes on," he said.

In the past year, with Congress scrambling to stanch the bleeding in the financial industry, regulators have tightened rules on risky mortgages.

Congress is considering further tightening, including some of the same proposals abandoned years ago.

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

My Commentary:

Mike Zemack wrote: 4d 18h ago
In an unregulated market, there are no government officials holding regulatory powers to allow or forbid voluntary loan agreements between consenting adults. There are no pseudo-private banks seeking to influence the regulators who control their businesses, or to beg for permission to engage in unsound lending practices.

In an unregulated market, the government performs its proper function of protecting the rights of individuals to enter into voluntary contractual agreements, while vigorously protecting all parties against and prosecuting fraud. Borrowers, lenders, and investors are free to reap the rewards of sound and prudent financial decisions, as well as pay the price of their bad decisions through foreclosure, bankruptcy, and investment losses. Innocent taxpayers are not forced to “bail out” anyone’s bad financial judgements.

In an unregulated market, there is no central bank with monopoly power over money creation, interest rates, or to act as lender of last resort. An unregulated financial industry under the control of a government-imposed central bank is a logical impossibility.

This massive financial crisis represents the collapse of a heavily regulated and controlled financial industry operating in a housing and mortgage sector beset by massive government intervention. It is not a failure of a non-existent free market. The alleged “deregulation” is no such thing. There can be no deregulation as long as the government retains its market-distorting regulatory powers, whether or not it happens to have used them in some particular way or not. The pseudo-deregulation blamed for the crisis is just a rationalization for expanded government control over the economy, to the detriment of individual rights.

This article only proves the inherently corrupt nature of government regulation itself, and the need for true deregulation, starting with the abolition of two of the biggest culprits�Fannie and Freddie, and the Federal Reserve Central Bank. The causes of this crisis are complex and date back through decades of government interventions and policies. But the evidence is overwhelming. The current crises was caused and exacerbated by government.