Alexandra Swann's Blog, page 23
February 27, 2013
The Absurdity of the Sequester Crisis
What do you think is the single biggest problem with government today? I know that is an open-ended question that could generate pages of responses since there are so many clear problems with our government. But as I have watched and lived through the massive regulations of the past four years, I have come to believe that the biggest problem with our government is that we have two sets of rules--one for politicians and the other for everybody else.
Two days from now, the sequester is about to go into effect which will cut $85 billion over 10 years from a budget that will still be larger than the federal government's 2012 budget. I have spent the last few days watching and reading various commentaries on the sequester--ABC News reports that the sequester will lead to longer lines at the airport, cuts to Head Start, cuts to education, cuts to defense, and on and on. A few days ago, the Administration released non-violent illegal immigrants awaiting hearings to drive home the consequences of budget cuts to federal law enforcement. Much of this is an obvious attempt to create a public outcry against the government being forced to cut its budget by 2.3%. Unfortunately for Washington, no outcry is coming. The American people are fed up--we simply don't care that it's finally the government's turn to make do with less money than it would like to have.
I have also read some excellent commentaries on the fact that the all Americans were subjected to a 2% payroll tax increase in January of this year, so we all have to make do with 2% less money than we had last year. Yes, agencies may not be able to hire so many employees; yes, they may have to furlough employees. So what? Government workers earn an average of 16% more than workers in the private sector. In a climate where many businesses are struggling and millions of Americans remain unemployed, no one is going to shed any tears over a federal employee being furloughed. At least they have an excellent job to go back to as soon as the furlough ends.
Another possibly horrific consequence of the sequester--Congress might not be able to travel free on military jets as a result of defense cut spending. According to Air Force Secretary Michael Donley at the Air Force Association's Winter Conference, the reduced military budget might not allow for free transport of Congressmen and women. That would truly be sad--they might have to fly business class where they would stand in the lines created by TSA and sit next to their own constituents during flights to and from their districts. This might, however, have the positive effect of increasing business class air travel if people knew that they might actually have an opportunity to speak face to face to their elected representatives since anyone who has ever lobbied on a grassroots level knows that these people are virtually impossible to contact directly by phone or email and often do not see visitors from their districts who travel to their DC offices to meet with them.
What is hypocritical about the weeping and wailing over the cuts brought on by the sequester is that the same government officials who are warning that the Apocalypse is about to begin have spent the last four years imposing draconian regulations dictating how much private businesses can earn. In the mortgage industry, for example, two years ago the government implemented regulations mandating that a self-employed loan originator could no longer be paid both by the consumer and by the lender to whom he sold the mortgage loan. At that time, many experienced originators left the market, because the government had cut their pay. Last year, the government again cut the pay of originators--this time indirectly--through ruling against Wells Fargo in a discrimination case. In that case, the government determined that because some brokers had charged higher fees to some minority borrowers than had other brokers, Wells Fargo's policies, while not intentionally discriminatory, had a "disparate impact" on potential borrowers and therefore Wells Fargo was guilty of discrimination. The immediate effect of this ruling was that many lenders (including Wells Fargo) stopped working with independent loan originators completely, and those who remained changed our contracts effectively reducing how much we can earn once again. Now, in January, the CFPB announced its new rule federally capping all fees on qualified mortgages at 3% in a move that will finish destroying what is left of the independent mortgage market.
All of these regulations were touted as necessary for the protection of the consumer. Mortgage brokers were apparently charging too much money and their customers did not understand the hundreds of pages of forms provided to them to explain their costs and fees. In order to protect the consumer from being overcharged, the new regulations had to be implemented. No one ever protested, "But mortgage brokers with many years of experience have financial obligations--homes, mortgages of their own, children in school, debt, office expenses, payroll, etc. They have entered into those obligations based on past earnings. If we cut their incomes how will they meet those obligations? How we can expect them to do the same level of work they are doing now for substantially less money? What if they can't earn enough money to meet their expenses and they are forced into bankruptcy or foreclosure?" Rather, the bureaucrats who made these rules were smugly confident that what they were doing was for the greater good. The businesses they affected would just have to learn how to make do with less.
Now, it's the government's turn to experience some cuts--cuts they imposed on themselves, apparently thinking that when the time came they would never have to actually live under them. President Obama believes that the American public should rush to the government's defense and accept more tax increases--further reductions to our own income--in order to prevent any reductions to the government's budget. To make his case, he calls the cuts "brutal" and "severe" and warns that they will "eviscerate" key segments of the economy. In doing so, he is using the same reactionary strategy that he has successfully used several times in the past--the world is about to end, the wolf is at the door, and we are all going to die unless we acquiesce. Apparently, Obama never read the story of the boy who cried wolf or he would know that this particular strategy only works so many times before the people stop listening. I think that's where we are today.
While the mainstream media and the government want to pretend that a 2.3% reduction in the federal budget will mean the end of the world as we know it, the truth is that it's time the government learned how to adjust its spending and live within its means. If that means some pain for the agencies and employees, so be it. We the people need to let Washington know that the cuts imposed by sequester are necessary for the protection of the taxpayer--we are doing it for the greater good. The government will just have to learn how to make do with less.
Alexandra Swann is the author of No Regrets: How Homeschooling Earned Me a Master's Degree at Age Sixteen and several other books. Her novel, The Planner, about an out of control, environmentally-driven federal government implementing Agenda 21, is available on Kindle and in paperback. For more information, visit her website at http://www.frontier2000.net.
Two days from now, the sequester is about to go into effect which will cut $85 billion over 10 years from a budget that will still be larger than the federal government's 2012 budget. I have spent the last few days watching and reading various commentaries on the sequester--ABC News reports that the sequester will lead to longer lines at the airport, cuts to Head Start, cuts to education, cuts to defense, and on and on. A few days ago, the Administration released non-violent illegal immigrants awaiting hearings to drive home the consequences of budget cuts to federal law enforcement. Much of this is an obvious attempt to create a public outcry against the government being forced to cut its budget by 2.3%. Unfortunately for Washington, no outcry is coming. The American people are fed up--we simply don't care that it's finally the government's turn to make do with less money than it would like to have.
I have also read some excellent commentaries on the fact that the all Americans were subjected to a 2% payroll tax increase in January of this year, so we all have to make do with 2% less money than we had last year. Yes, agencies may not be able to hire so many employees; yes, they may have to furlough employees. So what? Government workers earn an average of 16% more than workers in the private sector. In a climate where many businesses are struggling and millions of Americans remain unemployed, no one is going to shed any tears over a federal employee being furloughed. At least they have an excellent job to go back to as soon as the furlough ends.
Another possibly horrific consequence of the sequester--Congress might not be able to travel free on military jets as a result of defense cut spending. According to Air Force Secretary Michael Donley at the Air Force Association's Winter Conference, the reduced military budget might not allow for free transport of Congressmen and women. That would truly be sad--they might have to fly business class where they would stand in the lines created by TSA and sit next to their own constituents during flights to and from their districts. This might, however, have the positive effect of increasing business class air travel if people knew that they might actually have an opportunity to speak face to face to their elected representatives since anyone who has ever lobbied on a grassroots level knows that these people are virtually impossible to contact directly by phone or email and often do not see visitors from their districts who travel to their DC offices to meet with them.
What is hypocritical about the weeping and wailing over the cuts brought on by the sequester is that the same government officials who are warning that the Apocalypse is about to begin have spent the last four years imposing draconian regulations dictating how much private businesses can earn. In the mortgage industry, for example, two years ago the government implemented regulations mandating that a self-employed loan originator could no longer be paid both by the consumer and by the lender to whom he sold the mortgage loan. At that time, many experienced originators left the market, because the government had cut their pay. Last year, the government again cut the pay of originators--this time indirectly--through ruling against Wells Fargo in a discrimination case. In that case, the government determined that because some brokers had charged higher fees to some minority borrowers than had other brokers, Wells Fargo's policies, while not intentionally discriminatory, had a "disparate impact" on potential borrowers and therefore Wells Fargo was guilty of discrimination. The immediate effect of this ruling was that many lenders (including Wells Fargo) stopped working with independent loan originators completely, and those who remained changed our contracts effectively reducing how much we can earn once again. Now, in January, the CFPB announced its new rule federally capping all fees on qualified mortgages at 3% in a move that will finish destroying what is left of the independent mortgage market.
All of these regulations were touted as necessary for the protection of the consumer. Mortgage brokers were apparently charging too much money and their customers did not understand the hundreds of pages of forms provided to them to explain their costs and fees. In order to protect the consumer from being overcharged, the new regulations had to be implemented. No one ever protested, "But mortgage brokers with many years of experience have financial obligations--homes, mortgages of their own, children in school, debt, office expenses, payroll, etc. They have entered into those obligations based on past earnings. If we cut their incomes how will they meet those obligations? How we can expect them to do the same level of work they are doing now for substantially less money? What if they can't earn enough money to meet their expenses and they are forced into bankruptcy or foreclosure?" Rather, the bureaucrats who made these rules were smugly confident that what they were doing was for the greater good. The businesses they affected would just have to learn how to make do with less.
Now, it's the government's turn to experience some cuts--cuts they imposed on themselves, apparently thinking that when the time came they would never have to actually live under them. President Obama believes that the American public should rush to the government's defense and accept more tax increases--further reductions to our own income--in order to prevent any reductions to the government's budget. To make his case, he calls the cuts "brutal" and "severe" and warns that they will "eviscerate" key segments of the economy. In doing so, he is using the same reactionary strategy that he has successfully used several times in the past--the world is about to end, the wolf is at the door, and we are all going to die unless we acquiesce. Apparently, Obama never read the story of the boy who cried wolf or he would know that this particular strategy only works so many times before the people stop listening. I think that's where we are today.
While the mainstream media and the government want to pretend that a 2.3% reduction in the federal budget will mean the end of the world as we know it, the truth is that it's time the government learned how to adjust its spending and live within its means. If that means some pain for the agencies and employees, so be it. We the people need to let Washington know that the cuts imposed by sequester are necessary for the protection of the taxpayer--we are doing it for the greater good. The government will just have to learn how to make do with less.
Alexandra Swann is the author of No Regrets: How Homeschooling Earned Me a Master's Degree at Age Sixteen and several other books. Her novel, The Planner, about an out of control, environmentally-driven federal government implementing Agenda 21, is available on Kindle and in paperback. For more information, visit her website at http://www.frontier2000.net.
February 21, 2013
Marketing Indefinite Detention to the American Public
On Tuesday evening I watched an episode of NCIS-Los Angeles. NCIS-LA has a really openly liberal bent in most of its episodes, and for that reason I am not a fan of the show, but somehow I end up watching a few episodes each season in spite of this. But the episode this week featured more than just the normal "white rich people (especially men) are bad; socialism and liberalism are good" message that I have come to expect from a lot of television entertainment.
In Tuesday's episode, NCIS investigators played by Chris O'Donnell and LL Cool J were pursuing a terrorist group from the 70's called the "Gun Barrel Party." This anarchist organization was a sort of a cross between the uber-leftist terrorist organization "The Weathermen" and the current Tea Party, and in the episode they had been involved in a series of high profile bombings in the 70's and were now making a comeback with new followers and a new mission to get the attention of Americans through new attacks on the social order.
As the investigators tracked the members, they came upon the scene of one demonstration where bombs were set to go off, and they were able to arrest one young member of the group. The young man began quoting the Constitution to O'Donnell and demanding his right to see an attorney. O'Donnell quickly shot him down, however, by informing him that because the U.S. Government had designated "The Gun Barrel Party" as a terrorist organization, he no longer had any rights and that he had better cooperate. The suspect told them that he wanted to exercise his Fifth amendment right not to incriminate himself, but O'Donnell explained to him that under the provisions of the National Defense Authorization Act the government now had the right to detain him as long as they decided they needed to and if he failed to cooperate he would end up at Gitmo. At that point, the suspect began talking and gave them the information they needed to arrest the leader of the organization.
Even though the indefinite detention provisions of the National Defense Authorization Act have been in effect since New Years Eve of 2011, I am certain that most Americans still do not know that the U.S. government has empowered itself to imprison Americans without trial. That is one reason that this episode of NCIS is so shocking. The writers used the full name of the Act and explained that it trumps the constitutional rights of Americans, but they presented this information in a very positive light as the protagonist investigators used the law to take down the evil terrorists.
As Americans, we expect to have many disagreements with our fellow citizens about the issues of the day--welfare, deficit spending, entitlements, social issues, etc. But the right of each citizen to be protected by the constitution should never be open for debate--this issue should be so basic that no one, regardless of political affiliation, should ever question it. Yet, Hollywood is now doing a marketing campaign to let Americans know that some citizens can be marginalize and that anyone who is deemed to be part of a designated terrorist organization is not deserving of the rights or protections which are the framework of our society . This is very dangerous propaganda.
It is ironic that while "Gitmo" has become a national symbol of failure in our dealings with enemy combatants, it is now perfectly acceptable as a threat against American citizens. It is sad that Hollywood writers who, if they are going to address this subject at all, should be using their forum to explain the dangers of undermining the constitution, are instead championing a destructive law. And it is sad that many Americans watching NCIS-Los Angeles who had never heard of the NDAA before Tuesday night now see it only as a vehicle for "cool" investigators to use to bring "really bad people" to justice.
What is saddest of all though, is that our entire media system has become a propaganda machine for leftist policies. From news to entertainment, the media is preaching one big government, post-constitutional message and indoctrinating the less informed people in our culture to accept the trampling of our liberties as a good thing.
Alexandra Swann is the author of No Regrets: How Homeschooling Earned me a Master's Degree at Age Sixteen and several other books. Her newest novel, The Chosen, about one small group of Americans' fight to restore the Constitution and end indefinite detentions without trial, is available on Kindle and in paperback. For more information, visit her website at http://www.frontier2000.net.
In Tuesday's episode, NCIS investigators played by Chris O'Donnell and LL Cool J were pursuing a terrorist group from the 70's called the "Gun Barrel Party." This anarchist organization was a sort of a cross between the uber-leftist terrorist organization "The Weathermen" and the current Tea Party, and in the episode they had been involved in a series of high profile bombings in the 70's and were now making a comeback with new followers and a new mission to get the attention of Americans through new attacks on the social order.
As the investigators tracked the members, they came upon the scene of one demonstration where bombs were set to go off, and they were able to arrest one young member of the group. The young man began quoting the Constitution to O'Donnell and demanding his right to see an attorney. O'Donnell quickly shot him down, however, by informing him that because the U.S. Government had designated "The Gun Barrel Party" as a terrorist organization, he no longer had any rights and that he had better cooperate. The suspect told them that he wanted to exercise his Fifth amendment right not to incriminate himself, but O'Donnell explained to him that under the provisions of the National Defense Authorization Act the government now had the right to detain him as long as they decided they needed to and if he failed to cooperate he would end up at Gitmo. At that point, the suspect began talking and gave them the information they needed to arrest the leader of the organization.
Even though the indefinite detention provisions of the National Defense Authorization Act have been in effect since New Years Eve of 2011, I am certain that most Americans still do not know that the U.S. government has empowered itself to imprison Americans without trial. That is one reason that this episode of NCIS is so shocking. The writers used the full name of the Act and explained that it trumps the constitutional rights of Americans, but they presented this information in a very positive light as the protagonist investigators used the law to take down the evil terrorists.
As Americans, we expect to have many disagreements with our fellow citizens about the issues of the day--welfare, deficit spending, entitlements, social issues, etc. But the right of each citizen to be protected by the constitution should never be open for debate--this issue should be so basic that no one, regardless of political affiliation, should ever question it. Yet, Hollywood is now doing a marketing campaign to let Americans know that some citizens can be marginalize and that anyone who is deemed to be part of a designated terrorist organization is not deserving of the rights or protections which are the framework of our society . This is very dangerous propaganda.
It is ironic that while "Gitmo" has become a national symbol of failure in our dealings with enemy combatants, it is now perfectly acceptable as a threat against American citizens. It is sad that Hollywood writers who, if they are going to address this subject at all, should be using their forum to explain the dangers of undermining the constitution, are instead championing a destructive law. And it is sad that many Americans watching NCIS-Los Angeles who had never heard of the NDAA before Tuesday night now see it only as a vehicle for "cool" investigators to use to bring "really bad people" to justice.
What is saddest of all though, is that our entire media system has become a propaganda machine for leftist policies. From news to entertainment, the media is preaching one big government, post-constitutional message and indoctrinating the less informed people in our culture to accept the trampling of our liberties as a good thing.
Alexandra Swann is the author of No Regrets: How Homeschooling Earned me a Master's Degree at Age Sixteen and several other books. Her newest novel, The Chosen, about one small group of Americans' fight to restore the Constitution and end indefinite detentions without trial, is available on Kindle and in paperback. For more information, visit her website at http://www.frontier2000.net.
February 12, 2013
Real Economic Stimulus Happens Only Through Less Regulation and Lower Taxes
Last night just after 5:00 PM I got a call asking me to stay another 30 minutes to visit with a homeowner to whom I have made a couple of real estate loans in the past. The man said that he needed to talk to me and wanted to come by about 5:30 and visit for a few minutes. The man's property is located in New Mexico, where I no longer hold a lending license, and I was getting ready to leave for the evening when the call came in, but as a courtesy to an old customer I stayed and waited for him.
When my borrower arrived he told me that he knew that I could not loan him any money on his New Mexico property but that he was very frustrated by current experience of trying to get a loan and he wanted to see if I could make some suggestions to help him. His property in New Mexico is very nice and he does not owe much money on it, but he wants to buy a home in Texas and in order to get the down payment for his new home he wants to do a cash out refinance on the New Mexico property where he currently lives. He complained that the companies that he is working with now don't return his calls, that the level of service is terrible, and that he is not getting the cooperation he needs. "I called over here and you agreed to see me right away, but I can't even get these other guys to return my calls."
He wanted to know why I stopped lending in New Mexico, and I explained to him that when the SAFE act was introduced requiring that mortgage brokers have federal licensure, the licensure fees for each state more than doubled. I had always had a New Mexico license for as long as I had been in business, but I could no longer afford to pay the fees to be licensed in two states, so I had to choose the state where I conducted the most business, which was Texas. Prior to the SAFE act, I could have handled the transactions in both states. It was true that I always met with him after hours, at times that were convenient for his work schedule and that I closed his loans quickly and was always accessible, but the elevated costs of doing business coupled with the drastic cuts to our income produced by regulations have made it impossible for me to work the way I once did.
I then explained that he needs to be aware that the mortgage debt ratios for borrowers refinancing their homes or buying new ones are tighter than they have ever been. In order to be able to purchase the new home after he refinances his current one, he is going to have to be sure that his debts do not exceed 45% of his income if he is going to be getting a conventional loan. His current plan is to rent out his home in New Mexico to offset the payment on his new loan so that he can qualify to buy his new home, but if he does not have 30% equity in the existing home after his new loan is finished as verified by the current appraisal he will not be able to use the rent to offset the payment which will mean that he will have to qualify for the house with both his current house payment with his new higher loan amount and the new payment on the new home he is buying. To make matters worse, his wife has a steady job with the school district but her credit is not very good, so she may not qualify to be on the loan which will mean that her income cannot be used. He is also working with the school district, and his credit has always been very good, but due to a mistake by his current mortgage servicer where they erroneously reported his payments late because of an escrow shortage, his scores are lower than they were when I was working with him and he may not make enough money to qualify by himself.
While we were talking, he received a text message from one of the mortgage loan originators he has been working with saying that the mortgage loan originator wants to meet with him. The originator wants $400.00 in order to order the appraisal on the house in New Mexico. My former borrower looked at me expectantly as he told me that he can't pay for the appraisal right now and expects it to be rolled into the loan. I explained that mortgage loan originators used to allow borrowers to pay for appraisals at closing--which often meant that if for some reason the loan did not close we had to pay for those appraisals ourselves. Although not collecting the money upfront meant that many times we had to pay those fees ourselves, because the lending environment was very competitive, we would often take the chance on not collecting the appraisal money at the time the appraisal was done because we were competing with other lenders who would not collect the money up front, so we could risk $350.00 or risk losing the deal totally. Now, however, since new appraisal regulations were introduced in 2009, we no longer hire the appraisers ourselves. Appraisers are selected by appraisal management companies contracted by the lender and the appraisal management companies demand payment in full upfront. Not only are appraisals considerably more expensive than they once were, but we no longer have the flexibility to call up our friendly local appraiser and ask if he will wait three weeks to get paid. Since loan originators no longer have the money to cover those costs themselves, and since most the competition is gone now, the borrower has to cover the cost of each and every appraisal up front. I explained that he will be paying for his appraisal on his refinance and his appraisal for his purchase at the time each is ordered--no exceptions.
As I talked to this man, he commented that if the market is slow and loans are difficult to originate, then everyone should be eager to work with him and eager to accommodate him, but that is really a very naive view of business. In a competitive, profitable environment, loans were affordable and loan originators worked hard to try to close the borrower. Today, loan origination is extremely difficult and laborious and not very profitable. As a result, there is very little competition and very little incentive to go above and beyond. I am sure from having known this man for a number of years that he voted for President Obama both times and that he has been completely in support of Obama's anti-business policies and his strangling regulations, but now he does not understand why increasing the regulation and the costs of doing business for lenders is making it difficult for him to get the loans, the pricing and the service he wants. I am sure that there are people all over the U.S. who would agree with him. They like to complain about evil business people, but they don't understand why high costs doing business and low profit margins kill the incentive of business people, increase costs to consumers and limit consumer choice by driving out competition.
Tonight President Obama will give his first State of the Union of his second term. One major focus of this speech is supposed to be jobs, the economy, and to paraphrase one commentator, "making sure that all Americans can participate in the economy while paying their fair share." We can look for a speech calling for more regulations, higher taxes and more top down economic stimulus in the form of taxpayer funded subsidies for pet projects such as union shops and green energy. We can be pretty certain that the speech will not call for any of the real actions that actually would stimulate the economy--unraveling the tens of thousands of regulations that have been implemented over the past four years, lowering taxes or reducing the cost of compliance. Yet, if the President were serious about improving the economy, these are the actions he would take. No matter what the left likes to tell themselves, the government does not create jobs. The government does not create opportunity. The government only has the power to kill jobs and opportunity. For profit businesses do not operate out of a sense of altruism; the owners and employees work hard and give their utmost effort so that they can experience the rewards that go with hard work. When those rewards are stifled, the incentive to produce and compete is gone. And when business becomes too difficult and expensive to conduct, business owners either close up shop completely or they raise the costs they pass on to the consumers and cut services. Either way, in the end, the American people end up paying the final bill, not only through higher taxes, but also through higher fees and costs and poor service.
Alexandra Swann is the author of No Regrets: How Homeschooling Earned me a Master's Degree at Age Sixteen and several other books. Her novel, The Planner, about an out of control, environmentally-driven federal government implementing Agenda 21, is available on Kindle and in paperback. For more information, visit her website at http://www.frontier2000.net.
When my borrower arrived he told me that he knew that I could not loan him any money on his New Mexico property but that he was very frustrated by current experience of trying to get a loan and he wanted to see if I could make some suggestions to help him. His property in New Mexico is very nice and he does not owe much money on it, but he wants to buy a home in Texas and in order to get the down payment for his new home he wants to do a cash out refinance on the New Mexico property where he currently lives. He complained that the companies that he is working with now don't return his calls, that the level of service is terrible, and that he is not getting the cooperation he needs. "I called over here and you agreed to see me right away, but I can't even get these other guys to return my calls."
He wanted to know why I stopped lending in New Mexico, and I explained to him that when the SAFE act was introduced requiring that mortgage brokers have federal licensure, the licensure fees for each state more than doubled. I had always had a New Mexico license for as long as I had been in business, but I could no longer afford to pay the fees to be licensed in two states, so I had to choose the state where I conducted the most business, which was Texas. Prior to the SAFE act, I could have handled the transactions in both states. It was true that I always met with him after hours, at times that were convenient for his work schedule and that I closed his loans quickly and was always accessible, but the elevated costs of doing business coupled with the drastic cuts to our income produced by regulations have made it impossible for me to work the way I once did.
I then explained that he needs to be aware that the mortgage debt ratios for borrowers refinancing their homes or buying new ones are tighter than they have ever been. In order to be able to purchase the new home after he refinances his current one, he is going to have to be sure that his debts do not exceed 45% of his income if he is going to be getting a conventional loan. His current plan is to rent out his home in New Mexico to offset the payment on his new loan so that he can qualify to buy his new home, but if he does not have 30% equity in the existing home after his new loan is finished as verified by the current appraisal he will not be able to use the rent to offset the payment which will mean that he will have to qualify for the house with both his current house payment with his new higher loan amount and the new payment on the new home he is buying. To make matters worse, his wife has a steady job with the school district but her credit is not very good, so she may not qualify to be on the loan which will mean that her income cannot be used. He is also working with the school district, and his credit has always been very good, but due to a mistake by his current mortgage servicer where they erroneously reported his payments late because of an escrow shortage, his scores are lower than they were when I was working with him and he may not make enough money to qualify by himself.
While we were talking, he received a text message from one of the mortgage loan originators he has been working with saying that the mortgage loan originator wants to meet with him. The originator wants $400.00 in order to order the appraisal on the house in New Mexico. My former borrower looked at me expectantly as he told me that he can't pay for the appraisal right now and expects it to be rolled into the loan. I explained that mortgage loan originators used to allow borrowers to pay for appraisals at closing--which often meant that if for some reason the loan did not close we had to pay for those appraisals ourselves. Although not collecting the money upfront meant that many times we had to pay those fees ourselves, because the lending environment was very competitive, we would often take the chance on not collecting the appraisal money at the time the appraisal was done because we were competing with other lenders who would not collect the money up front, so we could risk $350.00 or risk losing the deal totally. Now, however, since new appraisal regulations were introduced in 2009, we no longer hire the appraisers ourselves. Appraisers are selected by appraisal management companies contracted by the lender and the appraisal management companies demand payment in full upfront. Not only are appraisals considerably more expensive than they once were, but we no longer have the flexibility to call up our friendly local appraiser and ask if he will wait three weeks to get paid. Since loan originators no longer have the money to cover those costs themselves, and since most the competition is gone now, the borrower has to cover the cost of each and every appraisal up front. I explained that he will be paying for his appraisal on his refinance and his appraisal for his purchase at the time each is ordered--no exceptions.
As I talked to this man, he commented that if the market is slow and loans are difficult to originate, then everyone should be eager to work with him and eager to accommodate him, but that is really a very naive view of business. In a competitive, profitable environment, loans were affordable and loan originators worked hard to try to close the borrower. Today, loan origination is extremely difficult and laborious and not very profitable. As a result, there is very little competition and very little incentive to go above and beyond. I am sure from having known this man for a number of years that he voted for President Obama both times and that he has been completely in support of Obama's anti-business policies and his strangling regulations, but now he does not understand why increasing the regulation and the costs of doing business for lenders is making it difficult for him to get the loans, the pricing and the service he wants. I am sure that there are people all over the U.S. who would agree with him. They like to complain about evil business people, but they don't understand why high costs doing business and low profit margins kill the incentive of business people, increase costs to consumers and limit consumer choice by driving out competition.
Tonight President Obama will give his first State of the Union of his second term. One major focus of this speech is supposed to be jobs, the economy, and to paraphrase one commentator, "making sure that all Americans can participate in the economy while paying their fair share." We can look for a speech calling for more regulations, higher taxes and more top down economic stimulus in the form of taxpayer funded subsidies for pet projects such as union shops and green energy. We can be pretty certain that the speech will not call for any of the real actions that actually would stimulate the economy--unraveling the tens of thousands of regulations that have been implemented over the past four years, lowering taxes or reducing the cost of compliance. Yet, if the President were serious about improving the economy, these are the actions he would take. No matter what the left likes to tell themselves, the government does not create jobs. The government does not create opportunity. The government only has the power to kill jobs and opportunity. For profit businesses do not operate out of a sense of altruism; the owners and employees work hard and give their utmost effort so that they can experience the rewards that go with hard work. When those rewards are stifled, the incentive to produce and compete is gone. And when business becomes too difficult and expensive to conduct, business owners either close up shop completely or they raise the costs they pass on to the consumers and cut services. Either way, in the end, the American people end up paying the final bill, not only through higher taxes, but also through higher fees and costs and poor service.
Alexandra Swann is the author of No Regrets: How Homeschooling Earned me a Master's Degree at Age Sixteen and several other books. Her novel, The Planner, about an out of control, environmentally-driven federal government implementing Agenda 21, is available on Kindle and in paperback. For more information, visit her website at http://www.frontier2000.net.
February 7, 2013
The EPA, Water Rights, Property, and Freedom
The EPA may have lost a round in their battle to seize regulatory control of all of the nation's water when Virginia attorney-general Ken Cuccinelli defeated them in court last month, but the agency is still working to get control of more and more regulatory powers over our country's water supply.
For anyone unfamiliar with the case, the EPA had determined that storm water runoff was a pollutant, or at the very least a conduit for a pollutant, and that the agency had the power to regulate such runoff in Virginia at considerable expense to the state and the individual residents. The EPA's argument in this case was that since Congress has not specifically excluded their authority to regulate storm water runoff, the agency is authorized to regulate it, and they have the rights to issue rules managing the runoff. Cuccinelli successfully argued that using the EPA's argument, the agency could also infer that it had the authority to invade Mexico since Congress had not specifically denied them this authority either. Judge Liam O'Grady ruled in favor of Virginia and against the EPA's overreach.
While Cuccinelli's victory was significant, it is only one battle in an ongoing war between the EPA and property owners. As of January 15, 2013, the EPA is still waiting for the White House to review its proposed new guidance regarding "Waters of the U.S.". Since 2011, the Environmental Protection Agency and the Army Corps of Engineer have been trying to expand the Clean Water Act to expand the authority of the EPA beyond its current authority to regulate navigable waters and waters adjacent to navigable waters. (The EPA had tried unsuccessfully to expand their authority under the Bush Administration but they had been rebuffed.) By expanding the regulations to include virtually all waters and wetlands,the EPA will have increasing authority over developers and private land owners. Land owners will be subject to federal regulation and expensive federal permits when developing their property.
Although the EPA argues that the new proposals are merely "guidance" and do not rise to the level of rule making, in reality each new bit of authority that the EPA acquires increases federal authority and undermines the rights of property owners. And during the past four years, Director Lisa Jackson's EPA has issued 1824 regulations costing businesses and consumers billions. Of these, twenty are considered major regulations. By the EPA's own estimates, these rules will cost more than $7 billion in initial compliance and over $44 billion in annual direct compliance costs. Do we really believe that an agency this out-of control does not plan to act on a non-binding guidance document at the expense of every property owner and developer in their potential path? Every time the EPA flexes its muscles, Americans lose their rights and incur additional expenses, and they are able to reverse these losses only through lengthy and expensive legal battles.
One of the many troubling aspects of the EPA's guidance document is that it ignores the Clean Water Act's acknowledgement that some waters are under the exclusive jurisdiction of the states, and the federal government does not have jurisdiction over these waters at all. By claiming authority over all waters, the EPA and the ACE are undercutting states' rights in a powerful way.
We saw an example of this overreach last year when the federal government attempted to take control of the regulation of New Mexico's underground water supply. As I wrote last August in the post entitled Water, Water Everywhere, Southern New Mexico is home to a vibrant and prosperous farming community made possible through irrigation, both from the Rio Grande, which the federal government does have power to regulate, and through irrigation from ground water wells, which it does not currently regulate. Last August, the Feds sued the state of New Mexico for control of the ground water. Had they been successful in that case, which thankfully they were not, the federal government would have had the authority to pump out the groundwater from New Mexico and ship it to other states, leaving our state with insufficient ground water and rendering our properties completely worthless.
The federal government's desire to control and regulate the use of the U.S. water supply should be extremely troubling to every American. This is an unprecedented attack on property rights and on states' rights. Without access to water, ownership of land has no value. If the government can successfully gain control of the use of and access to water, they can successfully dictate where we can live and work. They can render entire communities dustbowls by simply cutting off the water. They can decide which farms are allowed to thrive and which ones become barren. They can charge taxes and fees on private wells on private property. The options for control are endless.
Last year, Congress and the Senate both introduced bills to prevent the EPA's final guidance document from ever being implemented or from being used as the basis for a final rule. But in the current gridlocked environment in Washington, bills limiting the power of the EPA have little chance of passage. Battles over water rights are more likely to be settled through legal battles, state by state, as brave attorneys-general like Cuccinelli fight in court to make sure that their states' property owners are protected. Every state victory against the EPA reinforces the principle of private property rights and states rights and preserves a piece of our freedom. But in order to win, we have to be willing to stand up and fight.
Alexandra Swann is the author of No Regrets: How Homeschooling Earned
me a Master's Degree at Age Sixteen and several other books. Her
novel, The Planner, about an out of control,
environmentally-driven federal government implementing Agenda 21, is available
on Kindle and in paperback. For more information, visit her website at http://www.frontier2000.net.
For anyone unfamiliar with the case, the EPA had determined that storm water runoff was a pollutant, or at the very least a conduit for a pollutant, and that the agency had the power to regulate such runoff in Virginia at considerable expense to the state and the individual residents. The EPA's argument in this case was that since Congress has not specifically excluded their authority to regulate storm water runoff, the agency is authorized to regulate it, and they have the rights to issue rules managing the runoff. Cuccinelli successfully argued that using the EPA's argument, the agency could also infer that it had the authority to invade Mexico since Congress had not specifically denied them this authority either. Judge Liam O'Grady ruled in favor of Virginia and against the EPA's overreach.
While Cuccinelli's victory was significant, it is only one battle in an ongoing war between the EPA and property owners. As of January 15, 2013, the EPA is still waiting for the White House to review its proposed new guidance regarding "Waters of the U.S.". Since 2011, the Environmental Protection Agency and the Army Corps of Engineer have been trying to expand the Clean Water Act to expand the authority of the EPA beyond its current authority to regulate navigable waters and waters adjacent to navigable waters. (The EPA had tried unsuccessfully to expand their authority under the Bush Administration but they had been rebuffed.) By expanding the regulations to include virtually all waters and wetlands,the EPA will have increasing authority over developers and private land owners. Land owners will be subject to federal regulation and expensive federal permits when developing their property.
Although the EPA argues that the new proposals are merely "guidance" and do not rise to the level of rule making, in reality each new bit of authority that the EPA acquires increases federal authority and undermines the rights of property owners. And during the past four years, Director Lisa Jackson's EPA has issued 1824 regulations costing businesses and consumers billions. Of these, twenty are considered major regulations. By the EPA's own estimates, these rules will cost more than $7 billion in initial compliance and over $44 billion in annual direct compliance costs. Do we really believe that an agency this out-of control does not plan to act on a non-binding guidance document at the expense of every property owner and developer in their potential path? Every time the EPA flexes its muscles, Americans lose their rights and incur additional expenses, and they are able to reverse these losses only through lengthy and expensive legal battles.
One of the many troubling aspects of the EPA's guidance document is that it ignores the Clean Water Act's acknowledgement that some waters are under the exclusive jurisdiction of the states, and the federal government does not have jurisdiction over these waters at all. By claiming authority over all waters, the EPA and the ACE are undercutting states' rights in a powerful way.
We saw an example of this overreach last year when the federal government attempted to take control of the regulation of New Mexico's underground water supply. As I wrote last August in the post entitled Water, Water Everywhere, Southern New Mexico is home to a vibrant and prosperous farming community made possible through irrigation, both from the Rio Grande, which the federal government does have power to regulate, and through irrigation from ground water wells, which it does not currently regulate. Last August, the Feds sued the state of New Mexico for control of the ground water. Had they been successful in that case, which thankfully they were not, the federal government would have had the authority to pump out the groundwater from New Mexico and ship it to other states, leaving our state with insufficient ground water and rendering our properties completely worthless.
The federal government's desire to control and regulate the use of the U.S. water supply should be extremely troubling to every American. This is an unprecedented attack on property rights and on states' rights. Without access to water, ownership of land has no value. If the government can successfully gain control of the use of and access to water, they can successfully dictate where we can live and work. They can render entire communities dustbowls by simply cutting off the water. They can decide which farms are allowed to thrive and which ones become barren. They can charge taxes and fees on private wells on private property. The options for control are endless.
Last year, Congress and the Senate both introduced bills to prevent the EPA's final guidance document from ever being implemented or from being used as the basis for a final rule. But in the current gridlocked environment in Washington, bills limiting the power of the EPA have little chance of passage. Battles over water rights are more likely to be settled through legal battles, state by state, as brave attorneys-general like Cuccinelli fight in court to make sure that their states' property owners are protected. Every state victory against the EPA reinforces the principle of private property rights and states rights and preserves a piece of our freedom. But in order to win, we have to be willing to stand up and fight.
Alexandra Swann is the author of No Regrets: How Homeschooling Earned
me a Master's Degree at Age Sixteen and several other books. Her
novel, The Planner, about an out of control,
environmentally-driven federal government implementing Agenda 21, is available
on Kindle and in paperback. For more information, visit her website at http://www.frontier2000.net.
February 1, 2013
Everything's Coming up Roses?
With all of the mainstream media reports about the surging economy, I am reminded of Bette Midler in the TV version of "Gypsy" belting out "Everything's Coming up Roses." This week saw the stock market surge over 14,000--levels it has not seen since 2007. We also saw reports that housing is recovering nationwide and that housing prices have increased 23% in Phoenix, Arizona. Although we do have reports that the unemployment numbers did tick up a point, the overall message is that life is good and getting better.
Unfortunately, that message does not mesh with reality for a lot of us. For many Americans--the top 1% that the supporters of the current administration seem to dislike so intensely--life actually is good. The policies of the last four years have benefited Wall Street enormously. The historic low interest rates fostered by quantitative easing are good for stock prices, and budget deals like the one we saw with the "Fiscal Cliff" provide investors with confidence. As long as interest rates and the price of oil remain low and the government continues to spend money, Wall Street is happy. So are the Americans who are invested in the stock market, the investment advisers who assist them, and the publicly traded firms. My wealthier clients are doing just fine. For example, one family of attorneys for whom I do a lot of transactions are taking advantage of the low real estate prices to pad their portfolio of commercial and residential real estate. They have plenty of disposable income since they derive their funds from a hugely profitable social security disability practice. For people like these, this is a good time.
For a lot of Americans in the middle class tier of the economic scale, however, these are not such good times. We are seeing continued high unemployment, hiring freezes, and a contracting job market. For those of us who do not have investments, we are supposed to take comfort in the fact that housing prices are improving and so the most important asset that most of us own is appreciating in value. But is it really?
In the areas of the country hardest hit by the housing crash, prices are rising. The appreciation was rapid, the crash was horrific, and now there is some recovery. But in other parts of the country, such as Texas, where property values did not ride the roller coaster to such great heights, we have seen more steady depreciation and no recovery.
Consider this--in 2012, I saw only two loans where the properties actually appraised as or better than expected. The first one was a custom remodel for a doctor I had financed in 2008. He had doubled his property's square footage, and his appraisal in May of 2012 came in considerably better than expected. The other property which appraised was a Fannie Mae owned foreclosure being purchased an investment property. Fannie Mae was selling the property for $170,000--the house appraised for $214,000. The borrower did not close on the loan, but if he had, the lower sales price would have effectively reduced the price of the house to $170,000, thereby lowering the values of the other properties in the same neighborhood.
All of the other properties that I financed last year came in below the expected appraised value--some significantly so. In January I closed a loan for a couple who had custom built their home several years ago. They spent $650,000 building the house and assumed that this was the value--especially since the house is in pristine condition, located in a great neighborhood and has desirable amenities including a three car garage. They were disappointed when the house appraised for $599,000. However, the underwriter did not accept the appraisal and questioned the appraiser's statement that one of the comparables in the immediate neighborhood sold for $610,000 when the information the underwriter had on file indicated that this property had in fact sold for $510,000. The underwriter also rejected one of the comparable sales on the basis that it was just over a year old and therefore unacceptable. After a month of working on this, the appraiser returned a report stating that the first comp was reported in error--the sales price was $510,000, and the new comps have all sold for substantially less. After making the adjustments, this beautiful custom built home appraised for a current value of $510,000. The homeowner was able to close but they were not able to pay off their second lien because we had to reduce the loan amount to get them to 80%.
This month I am working with another long-time borrower of mine. This man wants to take advantage of the low interest rates by refinancing his home to lower the payment. He purchased his house, new from the builder, in 2008 for a price of $200,000. At the time, the property appraised for $250,000. In 2009, he refinanced the house from his original 6.5% interest rate to a new rate of 4.875%. At that time the house appraised for $205,000. This year, when we appraised the house, the appraisal came in for $200,000. My borrower was extremely upset, because not only has the property actually lost $5000.00 in value since 2009, which was a very bad year for property values, but he is not able to roll in his closing costs without MI. (The property did qualify for a DU refi plus, and we will be closing him on that program.) He has also questioned whether he should even go to the trouble to refinance his home to a 3.49% interest rate, since he has just learned that there are a lot of changes coming to the company where he has worked for the past 20 years, and now, even though he has held a key position for two decades and by his own admission, "works cheap", he is afraid that at some point he will be told that there is no longer a need for his services. Although he is a person with specialized abilities whom I am certain will not have trouble finding more employment--and he does in fact have other jobs now, should his current employment end in the next year--he is anxious and nervous about his future and about even the remote possibility of having to look for work.
Unfortunately, his story is much more representative of the condition in which most of us currently find ourselves. In this brave new era, years of hard work and experience don't really seem to mean much at all. Consumer confidence is down partially because many of us have no assurance of a paycheck or a job or any security. We hear a lot about how the top 1% of the country needs to pay their share, but in reality we see the wealthiest class of Americans becoming increasingly wealthier while middle class Americans have less confidence, less assurance of finding work, and less to look forward to. That's a story that the media is not reporting much, and it is not rosy at all.
Alexandra Swann is the author of No Regrets: How Homeschooling Earned me a Master's Degree at Age Sixteen and several other books. Her novel, The Planner, about an out of control, environmentally-driven federal government implementing Agenda 21, is available on Kindle and in paperback. For more information, visit her website at http://www.frontier2000.net.
Unfortunately, that message does not mesh with reality for a lot of us. For many Americans--the top 1% that the supporters of the current administration seem to dislike so intensely--life actually is good. The policies of the last four years have benefited Wall Street enormously. The historic low interest rates fostered by quantitative easing are good for stock prices, and budget deals like the one we saw with the "Fiscal Cliff" provide investors with confidence. As long as interest rates and the price of oil remain low and the government continues to spend money, Wall Street is happy. So are the Americans who are invested in the stock market, the investment advisers who assist them, and the publicly traded firms. My wealthier clients are doing just fine. For example, one family of attorneys for whom I do a lot of transactions are taking advantage of the low real estate prices to pad their portfolio of commercial and residential real estate. They have plenty of disposable income since they derive their funds from a hugely profitable social security disability practice. For people like these, this is a good time.
For a lot of Americans in the middle class tier of the economic scale, however, these are not such good times. We are seeing continued high unemployment, hiring freezes, and a contracting job market. For those of us who do not have investments, we are supposed to take comfort in the fact that housing prices are improving and so the most important asset that most of us own is appreciating in value. But is it really?
In the areas of the country hardest hit by the housing crash, prices are rising. The appreciation was rapid, the crash was horrific, and now there is some recovery. But in other parts of the country, such as Texas, where property values did not ride the roller coaster to such great heights, we have seen more steady depreciation and no recovery.
Consider this--in 2012, I saw only two loans where the properties actually appraised as or better than expected. The first one was a custom remodel for a doctor I had financed in 2008. He had doubled his property's square footage, and his appraisal in May of 2012 came in considerably better than expected. The other property which appraised was a Fannie Mae owned foreclosure being purchased an investment property. Fannie Mae was selling the property for $170,000--the house appraised for $214,000. The borrower did not close on the loan, but if he had, the lower sales price would have effectively reduced the price of the house to $170,000, thereby lowering the values of the other properties in the same neighborhood.
All of the other properties that I financed last year came in below the expected appraised value--some significantly so. In January I closed a loan for a couple who had custom built their home several years ago. They spent $650,000 building the house and assumed that this was the value--especially since the house is in pristine condition, located in a great neighborhood and has desirable amenities including a three car garage. They were disappointed when the house appraised for $599,000. However, the underwriter did not accept the appraisal and questioned the appraiser's statement that one of the comparables in the immediate neighborhood sold for $610,000 when the information the underwriter had on file indicated that this property had in fact sold for $510,000. The underwriter also rejected one of the comparable sales on the basis that it was just over a year old and therefore unacceptable. After a month of working on this, the appraiser returned a report stating that the first comp was reported in error--the sales price was $510,000, and the new comps have all sold for substantially less. After making the adjustments, this beautiful custom built home appraised for a current value of $510,000. The homeowner was able to close but they were not able to pay off their second lien because we had to reduce the loan amount to get them to 80%.
This month I am working with another long-time borrower of mine. This man wants to take advantage of the low interest rates by refinancing his home to lower the payment. He purchased his house, new from the builder, in 2008 for a price of $200,000. At the time, the property appraised for $250,000. In 2009, he refinanced the house from his original 6.5% interest rate to a new rate of 4.875%. At that time the house appraised for $205,000. This year, when we appraised the house, the appraisal came in for $200,000. My borrower was extremely upset, because not only has the property actually lost $5000.00 in value since 2009, which was a very bad year for property values, but he is not able to roll in his closing costs without MI. (The property did qualify for a DU refi plus, and we will be closing him on that program.) He has also questioned whether he should even go to the trouble to refinance his home to a 3.49% interest rate, since he has just learned that there are a lot of changes coming to the company where he has worked for the past 20 years, and now, even though he has held a key position for two decades and by his own admission, "works cheap", he is afraid that at some point he will be told that there is no longer a need for his services. Although he is a person with specialized abilities whom I am certain will not have trouble finding more employment--and he does in fact have other jobs now, should his current employment end in the next year--he is anxious and nervous about his future and about even the remote possibility of having to look for work.
Unfortunately, his story is much more representative of the condition in which most of us currently find ourselves. In this brave new era, years of hard work and experience don't really seem to mean much at all. Consumer confidence is down partially because many of us have no assurance of a paycheck or a job or any security. We hear a lot about how the top 1% of the country needs to pay their share, but in reality we see the wealthiest class of Americans becoming increasingly wealthier while middle class Americans have less confidence, less assurance of finding work, and less to look forward to. That's a story that the media is not reporting much, and it is not rosy at all.
Alexandra Swann is the author of No Regrets: How Homeschooling Earned me a Master's Degree at Age Sixteen and several other books. Her novel, The Planner, about an out of control, environmentally-driven federal government implementing Agenda 21, is available on Kindle and in paperback. For more information, visit her website at http://www.frontier2000.net.
January 23, 2013
Qualified Mortgages, Loan Originator Compensation and the Law of Intended Consequences
We are getting used to massive federal changes at the beginning of each year. Last January, we saw President Obama's controversial recess appointment of Richard Cordray as the first permanent director of the Consumer Financial Protection Bureau. (The appointment was controversial because the Senate was not actually in recess at the time.) This year we are seeing the new qualified mortgage rules and the 3% cap on loan originator compensation. These rules are mandated under the Dodd Frank bill, passed in 2010, and we have been waiting now for two and half years to see the final versions. Now, this month, the CFPB has rolled both out, along with other new housing regulations.
With the nation's attention turned to the president's second inauguration, the battle over the budget and debt ceiling and a growing fight over gun control, new mortgage rules barely have made a blip on the national radar. The morning that the new qualified mortgage rules were introduced, the local ABC affiliate in El Paso carried the story that new mortgage rules were being introduced. "This should cause banks to start lending again," the local morning show anchor added optimistically. Other press releases from non-industry sources seemed to indicate that the new rules would provide the certainty that the market needs in order to commence mortgage lending again.
Of course, those of us who work in housing know that nothing could be further from the truth. David Stevens, former Assistant Secretary of HUD under President Obama, who left his position to become President of the Mortgage Bankers Association, said bluntly that the new standards will do nothing to loosen credit and in some interviews he went on to add that the new standards will actually tighten credit. That is a more realistic picture of what is going to happen. Where Stevens and I disagree is how much the new standards will tighten credit--he appears to believe that there will be a slight tightening while I predict that ultimately, the new standards will make mortgage credit much more difficult to obtain.
Why? As industry participants have pointed out, the new standards are much less restrictive than the original proposal. For example, the new qualified mortgage calls for debt to income ratios at 43% rather than the originally proposed 36%, and loans which are being sold to Fannie Mae and Freddie Mac and government loans are automatically in the safe harbor so their debt-to income ratios can remain higher. Also, the final rule allows for smaller downpayments and equity requirements than the 20-30% minimum initially suggested. So why am I pessimistic?
First of all, we must consider the climate in which this rule was created. Sheila Blair, former chair of the FDIC who worked on the qualified mortgage concept, said initially that the qualified mortgages were meant to be a very small slice of the mortgage market. If a borrower receives a mortgage that does not meet the qualified mortgage standards, the borrower can use the lack of "ability to repay" standards to forestall foreclosure almost indefinitely, and the lender may be required to repay three years of finance charges to the borrower. That is a powerful incentive to originate only qualified mortgages. As Stevens properly mentions in some of the interviews I read, the trend is going to be to begin underwriting according to these standards before they are actually mandatory next January.
Any mortgages sold to Fannie Mae and Freddie Mac are considered to be covered under the safe harbor provisions, but we have watched both Fannie Mae and Freddie Mac consistently tighten their own underwriting standards. I predict that prior to the effective date of the new rule in January of 2014, both Fannie and Freddie will have adjusted their automated underwriting systems to accept a maximum debt to income ratio of 43% and to comply with the downpayment standards of the new rule. Don't be misled; the qualified mortgages may not officially become effective until next January, but the industry is going to begin using these standards this year in preparation for their full implementation 12 months from now.
Many housing professionals are concerned about the impact of the new rule on the jumbo housing markets in higher cost places such as California and Nevada. Tighter credit standards are going to negatively impact the market. Most probably the major impact will be that housing prices will fall again in these states as borrowers struggle to qualify with the new guidelines. This is particularly true since the qualified residential mortgages do not allow homeowners to qualify with interest only payments.
Finally, there is the 3% cap on points and fees. There still appears to be some confusion about what this covers exactly. Fees include lender fees, originator fees (including yield spread premium) upfront private mortgage insurance on conventional loans (though not on government loans) attorney fees in states that require that attorneys prepare the documents, title and third party fees when affiliates companies are used, and in some cases appraisal fees.
Last night I watched a video by the National Association of Mortgage Brokers explaining the loan originator compensation rule introduced on Sunday January 20. NAMB's Government Affairs Chair, John Hudson, stated that by writing the 3% rule as it has, the CFPB is picking the winners and the losers, favoring large Wall Street banks over the small business owners. He stated that since the CFPB is unwilling to look at the impact of the rule on small business owners, we need to try to fix this problem legislatively as he does not believe that the intent of Congress when they passed the Dodd Frank bill was to restrict access to credit and to discriminate against small business owners.
As far as I am concerned, this whole conversation is wrong on so many levels. First of all, to have national underwriting standards codified into law is ridiculous. Lending is based on risk and reward. Just as we should never bail out failing firms--failure is part of risk--we also should not have national legal standards for mortgage loans. Such standards do not allow for underwriters or investors to make any decisions for the individual borrower's situation.
Second, the intent of Dodd Frank and all of its resulting rules IS to limit access to credit and to pick winners and losers. When Mitt Romney stated that Dodd Frank was the biggest "kiss" the Wall Street banks ever got, he spoke the exact truth. Every inch of the Dodd Frank bill benefits Wall Street at the expense of everyone else. The major banks can afford to salary their employees and since the money that they make selling their loans on the secondary market is specifically excluded from the 3% points and fees cap, they do not have to worry about staying in compliance. A mortgage broker, on the other hand, who is paying all of his own brick and mortar expenses and originating loans may be forced to reduce his fee to 1% or less to comply with these requirements. And since the advent of lender paid compensation and lender contracts, we cannot vary our compensation from loan to loan, so we will have to reduce our fees on all loans in order to stay within the 3% guideline. (There are provisions for smaller loans under $100,000 to exceed the 3% cap, but that will not help the loan originator much since the lender paid compensation is a set percentage of the loan.) In a tight market, more fee reductions simply mean that smaller originators cannot earn enough money to pay their expenses and keep their doors open.
Many in our industry are calling this "the law of unintended consequences." In an effort to protect consumers, Congress passed a bill that will cut off competition, limit access to credit and prevent consumers from having lending options. Again, I disagree. This is the law of completely intended consequences. Remember that Dodd Frank was passed by a Democrat house and Senate and named for the extremely liberal Chris Dodd and Barney Frank. The liberal agenda of the past four years is not to promote home ownership--instead it is to promote sustainable living as our government transitions us from a society of home owners to a society of renters living in sustainable housing. We know that this was particular goal of Chris Dodd because the last bill he sponsored before he retired was the "Livable Communities Act," which did not pass but which would have created federal frameworks for implementing Smart Growth and Sustainable living initiatives. The problem with making such a transition is that home ownership has traditionally been the American dream, and many Americans are not willing to just abandon that dream in favor of a lifetime of living in crowded, tiny multi-family housing. Micro apartments such as the ones Mayor Bloomberg is commissioning in New York--for more information see the post Dream Small--may find willing residents in the Big Apple, but in the rest of the country we want a house.
Very simply, in order to move toward the radical environmental agenda of tiny apartments and densely populated housing demanded by environmentalists and called for in Agenda 21, the government has to cut off other housing options. Access to credit gives Americans options to buy and sell housing and to live where they choose. By cutting off access to credit and limiting the availability of loans, the government can continue its current trend of rebuilding our society into one without a middle class--a society where the rich become richer and the poor stay poor. And since home ownership has been one of the defining characteristics of the middle class, Dodd Frank had to attack it at its foundation--access to and availability of mortgage credit for a majority of Americans.
Anyone reading this who wants a private home and can qualify for one should consider buying in early 2013. After these rules are fully implemented, buying, selling or refinancing is going to be much more difficult. And with each month that passes we are moving closer to the remaking of our society.
Alexandra Swann is the author of No Regrets: How Homeschooling Earned me a Master's Degree at Age Sixteen and several other books. Her novel, The Planner, about an out of control, environmentally-driven federal government implementing Agenda 21, is available on Kindle and in paperback. For more information, visit her website at http://www.frontier2000.net.
With the nation's attention turned to the president's second inauguration, the battle over the budget and debt ceiling and a growing fight over gun control, new mortgage rules barely have made a blip on the national radar. The morning that the new qualified mortgage rules were introduced, the local ABC affiliate in El Paso carried the story that new mortgage rules were being introduced. "This should cause banks to start lending again," the local morning show anchor added optimistically. Other press releases from non-industry sources seemed to indicate that the new rules would provide the certainty that the market needs in order to commence mortgage lending again.
Of course, those of us who work in housing know that nothing could be further from the truth. David Stevens, former Assistant Secretary of HUD under President Obama, who left his position to become President of the Mortgage Bankers Association, said bluntly that the new standards will do nothing to loosen credit and in some interviews he went on to add that the new standards will actually tighten credit. That is a more realistic picture of what is going to happen. Where Stevens and I disagree is how much the new standards will tighten credit--he appears to believe that there will be a slight tightening while I predict that ultimately, the new standards will make mortgage credit much more difficult to obtain.
Why? As industry participants have pointed out, the new standards are much less restrictive than the original proposal. For example, the new qualified mortgage calls for debt to income ratios at 43% rather than the originally proposed 36%, and loans which are being sold to Fannie Mae and Freddie Mac and government loans are automatically in the safe harbor so their debt-to income ratios can remain higher. Also, the final rule allows for smaller downpayments and equity requirements than the 20-30% minimum initially suggested. So why am I pessimistic?
First of all, we must consider the climate in which this rule was created. Sheila Blair, former chair of the FDIC who worked on the qualified mortgage concept, said initially that the qualified mortgages were meant to be a very small slice of the mortgage market. If a borrower receives a mortgage that does not meet the qualified mortgage standards, the borrower can use the lack of "ability to repay" standards to forestall foreclosure almost indefinitely, and the lender may be required to repay three years of finance charges to the borrower. That is a powerful incentive to originate only qualified mortgages. As Stevens properly mentions in some of the interviews I read, the trend is going to be to begin underwriting according to these standards before they are actually mandatory next January.
Any mortgages sold to Fannie Mae and Freddie Mac are considered to be covered under the safe harbor provisions, but we have watched both Fannie Mae and Freddie Mac consistently tighten their own underwriting standards. I predict that prior to the effective date of the new rule in January of 2014, both Fannie and Freddie will have adjusted their automated underwriting systems to accept a maximum debt to income ratio of 43% and to comply with the downpayment standards of the new rule. Don't be misled; the qualified mortgages may not officially become effective until next January, but the industry is going to begin using these standards this year in preparation for their full implementation 12 months from now.
Many housing professionals are concerned about the impact of the new rule on the jumbo housing markets in higher cost places such as California and Nevada. Tighter credit standards are going to negatively impact the market. Most probably the major impact will be that housing prices will fall again in these states as borrowers struggle to qualify with the new guidelines. This is particularly true since the qualified residential mortgages do not allow homeowners to qualify with interest only payments.
Finally, there is the 3% cap on points and fees. There still appears to be some confusion about what this covers exactly. Fees include lender fees, originator fees (including yield spread premium) upfront private mortgage insurance on conventional loans (though not on government loans) attorney fees in states that require that attorneys prepare the documents, title and third party fees when affiliates companies are used, and in some cases appraisal fees.
Last night I watched a video by the National Association of Mortgage Brokers explaining the loan originator compensation rule introduced on Sunday January 20. NAMB's Government Affairs Chair, John Hudson, stated that by writing the 3% rule as it has, the CFPB is picking the winners and the losers, favoring large Wall Street banks over the small business owners. He stated that since the CFPB is unwilling to look at the impact of the rule on small business owners, we need to try to fix this problem legislatively as he does not believe that the intent of Congress when they passed the Dodd Frank bill was to restrict access to credit and to discriminate against small business owners.
As far as I am concerned, this whole conversation is wrong on so many levels. First of all, to have national underwriting standards codified into law is ridiculous. Lending is based on risk and reward. Just as we should never bail out failing firms--failure is part of risk--we also should not have national legal standards for mortgage loans. Such standards do not allow for underwriters or investors to make any decisions for the individual borrower's situation.
Second, the intent of Dodd Frank and all of its resulting rules IS to limit access to credit and to pick winners and losers. When Mitt Romney stated that Dodd Frank was the biggest "kiss" the Wall Street banks ever got, he spoke the exact truth. Every inch of the Dodd Frank bill benefits Wall Street at the expense of everyone else. The major banks can afford to salary their employees and since the money that they make selling their loans on the secondary market is specifically excluded from the 3% points and fees cap, they do not have to worry about staying in compliance. A mortgage broker, on the other hand, who is paying all of his own brick and mortar expenses and originating loans may be forced to reduce his fee to 1% or less to comply with these requirements. And since the advent of lender paid compensation and lender contracts, we cannot vary our compensation from loan to loan, so we will have to reduce our fees on all loans in order to stay within the 3% guideline. (There are provisions for smaller loans under $100,000 to exceed the 3% cap, but that will not help the loan originator much since the lender paid compensation is a set percentage of the loan.) In a tight market, more fee reductions simply mean that smaller originators cannot earn enough money to pay their expenses and keep their doors open.
Many in our industry are calling this "the law of unintended consequences." In an effort to protect consumers, Congress passed a bill that will cut off competition, limit access to credit and prevent consumers from having lending options. Again, I disagree. This is the law of completely intended consequences. Remember that Dodd Frank was passed by a Democrat house and Senate and named for the extremely liberal Chris Dodd and Barney Frank. The liberal agenda of the past four years is not to promote home ownership--instead it is to promote sustainable living as our government transitions us from a society of home owners to a society of renters living in sustainable housing. We know that this was particular goal of Chris Dodd because the last bill he sponsored before he retired was the "Livable Communities Act," which did not pass but which would have created federal frameworks for implementing Smart Growth and Sustainable living initiatives. The problem with making such a transition is that home ownership has traditionally been the American dream, and many Americans are not willing to just abandon that dream in favor of a lifetime of living in crowded, tiny multi-family housing. Micro apartments such as the ones Mayor Bloomberg is commissioning in New York--for more information see the post Dream Small--may find willing residents in the Big Apple, but in the rest of the country we want a house.
Very simply, in order to move toward the radical environmental agenda of tiny apartments and densely populated housing demanded by environmentalists and called for in Agenda 21, the government has to cut off other housing options. Access to credit gives Americans options to buy and sell housing and to live where they choose. By cutting off access to credit and limiting the availability of loans, the government can continue its current trend of rebuilding our society into one without a middle class--a society where the rich become richer and the poor stay poor. And since home ownership has been one of the defining characteristics of the middle class, Dodd Frank had to attack it at its foundation--access to and availability of mortgage credit for a majority of Americans.
Anyone reading this who wants a private home and can qualify for one should consider buying in early 2013. After these rules are fully implemented, buying, selling or refinancing is going to be much more difficult. And with each month that passes we are moving closer to the remaking of our society.
Alexandra Swann is the author of No Regrets: How Homeschooling Earned me a Master's Degree at Age Sixteen and several other books. Her novel, The Planner, about an out of control, environmentally-driven federal government implementing Agenda 21, is available on Kindle and in paperback. For more information, visit her website at http://www.frontier2000.net.
January 16, 2013
A Tale of Two Cities in 2013
Today we saw President Obama, flanked by school children who had supposedly written letters to the President asking him to act on the issue of gun control, signing his 23 executive orders on gun control and issuing new proposed regulations which he will ask Congress to act upon.
Of course, today is really just the opening round in the battle over the Second Amendment. The big wars--the fight to ban assault weapons or to limit the size of magazines--are already being strategized in Congress, in the media and in the court of public opinion.
According to several polls I have seen lately, a majority of Americans seem to favor bans on assault weapons as unnecessary. While over 70% of Americans support individual gun ownership and are opposed to gun laws that would restrict gun possession to the military and law enforcement, many Americans don't seem to understand the value of the average citizen being able to own a large capacity weapon with a large capacity magazine.
I was very glad to see Governor Perry's office stand up for the rights of gun owners today. The right to keep and bear arms is essential in a free society--to protect ourselves and our families and to reduce crime.
As a life-long resident of the El Paso, Texas, region I have gotten to witness up close and personal the difference between a society with limited gun control (Texas) and a society with restrictive gun control (Mexico) and to see the differences between the two.
Many who live off the border wrongly assume that Mexico's problems with violence are the product of the drug war between warring cartels. That is the current source of the murder and mayhem in Mexico, but Juarez has been a dangerous, violent city for many years--long before former Mexican President Felipe Calderon began the war that has torn the country apart. Several years ago, before the drug wars began, I did a mortgage loan for a woman living in the U.S. whose family owned a money-changing business in Juarez. She and her brothers had inherited the business, but she told me that her brothers did not want to work in it because it was too dangerous. The business had been robbed a number of times, and during one of these robberies her husband had been shot. Fearing that he would be killed if he continued to work in the business, she had encouraged him to go to work in a restaurant in El Paso. She, herself, continued to cross the bridge every day to open and operate her business, and she hoped and prayed each day that she would not be killed while doing so.
My client was unable to buy a gun to protect herself and her business because of the strict gun control laws in Mexico. These laws, which are among the strictest in the world, are designed to make gun ownership nearly impossible. According to an article in the Washington Post, the entire nation of Mexico has only one gun store, which is located in Mexico city and operated by the Mexican military. The clerks are soldiers. The store is located on a secure military base and to enter customers must provide valid ID, pass through a metal detector, give up their cell phones and cameras, provide proof of income, submit references, pass a criminal background check and provide proof that they have been honorably discharged from any military service. If they pass all of these checks, they are allowed to purchase just ONE small caliber weapon and a box of bullets. The weapons are allowed only at home. A business owner who wants to possess a weapon must apply for a separate permit. Business owners are normally encouraged to hire a private security company to protect themselves rather than getting a gun.
Mexico's no tolerance laws about gun control frequently cause problems for U.S. citizens who cross the border with weapons. The most recent case is, of course, that of former U.S. serviceman Jon Hammar who was imprisoned for months in Matamoros, Mexico after attempting to declare a shotgun that he was planning to take with him in his vehicle while driving across Mexico. Mexican officials agreed that the gun was not on the list of banned weapons, but that did not stop them from jailing Hammar for four months and threatening him with ten years imprisonment for entering the country with a weapon. Unfortunately, Hammar's case, while very well publicized, was really not an isolated incident. Several years ago, a member of our police force drove his vehicle across the border in pursuit of a suspect. Upon crossing to the Mexican side, he was immediately detained by Mexican authorities and jailed. (He remained in custody for months while U.S. officials negotiated his release.) Most recently, a young truck driver from Dallas, Texas, who was transporting a shipment of ammunition, crossed the border and was jailed in Mexico. Although the Mexican customs official who detained him said in her statement that he told her he had crossed accidentally and was trying to turn around before entering Mexico, and in spite of calls from various civic leaders for his release, he remained incarcerated for over six months for illegally bringing guns into Mexico.
So how has all of this gun control worked out for Mexico? Since 2008, over 51,000 people have been murdered in Mexico in the nation's drug war. (To put this figure into perspective, only about 58,000 Americans died during the entire Vietnam War). In 2010, over 3100 people died in the city of Juarez, Mexico, earning the city the title of the "murder capital of the world." In 2011 the number of murders in Juarez dropped to 1904. In 2012, murders declined but there is still incredible violence in the city. In 2012 over 60 women were murdered in a story that is being largely obscured by the larger story of the wars over drug territory; a total of about 100 women have been reported missing over the past two years. More women were killed in Juarez in 2012 than in any of the earlier years of "femicide."
As a nation we have grieved over the loss of innocent children at Sandy Hook, and many seem to believe that if guns were more difficult to obtain, this tragedy could have been avoided. But a look at international headlines shows that in Mexico, where guns are virtually impossible to legally obtain, a shooting that claims the lives of multiple people, including children, is a common occurrence:
1. October 23, 2010, at least 10 gunmen burst into a birthday party in a private home in Juarez, killing 13 people and wounding twenty. The party was for a 15 year old boy; at least four of the people killed at the party were teenagers, and one wounded was nine years old. This incident was the second shooting at a house party that month--in the first attack, gunmen stormed a house and killed six people.
2. February 12, 2011, LA Times reports that 8 people, six of them waitresses, were gunned down in the Las Torres bar in Juarez, Mexico. Assailants bearing assault rifles opened fire in the bar. Elsewhere throughout the city, an additional 10 people were killed in other shootings for a total of 18 deaths in 24 hours.
3. January 13, 2011, Mexican activist Susana Chavez was found strangled with one hand cut off in Cuidad Juarez. Chavez had worked during the 1990's to bring attention to the murders of hundreds of young low-income women in Juarez. The Chihuahua State Attorney General's office said that Chavez's death was not the result of her activism but was the work of teenagers who cut off her hand to make authorities think she had been killed by organized crime.
4. April 5, 2011, CNN World reports that 41 people were murdered in Juarez, Mexico in four days, including a 10 year old boy who was shot and killed in an attack meant to kill his father.
I have known many people living in Juarez who have not been able to continue to run their businesses because of crime and violence. Many are afraid to visit family members and loved ones because of the constant threat of violence. Danger is not confined to people involved in drug trafficking. In Mexico, business owners are routinely targeted for kidnappings. In Mexico in 2011, an average of 49 kidnappings took place every single day. In 2010, there were 13,505 abductions; in 2011 that number rose to 17,889. These figures do not include "express kidnappings" which normally last just a few hours and are facilitated by taxi drivers.
With the election of the new president of Mexico, there appears to be general consensus that the city is going to become less violent. Many attribute that to the fact that "El Chapo" Guzman and his Sinaloa Cartel have actually taken control of the city away from the Juarez cartel. A few months ago, our local news featured a story about business owners who are once again reopening restaurants and nightclubs in downtown Juarez to take advantage of anticipated visits from Americans as well as to serve the needs of residents of Juarez who are becoming less afraid to go out in public. These entrepreneurs admit openly that they are allowed to open these businesses only if they pay protection money to organized crime, but the "tax" that the cartels impose on them is just a cost of living and working in Mexico.
When the drug war started in 2008, many of us who own businesses and work in El Paso feared that the violence might spill over into our community. By and large, that has not happened. El Paso has been ranked for the past several years as one of the safest cities in the United States. In 2010, there were just a mere 5 murders in El Paso. In 2011 that number rose to 16, but six of those were proven to be domestic-violence related killings. I could not find specific statistics regarding kidnappings in El Paso, but I did find FBI statistics that in 2010 the FBI had identified 25 cartel-related kidnappings along the entire Southwestern border of the United States. Our city has made national headlines when bullets have strayed across the border and hit our city hall or bounced off a pedestrian, but the guns and gunmen connected to those bullets have remained on the other side of the border. (In a recent incident, a bullet grazed, but did not penetrate, the leg of a woman pushing a stroller near the border. The bullet was believed to have come from a shoot- out involving automatic weapons taking place between masked gunman and authorities on the streets of Juarez. The woman was treated for minor injuries and allowed to go home.)
So what is the difference? Why is Juarez, Mexico, so dangerous and El Paso, Texas, so safe? Some attribute the safety of our city to Fort Bliss, but the military is not allowed to function as a police force on U.S. soil. And the mere presence of military does not make a city safe--during the height of the violence the president of Mexico stationed military troops in tanks on the streets of Juarez, but it did not stop the killings or the extortion or the other crimes. In fact, residents just complained that they were now victims of crimes perpetrated by the soldiers.
Is it our law enforcement? We do have a lot of federal law enforcement here--FBI, DEA, and ICE all have a powerful presence in our city. But is that enough to keep armed gunmen at bay and to protect a population of over 800,000 people? I don't think so.
Is it demographics? No. Many of the residents of El Paso have family members living in Juarez or in other parts of Mexico. We are separated from Mexico by a few international bridges and a river--for the most part our culture and the dynamic of our community is the same.
The difference is guns. Whereas Mexico has restrictive gun laws that allow criminals to access weapons illegally while keeping weapons away from the citizenry, El Paso is the beneficiary of Texas' gun laws which allow residents to carry guns openly and to apply for concealed carry permits. Would be killers and kidnappers who operate without any real obstacles in Mexico know that if they enter an El Paso business to kill or extort money, they run a very good risk of being killed themselves. And those weapons that protect us include the maligned "assault weapons." Mexican drug cartels often use ex-military and renegade former police as enforcers. To stand up to them, we need weapons that compare with theirs. And this is a better deterrent than the world's finest law enforcement. Trained law enforcement may be able to successfully track down murderers after crimes have taken place and bring the perpetrators to justice, but an armed populace can keep those murders from ever happening in the first place.
I have received a lot of criticism of my anti-gun control stance. Many seem to think that mutually assured destruction is not a good deterrent. I disagree. Mutually assured destruction is often the only deterrent. A lifetime spent living a few miles from one of the most dangerous cities on earth has taught me that most violent criminals are also cowards. They may not mind slaughtering everyone else, but they don't want to risk getting killed themselves. Mexico is proof that complete disarmament of a society is not possible. We just have to decide who we want to be armed--only the violent criminals, or the whole of society. Having seen both situations up close, I definitely vote for the latter.
If we want to live in a free society, we have to protect our Second Amendment rights to protect ourselves. We cannot allow the mainstream media to spin this narrative--to tell us what types of weapons we may own or what types of ammunition we can keep or how many guns we should be allowed to have. An armed population is a free population--a disarmed population is the victim of every type of petty tyranny and crime imaginable. That crime and tyranny does not have to come from a government agency--it can simply come from a criminal a few blocks away who wants your money and is willing to hold you for ransom to get it.
Alexandra Swann is the author of No Regrets: How Homeschooling Earned me a Master's Degree at Age Sixteen and several other books. Her novel, The Planner, about an out of control, environmentally-driven federal government implementing Agenda 21, is available on Kindle and in paperback. For more information, visit her website at http://www.frontier2000.net.
January 9, 2013
The Price of Liberty
It has been said that the price of liberty is eternal vigilence. As the first full week of 2013 unfolds, we are beginning to see true price of liberty all across the country as the federal government imposes onerous new mandates and crafts new legislation to undercut our freedoms.
For Hobby Lobby and the Green family, the price of liberty is $1.3 million a day. That is the cost of the fines that Hobby Lobby is facing for its refusal to comply with the Department of Health and Human services Obamacare mandate on supplying contraceptives including morning after and week after abortifacents through the Hobby Lobby health plan. Although other companies have been able to get these fines suspended, Hobby Lobby's judge was less understanding and refused to give the company a waiver on the fines while their case was going through court.
This morning I saw Jay Sekulow on Fox News Channel discussing the Hobby Lobby case. Sekulow is, of course, the lead attorney for the American Center for Law and Justice and while he is not involved in the Hobby Lobby case, he has successfully represented other companies who are currently suing to uphold their First Amendment rights to object to abortion and therefore not have to pay for contraceptives and abortifacents. When asked whether Hobby Lobby was actually paying these fines, Sekulow responded that they will not have to do so unless and until the fines are actually levied by the Treasury Department, which he hopes the Administration will choose not to do while the case makes its way through court.
At the heart of the Hobby Lobby fight against the Affordable Care Act is their First Amendment right not to be forced to violate their religious beliefs. The Obama Administration claims that the mandates which require private employers to pay for contraceptives do not violate the rights of private employers by virtue of the fact that private employers don't have any First Amendment freedom of religion rights, or as they explain “for-profit, secular employers generally do not engage in any exercise of religion protected by the First Amendment.”
The Heritage Foundation's newsletter today spotlighted three other employers who are in the same situation as Hobby Lobby--Autocam of Grand Rapids, Michigan, Grote Industries and KL Construction. KL Construction is a family-owned construction company facing $730,000 a year in fines if they refuse to violate the tenents of their Roman Catholic faith. (The fine is $100.00 per employee per day so it varies from company to company). All of these cases are headed to the U.S. Supreme Court.
The question that all of us are facing is one of Constitutional protections. Does the First Amendment protect all of us--or does it just protect non-profit institutions? In our society we vilify--and sometimes imprison--those who violate the consciences and their own ethics in order to meet the demands of an abusive boss backed by a greedy corporation who intimidates them into committing some moral infraction for the good of the company. Are we willing to stand up as a society for those who refuse to be bullied by an abusive government being backed by a greedy electorate which apparently believes that business people have no rights at all?
Of course, the question of whether the Constitution protects all of us or none of us goes far beyond the current First Amendment battles. This week Joe Biden is holding hearings on gun control and threatening that the president will act by executive order if necessary. It is ironic that the same group who will tell us that abortion is a Constitutionally protected right will also lecture us about gun control when the Constitution says nothing about the right to kill one's own child and has an entire amendment devoted to the right to keep and bear arms.
The Constitution can be amended only by a vote of 2/3rds of the states. It cannot be changed or rewritten, legally, by executive orders, or by Congressional legislation, or even by the courts, although the courts do have a long standing right to determine whether laws pass the test of being constitutional. But the Constitution is only as strong as the people who stand up for it, believe in its principles, and demand that it be upheld.
A little over 10 year ago, I heard NYC Mayor Rudy Guiliani speak at an event here in El Paso. Guiliani was talking about the lessons he had learned from experiencing 09/11 as the mayor of New York. I have always remembered what he described as one of the most important, "Stand up to bullies." Guiliani made the point that the world is full of bullies, but when we encounter them, we can't back down. We have to stand strong and push back. And when we do, we often find that they are much weaker than we thought.
Hobby Lobby has chosen to stand up to bullies and pay the price of liberty, to the tune of a staggering $1.3 million dollars a day. I hope that their business survives, and that they win their battle to uphold their rights under the U.S. Constitution. I hope that all of us stand up for the rights that others have died for and protect and preserve the Constitution and the liberties it affords us all.
Read Alexandra Swann's novel The Chosen about one small group of Americans battle to uphold the Constitution, free on Kindle January 11th through January 15th.
Alexandra Swann is the author of No Regrets: How Homeschooling Earned me a Master's Degree at Age Sixteen and several other books. Her novel, The Planner, about an out of control, environmentally-driven federal government implementing Agenda 21, is available on Kindle and in paperback. For more information, visit her website at http://www.frontier2000.net.
For Hobby Lobby and the Green family, the price of liberty is $1.3 million a day. That is the cost of the fines that Hobby Lobby is facing for its refusal to comply with the Department of Health and Human services Obamacare mandate on supplying contraceptives including morning after and week after abortifacents through the Hobby Lobby health plan. Although other companies have been able to get these fines suspended, Hobby Lobby's judge was less understanding and refused to give the company a waiver on the fines while their case was going through court.
This morning I saw Jay Sekulow on Fox News Channel discussing the Hobby Lobby case. Sekulow is, of course, the lead attorney for the American Center for Law and Justice and while he is not involved in the Hobby Lobby case, he has successfully represented other companies who are currently suing to uphold their First Amendment rights to object to abortion and therefore not have to pay for contraceptives and abortifacents. When asked whether Hobby Lobby was actually paying these fines, Sekulow responded that they will not have to do so unless and until the fines are actually levied by the Treasury Department, which he hopes the Administration will choose not to do while the case makes its way through court.
At the heart of the Hobby Lobby fight against the Affordable Care Act is their First Amendment right not to be forced to violate their religious beliefs. The Obama Administration claims that the mandates which require private employers to pay for contraceptives do not violate the rights of private employers by virtue of the fact that private employers don't have any First Amendment freedom of religion rights, or as they explain “for-profit, secular employers generally do not engage in any exercise of religion protected by the First Amendment.”
The Heritage Foundation's newsletter today spotlighted three other employers who are in the same situation as Hobby Lobby--Autocam of Grand Rapids, Michigan, Grote Industries and KL Construction. KL Construction is a family-owned construction company facing $730,000 a year in fines if they refuse to violate the tenents of their Roman Catholic faith. (The fine is $100.00 per employee per day so it varies from company to company). All of these cases are headed to the U.S. Supreme Court.
The question that all of us are facing is one of Constitutional protections. Does the First Amendment protect all of us--or does it just protect non-profit institutions? In our society we vilify--and sometimes imprison--those who violate the consciences and their own ethics in order to meet the demands of an abusive boss backed by a greedy corporation who intimidates them into committing some moral infraction for the good of the company. Are we willing to stand up as a society for those who refuse to be bullied by an abusive government being backed by a greedy electorate which apparently believes that business people have no rights at all?
Of course, the question of whether the Constitution protects all of us or none of us goes far beyond the current First Amendment battles. This week Joe Biden is holding hearings on gun control and threatening that the president will act by executive order if necessary. It is ironic that the same group who will tell us that abortion is a Constitutionally protected right will also lecture us about gun control when the Constitution says nothing about the right to kill one's own child and has an entire amendment devoted to the right to keep and bear arms.
The Constitution can be amended only by a vote of 2/3rds of the states. It cannot be changed or rewritten, legally, by executive orders, or by Congressional legislation, or even by the courts, although the courts do have a long standing right to determine whether laws pass the test of being constitutional. But the Constitution is only as strong as the people who stand up for it, believe in its principles, and demand that it be upheld.
A little over 10 year ago, I heard NYC Mayor Rudy Guiliani speak at an event here in El Paso. Guiliani was talking about the lessons he had learned from experiencing 09/11 as the mayor of New York. I have always remembered what he described as one of the most important, "Stand up to bullies." Guiliani made the point that the world is full of bullies, but when we encounter them, we can't back down. We have to stand strong and push back. And when we do, we often find that they are much weaker than we thought.
Hobby Lobby has chosen to stand up to bullies and pay the price of liberty, to the tune of a staggering $1.3 million dollars a day. I hope that their business survives, and that they win their battle to uphold their rights under the U.S. Constitution. I hope that all of us stand up for the rights that others have died for and protect and preserve the Constitution and the liberties it affords us all.
Read Alexandra Swann's novel The Chosen about one small group of Americans battle to uphold the Constitution, free on Kindle January 11th through January 15th.
Alexandra Swann is the author of No Regrets: How Homeschooling Earned me a Master's Degree at Age Sixteen and several other books. Her novel, The Planner, about an out of control, environmentally-driven federal government implementing Agenda 21, is available on Kindle and in paperback. For more information, visit her website at http://www.frontier2000.net.
December 17, 2012
The Fiscal Cliff, Healthcare, Housing and You
As we near the end of 2012 and the edge of the fiscal cliff, as usual the big debate is whether the Bush tax cuts should be extended or allowed to expire, and if they should be extended, for whom. As liberals and conservatives debate the impact on the economy, the focus of the media's coverage of the debate seems to focus mainly on the increases to the top income tax rate. After a two year reprieve on these extensions, most Americans seem to now believe that it is best to let the tax cuts expire for the top earners while ensuring that they are maintained for everyone else.
I think that framing the Bush tax cuts debate only in terms of income tax increases really minimizes the full effect of allowing the tax cuts to expire. Remember that the tax cuts did more than just lower the income tax rate; they also gave a hefty shot in the arm to the real estate market.
Under the Bush tax cuts, an individual could sell his or her primary residence and realize up to a $250,000 gain tax free. A couple could sell their primary residence and realize up to a $500,000 gain tax free. And this gain did not have to be reinvested in a new primary residence to reap the tax advantages; the sellers could choose just to put the money from the sale in an investment account and rent for the rest of their lives. The capital gains tax holiday gave a powerful boost to the real estate market because it allowed Americans to purchase a home and benefit in a very direct way from their properties' appreciation.
If all of the tax cuts are allowed to expire, next year the sales of primary residences will again be subject to capital gains tax. (Presumably the tax will revert back to the prior law before the tax cuts where no capital gains is owed if a new primary residence of equal or greater value is purchased within a set period of time.) But what if the tax cuts are extended to the middle class and only allowed to expire for taxpayers with incomes of $250,000 a year or more? What effect will that have on the housing market?
Remember that for the past couple of years Fannie Mae and Freddie Mac's average borrower today has a credit score of 751 and a down payment of more than 30%. That means essentially that these two agencies, both of which have received hundreds of billions in tax dollar bailouts, are basically making loans to upper middle class borrowers--the ones who typically have higher incomes. A capital gains' tax on primary residences, combined with higher income taxes and a looming threat to discontinue the tax deduction for mortgage interest, may discourage these borrowers from investing in real estate. At the very minimum, it is going to discourage them from buying higher priced homes. Discouraging the very borrowers who are in the best position financially to purchase homes and pay the mortgages on them can only result in a further slowdown of the real estate market, and potentially greater declines in housing prices. Many of the taxpayers in the $250,000 bracket are actually small business owners. With increasing economic problems, and dropping market values, how comfortable are they going to feel going through the pain of purchasing a home knowing upon sale the gain will be subject to taxes because they earn over $250,000 a year?
I know that it can be argued that for many years primary residences were subject to capital gains tax upon sale, and that the tax did not stop people from buying or selling property. But I would counter that there is a strange phenomenon that comes into play when people are used to getting something (in this case a capital gains' tax holiday on their primary residence) and then see it taken away. We saw this with the home buyer tax credit. Buyers had bought and sold houses without an $8,000 tax credit since the beginning of civilization, but in the short time that it was implemented, buyers came to believe that they should expect a tax credit. Consequently, when the tax credit expired, buyers largely stopped putting in contracts on houses. The credit should not have provided all that much incentive--after all, the primary reward for purchasing a home is having a place to live--but once the inducement was offered and then removed, borrowers did not seem to see the point of buying a home for which they would not receive a tax credit.
Two years ago the tax cuts were extended for everyone. Now President Obama is adamant that they should be extended only for those earning less than $250,000. But this plan poses an additional set of challenges. The new health care law signed in March also contains a tax on real estate. The 3.8% tax on the sale of residential real estate applies to individuals with incomes higher than $200,000 and couples with combined incomes over $250,000. On a sale of a $300,000 home, the tax would be $11,400.00. This would be in additional to the capital gains tax. And since the health care tax is on the sales price and not on the gain, it would apply to any borrower in the income bracket being taxed. In other words, if you sell your house for enough to cover what you owe the bank plus the agent's commission and your costs as seller, you could still owe Uncle Sam a check.
We like to think that "rich" people, whom we as a society have defined as people with incomes over $200,000 or $250,000, have so much money that they don't feel these taxes at all and that any complaining that they do is only a result of greedy whining. But at what point do the more affluent people in our society decide that real estate is too heavily taxed and that they are better off renting rather buying? At what point do current homeowners who do have extra cash decide to offer their homes for rent rather than for sale because they are rebelling against a plethora of taxes which gobble up their equity? And what are the consequences of this shift in thinking for an already lethargic housing market?
In spite of reports that I have been reading all year, I personally have not seen a housing market recovery or improved housing prices. With one exception, none of the appraisals I ordered this year came in as well as expected. Properties that were purchased last year at lower than expected prices appraised this year for less than last year's purchase price. In my conversations with underwriters in other areas of the state, I have learned that this continued depreciation of the housing market is actually typical right now. Do we want to make a declining housing market worse than it already is by disincentivizing still more borrowers?
Raising taxes--even for the top income brackets--may generate a lot of money for the U.S. Treasury in the short term, but in the long term it will lead to increased unemployment which will lead to increased mortgage defaults and delinquencies at a cost to lenders, Fannie Mae, Freddie Mac, and ultimately the American taxpayers. Taxing the life out of what is left of the housing industry is really just cooking and eating the goose that laid the golden egg.
Alexandra Swann is the author of No Regrets: How Homeschooling Earned me a Master's Degree at Age Sixteen and several other books. Her novel, The Planner, about an out of control, environmentally-driven federal government implementing Agenda 21, is available on Kindle and in paperback. For more information, visit her website at http://www.frontier2000.net.
I think that framing the Bush tax cuts debate only in terms of income tax increases really minimizes the full effect of allowing the tax cuts to expire. Remember that the tax cuts did more than just lower the income tax rate; they also gave a hefty shot in the arm to the real estate market.
Under the Bush tax cuts, an individual could sell his or her primary residence and realize up to a $250,000 gain tax free. A couple could sell their primary residence and realize up to a $500,000 gain tax free. And this gain did not have to be reinvested in a new primary residence to reap the tax advantages; the sellers could choose just to put the money from the sale in an investment account and rent for the rest of their lives. The capital gains tax holiday gave a powerful boost to the real estate market because it allowed Americans to purchase a home and benefit in a very direct way from their properties' appreciation.
If all of the tax cuts are allowed to expire, next year the sales of primary residences will again be subject to capital gains tax. (Presumably the tax will revert back to the prior law before the tax cuts where no capital gains is owed if a new primary residence of equal or greater value is purchased within a set period of time.) But what if the tax cuts are extended to the middle class and only allowed to expire for taxpayers with incomes of $250,000 a year or more? What effect will that have on the housing market?
Remember that for the past couple of years Fannie Mae and Freddie Mac's average borrower today has a credit score of 751 and a down payment of more than 30%. That means essentially that these two agencies, both of which have received hundreds of billions in tax dollar bailouts, are basically making loans to upper middle class borrowers--the ones who typically have higher incomes. A capital gains' tax on primary residences, combined with higher income taxes and a looming threat to discontinue the tax deduction for mortgage interest, may discourage these borrowers from investing in real estate. At the very minimum, it is going to discourage them from buying higher priced homes. Discouraging the very borrowers who are in the best position financially to purchase homes and pay the mortgages on them can only result in a further slowdown of the real estate market, and potentially greater declines in housing prices. Many of the taxpayers in the $250,000 bracket are actually small business owners. With increasing economic problems, and dropping market values, how comfortable are they going to feel going through the pain of purchasing a home knowing upon sale the gain will be subject to taxes because they earn over $250,000 a year?
I know that it can be argued that for many years primary residences were subject to capital gains tax upon sale, and that the tax did not stop people from buying or selling property. But I would counter that there is a strange phenomenon that comes into play when people are used to getting something (in this case a capital gains' tax holiday on their primary residence) and then see it taken away. We saw this with the home buyer tax credit. Buyers had bought and sold houses without an $8,000 tax credit since the beginning of civilization, but in the short time that it was implemented, buyers came to believe that they should expect a tax credit. Consequently, when the tax credit expired, buyers largely stopped putting in contracts on houses. The credit should not have provided all that much incentive--after all, the primary reward for purchasing a home is having a place to live--but once the inducement was offered and then removed, borrowers did not seem to see the point of buying a home for which they would not receive a tax credit.
Two years ago the tax cuts were extended for everyone. Now President Obama is adamant that they should be extended only for those earning less than $250,000. But this plan poses an additional set of challenges. The new health care law signed in March also contains a tax on real estate. The 3.8% tax on the sale of residential real estate applies to individuals with incomes higher than $200,000 and couples with combined incomes over $250,000. On a sale of a $300,000 home, the tax would be $11,400.00. This would be in additional to the capital gains tax. And since the health care tax is on the sales price and not on the gain, it would apply to any borrower in the income bracket being taxed. In other words, if you sell your house for enough to cover what you owe the bank plus the agent's commission and your costs as seller, you could still owe Uncle Sam a check.
We like to think that "rich" people, whom we as a society have defined as people with incomes over $200,000 or $250,000, have so much money that they don't feel these taxes at all and that any complaining that they do is only a result of greedy whining. But at what point do the more affluent people in our society decide that real estate is too heavily taxed and that they are better off renting rather buying? At what point do current homeowners who do have extra cash decide to offer their homes for rent rather than for sale because they are rebelling against a plethora of taxes which gobble up their equity? And what are the consequences of this shift in thinking for an already lethargic housing market?
In spite of reports that I have been reading all year, I personally have not seen a housing market recovery or improved housing prices. With one exception, none of the appraisals I ordered this year came in as well as expected. Properties that were purchased last year at lower than expected prices appraised this year for less than last year's purchase price. In my conversations with underwriters in other areas of the state, I have learned that this continued depreciation of the housing market is actually typical right now. Do we want to make a declining housing market worse than it already is by disincentivizing still more borrowers?
Raising taxes--even for the top income brackets--may generate a lot of money for the U.S. Treasury in the short term, but in the long term it will lead to increased unemployment which will lead to increased mortgage defaults and delinquencies at a cost to lenders, Fannie Mae, Freddie Mac, and ultimately the American taxpayers. Taxing the life out of what is left of the housing industry is really just cooking and eating the goose that laid the golden egg.
Alexandra Swann is the author of No Regrets: How Homeschooling Earned me a Master's Degree at Age Sixteen and several other books. Her novel, The Planner, about an out of control, environmentally-driven federal government implementing Agenda 21, is available on Kindle and in paperback. For more information, visit her website at http://www.frontier2000.net.
December 13, 2012
Right to Work, Legalized Pot and the States vs. The Federal Government
The second week of December has been most interesting. On Tuesday, Michigan Gov. Rick Snyder signed Michigan's first right to work law, officially banning the practice of forcing workers to pay union dues in the state. What Michigan did was not really revolutionary--almost half of the states currently have right to work laws. What is extraordinary is that Michigan would pass such a law considering the long history of unions in the state. What is also extraordinary is the national attention that this law has gotten. I don't remember seeing all of this attention focused on Indiana in February when they chose to become a right-to-work state. But since Tuesday, the focus of cable news has been the Michigan right to work law. Distraught union members have protested loudly, and sometimes violently; and Jimmy Hoffa Jr. has promised civil war.
Amid all of the weeping and gnashing of teeth that has followed Michigan's passage of the right-to-work law, what appears to have largely been lost is that states have a clear right to determine the labor laws within their own borders. The primary impetus for this law is that Michigan is losing business opportunities to its right-to-work neighbor Indiana. In order to attract jobs and business opportunities, states have to compete, and right-to-work laws allow such competition.
As someone who has worked in a right-to-work state my entire life, I can tell you for a certainty that right-to- work laws do not destroy the worker--in fact they open up a lot of new opportunities. For instance, in Texas, the right-to-work laws mean, in part, that a non-compete clause from an employment contract cannot, in most cases, be enforced against an employee. In practical terms this means that the worker who has an opportunity to go to work for his employer's competitor for a higher wage can take advantage of that opportunity without any real fear of reprisal. It also means that a person who want to open his own business competing in the same field as his current employer has the opportunity to do so without waiting out the non-compete time of the contract. That means that he can take his contacts with him while they are still fresh and while he can still grow the business. Right-to-work helps employers, but it also makes life much easier for workers who now have a lot more options. And right-to-work states grow. Texas' right-to-work laws--coupled with no state income tax--account in large part for the state's maintaining a solid economy even in the current difficult times.
What I find most interesting about the current uproar about Michigan's new law is that the discussion by opponents of the new law is not being framed in terms of Michigan's right to regulate its own labor laws. Rather, opponents seem to believe that Michigan's new law is the outgrowth of a national conspiracy by conservatives in Michigan and other parts of the country to undermine the unions and by extension the Obama Administration. President Obama even spoke against the passage of the Michigan law saying that this new law was not about economics; it was only about politics and the "right to work for less money." Rather than acknowledging that the state has the same right as any other state to pass laws for the perceived betterment of the lives of its citizens, liberals seem intent on furthering their assertion that this law is somehow aimed at undercutting the Administration and that Gov. Snyder was acting outside of his authority in signing it.
While union leaders were rioting in Michigan this week, in Colorado the state's new law legalizing marijuana went into effect. Let me begin this by saying that I, personally, am opposed to drug legalization at every level as I believe that all recreational narcotic substances are damaging to the individual and to society at large. But there are much greater issues at play here than just personal morality about whether drugs should be legal.
Washington State and Colorado, of course, legalized recreational marijuana usage by popular vote on November 6, in a move that many have called "historic." Clearly, the signing of these laws actually was outside of the authority of the state governors who signed them. Federal law does not allow recreational marijuana usage, and state laws are not allow to preempt federal laws. However, on this issue, the left is remaining very quiet. I saw a portion of an interview with former attorney general Alberto Gonzales about possible actions that the Administration can take as a result of the passage of these laws. Gonzales said that basically the government has three options:
1. The Feds can arrest and prosecute citizens of the states under the current federal drug laws and then argue in court that federal laws always preempt state laws.
2. The Feds can sue the states in court for violating federal laws.
3. The Feds can withhold funding for local law enforcement since the local law enforcement is refusing to uphold Federal law.
There is also a fourth option which Gonzales did not mention but which many progessives and libertarians are demanding. The federal government can do nothing. Legalization of recreational marijuana is, after all, supported by a majority of the voters in Colorado and Washington--two states which voted for Obama in the 2012 elections. Additionally, big money backers including hedge fund billionaire George Soros and Peter Lewis of Progressive Insurance support legalizing drugs. For the Administration to enforce the current drug laws would be very unpopular with both monied backers and the liberal voting blocks in those states, so it might be politically advantageous for the Obama Administration to not get involved.
Maybe. Maybe not. Having two states pass laws legalizing drugs really is a clear affront to federal authority. As it turns out, Colorado and Washington's new laws violate not only federal law, but international United Nations' treaties--the 1961 International Convention on Narcotic Drugs outlaws marijuana and other drugs. That treaty is supported by two other treaties—the 1971 Convention on Psychotropic Drugs and the 1988 Anti-Trafficking Convention. Whether the Obama Administration privately agrees with these state laws is not the point; the point is that by refusing to take any action on these laws, the Administration is sending a message that in some cases, at least, state laws can preempt federal laws and even international treaties. In speaking out against the Michigan law, the President and his Administration are interjecting themselves into a matter that is clearly the state's to decide. In refusing to stand up against legalized marijuana--if that is ultimately the case--the President and the Administration are conceding authority that the federal government actually does have to enforce laws. The only legal way around this is to back federal bills to legalize drugs nationally. Any such legislation would undoubtedly prove extremely contentious and difficult to pass in a government as gridlocked as this one.
It will be interesting to see how this issue of the state authority versus federal authority is ultimately resolved. After all, if the test of whether we have to obey federal laws is determined by whether a majority of citizens in a state agree with the laws or not, there are millions of citizens living in red states who do not agree with a lot of the laws that this Administration is passing. Could what happens in Colorado and Washington set up a precedent for red states to eventually vote to reject Obamacare? If popular will can nullify international treaties, could states down the road vote to disregard UN treaties such as the UN Small Arms Treaty and could the courts rule with them? Could courts rule that since the Administration has allowed two states to openly violate federal law, they have sent a message that state laws passed by popular vote have more authority than federal laws passed by the houses of Congress and signed by the President. If the courts do eventually determine that this is the case, the outcome could be a rebellion against federal control unlike anything we have witnessed in the past. The outcome should be fascinating to watch.
Alexandra Swann is the author of No Regrets: How Homeschooling Earned me a Master's Degree at Age Sixteen and several other books. Her novel, The Planner, about an out of control, environmentally-driven federal government implementing Agenda 21, is available on Kindle and in paperback. For more information, visit her website at http://www.frontier2000.net.
Amid all of the weeping and gnashing of teeth that has followed Michigan's passage of the right-to-work law, what appears to have largely been lost is that states have a clear right to determine the labor laws within their own borders. The primary impetus for this law is that Michigan is losing business opportunities to its right-to-work neighbor Indiana. In order to attract jobs and business opportunities, states have to compete, and right-to-work laws allow such competition.
As someone who has worked in a right-to-work state my entire life, I can tell you for a certainty that right-to- work laws do not destroy the worker--in fact they open up a lot of new opportunities. For instance, in Texas, the right-to-work laws mean, in part, that a non-compete clause from an employment contract cannot, in most cases, be enforced against an employee. In practical terms this means that the worker who has an opportunity to go to work for his employer's competitor for a higher wage can take advantage of that opportunity without any real fear of reprisal. It also means that a person who want to open his own business competing in the same field as his current employer has the opportunity to do so without waiting out the non-compete time of the contract. That means that he can take his contacts with him while they are still fresh and while he can still grow the business. Right-to-work helps employers, but it also makes life much easier for workers who now have a lot more options. And right-to-work states grow. Texas' right-to-work laws--coupled with no state income tax--account in large part for the state's maintaining a solid economy even in the current difficult times.
What I find most interesting about the current uproar about Michigan's new law is that the discussion by opponents of the new law is not being framed in terms of Michigan's right to regulate its own labor laws. Rather, opponents seem to believe that Michigan's new law is the outgrowth of a national conspiracy by conservatives in Michigan and other parts of the country to undermine the unions and by extension the Obama Administration. President Obama even spoke against the passage of the Michigan law saying that this new law was not about economics; it was only about politics and the "right to work for less money." Rather than acknowledging that the state has the same right as any other state to pass laws for the perceived betterment of the lives of its citizens, liberals seem intent on furthering their assertion that this law is somehow aimed at undercutting the Administration and that Gov. Snyder was acting outside of his authority in signing it.
While union leaders were rioting in Michigan this week, in Colorado the state's new law legalizing marijuana went into effect. Let me begin this by saying that I, personally, am opposed to drug legalization at every level as I believe that all recreational narcotic substances are damaging to the individual and to society at large. But there are much greater issues at play here than just personal morality about whether drugs should be legal.
Washington State and Colorado, of course, legalized recreational marijuana usage by popular vote on November 6, in a move that many have called "historic." Clearly, the signing of these laws actually was outside of the authority of the state governors who signed them. Federal law does not allow recreational marijuana usage, and state laws are not allow to preempt federal laws. However, on this issue, the left is remaining very quiet. I saw a portion of an interview with former attorney general Alberto Gonzales about possible actions that the Administration can take as a result of the passage of these laws. Gonzales said that basically the government has three options:
1. The Feds can arrest and prosecute citizens of the states under the current federal drug laws and then argue in court that federal laws always preempt state laws.
2. The Feds can sue the states in court for violating federal laws.
3. The Feds can withhold funding for local law enforcement since the local law enforcement is refusing to uphold Federal law.
There is also a fourth option which Gonzales did not mention but which many progessives and libertarians are demanding. The federal government can do nothing. Legalization of recreational marijuana is, after all, supported by a majority of the voters in Colorado and Washington--two states which voted for Obama in the 2012 elections. Additionally, big money backers including hedge fund billionaire George Soros and Peter Lewis of Progressive Insurance support legalizing drugs. For the Administration to enforce the current drug laws would be very unpopular with both monied backers and the liberal voting blocks in those states, so it might be politically advantageous for the Obama Administration to not get involved.
Maybe. Maybe not. Having two states pass laws legalizing drugs really is a clear affront to federal authority. As it turns out, Colorado and Washington's new laws violate not only federal law, but international United Nations' treaties--the 1961 International Convention on Narcotic Drugs outlaws marijuana and other drugs. That treaty is supported by two other treaties—the 1971 Convention on Psychotropic Drugs and the 1988 Anti-Trafficking Convention. Whether the Obama Administration privately agrees with these state laws is not the point; the point is that by refusing to take any action on these laws, the Administration is sending a message that in some cases, at least, state laws can preempt federal laws and even international treaties. In speaking out against the Michigan law, the President and his Administration are interjecting themselves into a matter that is clearly the state's to decide. In refusing to stand up against legalized marijuana--if that is ultimately the case--the President and the Administration are conceding authority that the federal government actually does have to enforce laws. The only legal way around this is to back federal bills to legalize drugs nationally. Any such legislation would undoubtedly prove extremely contentious and difficult to pass in a government as gridlocked as this one.
It will be interesting to see how this issue of the state authority versus federal authority is ultimately resolved. After all, if the test of whether we have to obey federal laws is determined by whether a majority of citizens in a state agree with the laws or not, there are millions of citizens living in red states who do not agree with a lot of the laws that this Administration is passing. Could what happens in Colorado and Washington set up a precedent for red states to eventually vote to reject Obamacare? If popular will can nullify international treaties, could states down the road vote to disregard UN treaties such as the UN Small Arms Treaty and could the courts rule with them? Could courts rule that since the Administration has allowed two states to openly violate federal law, they have sent a message that state laws passed by popular vote have more authority than federal laws passed by the houses of Congress and signed by the President. If the courts do eventually determine that this is the case, the outcome could be a rebellion against federal control unlike anything we have witnessed in the past. The outcome should be fascinating to watch.
Alexandra Swann is the author of No Regrets: How Homeschooling Earned me a Master's Degree at Age Sixteen and several other books. Her novel, The Planner, about an out of control, environmentally-driven federal government implementing Agenda 21, is available on Kindle and in paperback. For more information, visit her website at http://www.frontier2000.net.
