Tuesday, June 23, 2009

Barney Frank telling Fannie Mae to take more credit risk

Barney the Underwriter. WSJ Editorial
Telling Fannie Mae to take more credit risk.
The Wall Street Journal, page A14

Back when the housing mania was taking off, Massachusetts Congressman Barney Frank famously said he wanted Fannie Mae and Freddie Mac to "roll the dice" in the name of affordable housing. That didn't turn out so well, but Mr. Frank has since only accumulated more power. And now he is returning to the scene of the calamity -- with your money. He and New York Representative Anthony Weiner have sent a letter to the heads of Fannie and Freddie exhorting them to lower lending standards for condo buyers.

You read that right. After two years of telling us how lax lending standards drove up the market and led to loans that should never have been made, Mr. Frank wants Fannie and Freddie to take more risk in condo developments with high percentages of unsold units, high delinquency rates or high concentrations of ownership within the development.

Fannie and Freddie have restricted loans to condo buyers in these situations because they represent a red flag that the developments -- many of which were planned and built at the height of the housing bubble -- may face financial trouble down the road. But never mind all that. Messrs. Frank and Weiner think, in all their wisdom and years of experience underwriting mortgages, that the new rules "may be too onerous."

And in a display of the wit for which Mr. Frank is famous, the letter writers slyly point out that higher lending standards won't reduce taxpayer exposure to bad loans because the Federal Housing Administration has even lower standards for condos. "While the underlying goal may be to reduce taxpayer exposure relating to the current conservatorship of the GSEs [government sponsored entities], such a goal would not have such an effect if it merely results in a shifting of loans from the GSEs to the FHA." Tougher lending standards will merely shift market share from one government program to another, so what's the point in being cautious?

Fannie and Freddie have already lost tens of billions of dollars betting on the mortgage market -- with that bill being handed to taxpayers. They face still more losses going forward, because in the wake of their nationalization last year their new "mission" has become to do whatever it takes to prop up the housing market. The last thing they need is lawmakers like Mr. Frank, who did so much to lay the groundwork for their collapse, telling them to play faster and looser with their lending standards.

Fannie and Freddie have always been political creatures under the best circumstances. But we don't remember anyone electing Mr. Frank underwriter-in-chief of the United States.

The Pursuit of John Yoo

The Pursuit of John Yoo. WSJ Editorial
Next time the lawsuit may target Obama's advisers.
The Wall Street Journal, page A14

Here's a political thought experiment: Imagine that terrorists stage an attack on U.S. soil in the next four years. In the recriminations afterward, Administration officials are sued by families of the victims for having advised in legal memos that Guantanamo be closed and that interrogations of al Qaeda detainees be limited.

Should those officials be personally liable for the advice they gave President Obama?

We'd say no, but that's exactly the kind of lawsuit that the political left, including State Department nominee Harold Koh, has encouraged against Bush Administration officials. This month a federal judge in San Francisco ruled that a civil suit filed by convicted terrorist Jose Padilla can proceed against former Justice Department lawyer John Yoo for violating the terrorist's rights. Mr. Yoo is one of those who wrote memos laying out the legal parameters for aggressive interrogation of al Qaeda captives. If Mr. Yoo can be sued, why couldn't Obama officials also be held liable for their advice if there's an attack on their watch?

The mention of Mr. Koh is pertinent because the legal outfit suing Mr. Yoo, and other Bush officials in a separate case in South Carolina, is affiliated with Yale Law School. Mr. Koh is the outgoing dean of Yale and has been perhaps the most prominent legal critic of Bush interrogation policies. He once referred to President Bush as the "torturer in chief." Yet now President Obama has nominated Mr. Koh to be State Department legal adviser, who is charged with defending U.S. officials from legal assaults. It's as if Mr. Obama had nominated the AFL-CIO's John Sweeney as U.S. Trade Representative.

At least the Justice Department is still defending Mr. Yoo, as it should since his advice was offered while working for the U.S. government. But that could change if a second part of this exercise in political revenge goes forward. For five years the Justice Department's Office of Professional Responsibility (OPR) has been investigating Mr. Yoo and former Justice lawyers Jay Bybee and Steven Bradbury for alleged misconduct in writing those legal interrogation memos.

Last month, in a leak full of malice aforethought, the press reported that OPR's draft report recommends disciplinary action against the Bush lawyers. If the final report reaches the same conclusion, the left-wing bar will try to have those lawyers disbarred, while liberals in Congress could pursue impeachment against Mr. Bybee, a federal judge on the Ninth Circuit Court of Appeals. In that event, Justice might also stop defending Mr. Yoo in court. A professor at Berkeley Law, Mr. Yoo would have to pay hundreds of thousands of dollars to defend himself.

This is exactly what the anti-antiterror left hopes to accomplish. Having failed to enact their agenda in Congress, or now even via Mr. Obama, their aim is to ruin and bankrupt individuals in the Bush Administration who played key roles in the war on terror. Their goal is to make sure that no one in public life ever again offers advice that disagrees with their view that terrorists should be handled in nonmilitary courts like common burglars.

The May news leak was especially pernicious because it came before the Bush officials or their lawyers had been allowed to respond to OPR's accusations. They are still bound by a pledge of confidentiality. Our guess is that the leak was intended to box in Attorney General Eric Holder, who will ultimately have to sign off on the report.

Mr. Holder knows that former Attorney General Michael Mukasey had rejected the OPR draft in a scathing, 15-page, single-spaced memo. His deputy, Mark Filip, also refused to endorse the OPR draft. Yet OPR lawyers ran out the clock on Mr. Mukasey, hoping that an Obama AG will validate their work.

The leak of a draft report is itself an act of professional irresponsibility worthy of punishment. And the entire exercise is bizarre, since Messrs. Yoo, Bybee and Bradbury were only doing what their superiors and the CIA asked of them. If OPR's lawyers want to claim misconduct, they should target former Attorney General John Ashcroft or President Bush, who personally named Padilla an enemy combatant. But it's so much easier to pick on mid-level officials who lack a platform to fight back. In any case, OPR is supposed to investigate genuine misconduct such as withholding evidence (the Ted Stevens case), not opine on the legal analysis of other, in this case far superior, lawyers.

As for the lawsuit, Padilla's rights were never violated. Mr. Bush's decision to name the so-called "dirty bomber" an enemy combatant was defended in court by executive branch lawyers, who won in the Fourth Circuit. The Bush Administration later transferred Padilla to be tried in a Miami court, and the Supreme Court declined to hear an appeal. Padilla was convicted after receiving every due process protection and is now serving a 17-year prison sentence.

Politics can be vicious, but we have come to a very strange pass when government lawyers acting in good faith can be sued by convicted terrorists and investigated for giving advice solicited by their superiors. Mr. Holder will do the country, and his own colleagues in the Obama Administration, a service if he speaks out against the Padilla lawsuit and puts an end to Justice's part in this nasty exercise.

Maine: Finally, a state that cuts tax rates on the rich

Maine Miracle. WSJ Editorial
Finally, a state that cuts tax rates on the rich.
The Wall Street Journal, Jun 23, 2009, p A14

At last, there's a place in America where tax cutting to promote growth and attract jobs is back in fashion. Who would have thought it would be Maine?

This month the Democratic legislature and Governor John Baldacci broke with Obamanomics and enacted a sweeping tax reform that is almost, but not quite, a flat tax. The new law junks the state's graduated income tax structure with a top rate of 8.5% and replaces it with a simple 6.5% flat rate tax on almost everyone. Those with earnings above $250,000 will pay a surtax rate of 0.35%, for a 6.85% rate. Maine's tax rate will fall to 20th from seventh highest among the states. To offset the lower rates and a larger family deduction, the plan cuts the state budget by some $300 million to $5.8 billion, closes tax loopholes and expands the 5% state sales tax to services that have been exempt, such as ski lift tickets.

This is a big income tax cut, especially given that so many other states in the Northeast and East -- Maryland, Massachusetts, New Jersey and New York -- have been increasing rates. "We're definitely going against the grain here," Mr. Baldacci tells us. "We hope these lower tax rates will encourage and reward work, and that the lower capital gains tax [of 6.85%] brings more investment into the state."

These changes alone are hardly going to earn the Pine Tree State the reputation of "pro-business." Neighboring New Hampshire still has no income or sales tax. And last year Maine was ranked as having the third worst business climate for states by the Small Business Survival Committee. Still, no state has improved its economic attractiveness more than Maine has this year.

One question is how Democrats in Augusta were able to withstand the cries by interest groups of "tax cuts for the rich?" Mr. Baldacci's snappy reply: "Without employers, you don't have employees." He adds: "The best social services program is a job." Wise and timely advice for both Democrats and Republicans as the recession rolls on and budgets get squeezed.