Monday, September 12, 2011

Book Review, The Housing Boom and Bust

Book Review, The Housing Boom and Bust, by Thomas Sowell. Basic Books, 2009. 148pp plus references and index.

This book is an attempt to clear up the misinformation about the causes of our current economic problems. I believe that attempt will be successful if people will actually read the book and consider the information it contains. Unfortunately too many people have spent too much time blaming whoever they don't like for that problem. That only keeps the public ignorant of the real causes thus allowing the probability of a repeat.

“There was no single, dramatic event that set this off ... A whole series of very questionable decisions by many people, in many places, over a period of years, built up the pressures that led to a sudden collapse of the housing market and of financial institutions that began to fall like dominoes as a result of investing in securities based on housing prices.” (Preface to the book)

Before we can understand the bust we must understand why we had the boom and inflated prices which set the stage for that bust. Sowell points out that the boom (and subsequent bust) were essentially local phenomena, but that new means of financing housing set the stage for the problem to explode to national and even international scope. The boom in housing prices was limited to a few areas, especially coastal California. Those places have strict laws about how land can be used. Restrictions in the name of things like livability, green space, etc. drove up the price of land and of the buildings placed on that land. That drove prices up for everyone, but the poor were especially hard hit. Blacks and Hispanics suffered more than Whites (though Whites suffered more than Orientals). The result was a statistical imbalance that led to accusations of discrimination. Meanwhile cities like Houston and Dallas lacked such restrictions and therefore did not participate in the boom. They were also less affected by the subsequent bust.

These legally-driven price increases created pressure for government to do something, a government solution to a government-created problem. Of course the solution was to attack not the root of the problem but its symptoms. If Blacks were turned down for mortgages more often than Whites, government would force lenders to reduce standards. Credit requirements were lowered, interest only loans approved, balloon mortgages issued. That did allow more minorities to obtain mortgages though the numbers who subsequently defaulted make one wonder how helpful those mortgages really were.

In addition, once the flood gates are opened you can't control where the water goes. The lower standards facilitated speculators “flipping” houses as well as the purchase of million dollar homes with “liar loans.” In addition, with inflating prices, many people started to treat their homes as ATMs, taking out second and even third mortgages. The bubble was growing.

Freddie Mac and Fannie Mae (the organizations I call the FM twins) compounded that problem by encouraging risky mortgages. There were plenty of warnings but congress, especially Barney Frank and Christopher Dodd, made sure that those institutions were not hampered in their encouragement of marginal loans. They made soundness and security secondary to what they called affordable housing goals. The Office of Federal Housing Enterprise Oversight (OFHEO, the agency charged with overseeing the FM twins) found accounting irregularities in the books. Then Barney Frank took action. He excoriated ODHEO and demanded a leadership change there.

The private sector also contributed to the growing bubble as new securities based on those risky loans hit the market. Rating agencies had no experience with such securities and ignored the risky nature of the loans behind the securities. That set the stage for those securities to spread throughout the country and even abroad and eventually create a world-wide problem.

Political pressure to provide mortgages to minorities, bad accounting at the FM twins, risky securities and other factors inflated the bubble. Price increases attracted more people to buy and to take out second mortgages. Risky loans attracted more and more people who wanted houses but lacked the financial acumen to judge the risks to themselves. As the bubble continued to inflate, it was inevitable that it would burst.

Eventually, borrowers started getting behind on payments. Foreclosures led to price collapse. The price increase had fed on itself before, now the declining prices fed on themselves. Even many who could afford their payments found their homes “under water,” they owed more than the value of the property. Some of those gave in to the temptation to just let the bank have the house. Banks, not being in the business of renting or managing houses, sold them for what they could get. Prices dropped again and the bust was on.

All those defaults cost banks, the FM twins, and buyers of the securities. That made money for mortgages less available, driving prices down farther and harming other parts of the economy. Because the securities and lenders were widely dispersed, the entire country and much of the rest of the world was affected. Money to purchase other goods was in short supply and people lost their jobs. That further depressed the economy. Mostly (but not totally of course) because of the housing crisis we still face economic problems.

Sowell's last chapter starts with the quote, “Bad ages to live through are good ages to learn from.” He indicates that we should learn from this crisis and stop government meddling in the economy. In particular we should never pressure lenders to make risky mortgages for any reason. I'm not optimistic on that score.

This is a useful book. My only criticism, and it's a big one, is that it follows the modern abomination of not footnoting references. In fact it is worse than most in that regard. The references in the back are tied only to chapter and not to page number. That makes it difficult for the reader to follow up on those references.

Thursday, August 11, 2011

Politics and Religion, Part 3 (Romney)

Let's get specific now. I've discussed some general issues of politics and religion, but let's talk about a particular candidate. Mitt Romney appears to be leading the Republican race for the presidential nomination. From what I know of him, he appears to have the makings of a good president. However his religion has already become an issue in some circles, so let's discuss that.

Full disclosure: I am of the same religion as Romney. I am inclined to support him for president, though my mind is not fully made up on that score. I like his demonstrated ability, both in business and as governor of Massachusetts. I believe he would bring some much needed improvement to the way our federal government manages its power and finances. I also believe he would appoint judges who are more in tune with the constitution than many now on the bench. He has even, both at the Salt Lake City Olympics and as governor, shown the ability to get big egos with disparate agendas to work together. However I have doubts about his commitment to limited government. There are other candidates worth a look, notably Herman Cain who is another successful businessman of great ability and commitment to the country.

Be that as it may, let's look at Romney's (and my) religion and how it might affect, or not affect, his performance as president.

First, is he committed to that religion? That is a difficult question since it is impossible to see inside the mind of anyone. However his actions would indicate that he is. Mitt Romney has spent uncounted hours doing unpaid work for his church, first as a missionary in France, then in various positions up to and including stake president. That last is equivalent of running a diocese in other churches – except he had to do it while holding down a full-time job elsewhere. Also, there is not even a hint of scandal in his background, no indication at all that he does not live the teachings of his church.

That said, is there anything in his church's teaching that should concern us? For example, would he try to impose his religion on the country? The answer is “no,” loud and clear. In fact one of the central beliefs of “Mormonism” is that it is against God's will to force anyone into any religion. “We claim the privilege of worshiping Almighty God according to the dictates of our own conscience, and allow all men the same privilege, let them worship how, where, or what they may.” (LDS Article of Faith 11) Se also the LDS Doctrine and Covenants, 134:7, “We believe that rulers, states, and governments have a right, and are bound to enact laws for the protection of all citizens in the free exercise of their religious belief; but we do not believe that they have a right in justice to deprive citizens of this privilege, or proscribe them in their opinions, so long as a regard and reverence are shown to the laws and such religious opinions do not justify sedition nor conspiracy.”

There is clearly no indication that Romney (or any other committed member of his church) would use government to force religion on anyone.

There is, however, one LDS (Mormon) teaching that bears strongly on how I hope Romney would govern. The church teaches that the Constitution is inspired.* (See Doctrine and Covenants 101:77-80, and 109:54). We have every reason to hope that Romney, if elected, will follow that constitution.

Finally, there is a charge by some that the LDS are not Christian. That accusation lacks foundation in fact. While it has some differences with mainstream Christianity, the Church is centered on Jesus Christ as the savior of mankind and the only way we can reach any form of salvation. Even a modest perusal of LDS scripture shows the centrality of Jesus' atoning sacrifice. Even if Christian belief were a requirement for office, Romney meets that requirement.

In short, Romney's religion is no reason vote against him, and provides some reason to vote for him. It is of course not the only factor to consider, but it should not be an impediment.

*Note however that “inspired” does not mean perfect. For example the Constitution initially allowed slavery, something repugnant to not only all right-thinking persons but to LDS scripture and belief. In fact the most severe persecution the Church faced was in Missouri, largely because most of its members did not like slavery.

Tuesday, August 9, 2011

Politics and Religion, Part 2

“no religious test shall ever be required as a qualification to any office or public trust under the United States.”

Here we have another misunderstood part of the constitution. Some would have this apply to voters. They seem to believe it should prohibit voters from considering religion when deciding for whom to vote. They claim that, for example, a Muslim's religion should not be considered in deciding for whom to vote. A little thought puts the lie to that contention. If we look at that statement in context we see that the whole paragraph says,

“The Senators and Representatives before mentioned, and the Members of the several State Legislatures, and all executive and judicial Officers, both of the United States and of the several States, shall be bound by Oath or Affirmation, to support this Constitution; but no religious Test shall ever be required as a Qualification to any Office or public Trust under the United States.”

That statement is in the context of restriction on government, not on the people. It requires support of the constitution manifested by oath or affirmation. It places demands on government officials but none on citizens. If a citizen wants to support or oppose a candidate because of his religion, he has that right. Indeed it would only make sense that we refuse to vote for someone if we suspect that his religion would prohibit full support of the constitution.

I say this knowing that two members of my own church are running for president, and that some religious groups oppose them on that basis. That opposition is misguided on many levels, but does it violate the constitution? No it does not. Those opponents have a right to vote based on whatever criteria they deem important. If they think baldness disqualifies a candidate they have that right. If they think presidents should hold certain beliefs, they have that right also. Likewise they have a right to vote for or against someone based on religious belief.

We all tend to trust people similar to us more than those who are different. That leads to erroneous belief, but again we have that right.

I would hope that people would cast their votes based on appropriate criteria and after carefully considering which candidates meet those criteria. I do not believe that, in most cases, religious belief would be part of those appropriate criteria. (A religion that teaches contrary to our constitution would be the exception.) However voters have a right to decide which criteria they want to use, so we cannot prohibit consideration of any aspect they deem important.

Monday, August 8, 2011

Politics and Religion, Part 1

“Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; ...”

With those often misunderstood words, our constitution places restrictions on government and how it deals with religion. Contrary to what many seem to think, they impose no restrictions on religion or on voters. In fact the first amendment goes on to prohibit any restrictions on freedom of speech or the press – with no exception for religious speech or press. Everyone can speak freely and print freely, regardless of motivation. The constitutional restrictions are one-way. Government is restricted; churches and religion are not.

If any organization wants to take a political stand, it has a constitutional right to do so – and that is true whether that organization is a PTA, a business organization, or a church. They all have the same rights. Of course we can question the wisdom of any organization taking such a stand, but that is a different matter from the right to do so. If wisdom were required as a condition for speaking, our world would be a much quieter place.

Anyone has a right to speak, and the constitution does not question the motivation for that speech. That motivation may be altruistic or selfish, religious or secular but the right is still there. That right has been exercises repeatedly throughout our history.

Historically religion has been at the forefront of many changes in this country, from the abolition of slavery to the civil rights movement. Churches inspired many to consider the inequity of holding other humans as chattel. Likewise many churches motivated people to fight against segregation and other forms of race-based discrimination. They had, and still have, that right. And in keeping with the idea of free speech they have the right to speak for other viewpoints as well.

Many today decry the “religious right,” implying that religious organizations have no right to speak about politics. Ironically, many of those same people are all for it when churches speak out in favor of tax-funded welfare, sanctuary for illegal aliens, or the discrimination known as affirmative action. If churches have a right to speak in favor of tax-funded welfare, they also have a right to speak against it. If they have a right to speak in favor of affirmative action, they also have a right to speak in favor of limited government.

There is no constitutional basis for restricting speech or the press. Church representatives have the same free speech rights as anyone else.

Nor does the first amendment prohibit citizens from considering religious values when casting their votes or in other political decisions. If a citizen opposes gambling, abortion, or anything else he has a right to do so. That right remains regardless of the reason for his politics. I'll discuss that further in my next blog.

Wednesday, June 15, 2011


What should we think of politicians who cheat on their wives, people like Anthony Weiner, Newt Gingrich, Mark Sanford, orJohn Edwards?

Years ago I saw a quiz intended to measure people's attitudes toward some work issues and help them understand the importance of having the correct attitudes. One question asked, “If you found out that your boss was having an extramarital affair, would you think less of him as a boss?” The “right” answer was that no, that should not change how you regard him. Supposedly his personal life had nothing to do with his work life.

That “right” answer is nonsense.

To believe that a person can have high integrity at work while lacking integrity in personal life is to believe that the person is split into two different characters. It just doesn't happen. If someone cheats his spouse and not his employer there is a simple reason: at present he finds it attractive, convenient, and of acceptable risk to cheat on his spouse but not on his employer. What will happen when he finds it attractive, convenient, and of acceptable risk to cheat his employer? You don't have to be a rocket scientist to answer that question.

Integrity means honesty regardless of convenience or consequences. The person who is honest only when honesty is convenient or dishonesty dangerous lacks integrity. When the situation changes, he will cheat. That is true in family life, in business, and in government.

Anthony Weiner is only the latest congressman to get caught in a sexual scandal. However his power is being reduced by his own party. Of greater concern right now is Gingrich who wants to be president. Here is a man who cheated on two wives, divorcing both when they developed health problems. He made vows with those women, then flagrantly violated those vows. Can we trust him to keep any promise to the American people? What will he do when he finds it convenient or low risk to break promises to us?

Gingrich talks of Christian forgiveness. As a Christian I believe in repentance and forgiveness, but that is not the issue. In fact I am in no position to forgive him because he has not wronged me. His ex-wives and his children are the people who must deal with that. For me the issue is trust; and trust is not something we just give away; it must be earned. In fact while the scriptures repeatedly command us to forgive, I do not know of any scriptural admonition to trust the offender. Jesus instructed his disciples to be “wise as serpents.” Surely such wisdom would include care in whom we decide to trust.

Be it in our romantic lives, business or politics we must require that people be trustworthy. That integrity should be manifest by actions, not words. The husband or boyfriend who promises to change, then beats the woman in his life, lacks integrity and should be rejected. The politician who fails to demonstrate integrity by his actions should likewise be rejected.

How do we determine whom to trust? We have to start with small things and observe their actions. The man who demonstrates honesty and courtesy over months of dating will likely continue to show those characteristics in marriage. The politician who demonstrates integrity in personal life and while serving in local and state offices will likely continue to demonstrate integrity in higher office.

In all areas of life we should look for integrity in those we trust. That integrity should be demonstrated by actions over time.

Friday, May 13, 2011

Book Review, A Mormon in the White House

Book Review, A Mormon in the White House, 10 things Every American Should Know about Mitt Romney by Hugh Hewitt, 287PP plus index, Regnery Publishing, Inc.. 2007.

Though this book was written specifically for the 2008 presidential election, it is likely to be at least as applicable in 2012. Not only is Romney almost certainly running again but John Huntsman is also likely to run. That could make two Mormons (Latter-day Saints, or LDS) trying for the presidency. However this book is specifically aimed at Romney and as such only part of it will be applicable to Huntsman should he run. In fact most of the book is not about religion at all, rather it is about Romney's life, business, qualifications, etc. Only one chapter an the appendix are specifically about religious issues, though that one chapter is the longest in the book. There are also some religious items scattered through the rest of the book.

Part of the book is obsolete in that Hewitt discusses specific opponents Romney was facing, especially John McCain. It is also interesting that Hewitt assumed that Hillary Clinton would be the democratic nominee with Obama as the likely vice presidential candidate. He also almost totally ignores Mike Huckabee who probably did more than any other candidate to block Romney's road to the nomination. Of course that is all in the past and most of the book is still applicable today.

Section I is an introduction to Mitt Romney, including his family background, education, and business successes. Those business successes are considerable, to the point that Hewitt claims that Romney would be by far the wealthiest president in our history if he is elected. Bain and Company, the consulting firm that was his employer for many years, and Bain Capital, which he founded, have both been very profitable. Interestingly, after he founded his own company, his former employer got into financial difficulty Romney returned and turned that around.

The “Bain Way” is interesting and shows how Romney would be likely to govern. It consists of hiring the best possible people, then analyzing every problem from every possible direction as well as getting input from all who can provide information or who have a stake in the problem. Only after that is done do they make a decision. The Bain consultants would do this with companies they worked for, with great results. Romney's own company did it as well, buying up poorly performing companies and applying that method to improve their performance. That is likely how he would work as president and it's a rather good technique.

Of course Romney's most famous turnaround success was the Salt Lake City Olympics. Though not on the scale of the federal government, many of the problems were similar in that multiple stake-holders, nearly all with big egos and turf to protect, had to work together for the Olympics to come off even marginally well. The success was not marginal, it was resounding.

The final chapter in Section I is about his family. Ann Romney appears to be nearly the ideal candidate's wife and prospective first lady, though she does have MS. Their five boys have all grown into the kind of men any parent would be proud of. In fact the biggest, probably the only, criticism about the family is that “they are too perfect.”

Section II discusses Romney's beliefs and public sector accomplishments. The fact is that Romney was governor of the bluest of blue states but remained socially and fiscally conservative, as well as fighting mismanagement of things like the “Big Dig.” He vetoed bills that would have made abortion easier, and fought against the court-mandated homosexual marriages. Though earlier in his life he was not as pro-life as many would wish, his change to being solidly pro-life seems to be genuine.

As governor, Romney “went into full Bain mode,” reaching out and hiring the best people he could get. He then encountered a current budget shortfall of $600 million with a projected $300 billion shortfall for the next fiscal year. He balanced budgets for both years without raising taxes. Though many (myself included) are concerned about the health care mandate passed during his administration, it probably was an improvement over the previous situation in the state.

Most importantly, as governor Romney appointed six judges to the court of appeals and his appointments probably give an indication of what he would look for in federal judges. Those appointments, and his statements on what a judge should do, indicate that he is likely to seek judges, not robe-clad legislators. He will probably appoint federal judges who believe in the constitution and in their inherent limitations as judges.

Section III talks about the campaign ahead . That was the campaign in 2008, a campaign now behind us but there are likely to be similarities in 2012. Romney has some real advantages with his record as a successful entrepreneur and governor. There is not a hint of scandal on his record. In addition, though the LDS church will stay out of any campaign, it is clear that many members will support him, often with great enthusiasm. And many of those church members are experienced at public speaking and dealing with people, the result of their missionary work. They have the skill sets required of effective political volunteers and the volunteer ethic that makes it likely they will in fact work for their favorite.

Perhaps Romney's biggest non-religious disadvantage is that he is “too perfect” and will trigger envy as an attack ad. He has been called “a little too smooth.” Envy may also aim at his wealth, estimated at between $500 million and a billion. He also did not serve in the military though that is likely to be less of a problem in 2012 than it was running against McCain in 2008.

On the religion question, Hewitt lists three potential problems: First, will church leaders give orders if he is elected? He concludes that there is no way that would happen. Second, Mormonism is “just too weird. The conclusion is that all religions look weird from the outside and that should not be an issue. Thirdly, many Evangelicals may fear that such would legitimize “Mormonism.” However neither Hewitt nor the scholars interviewed in the appendix believe that would happen. In fact the appendix is an interview with two scholars from Biola University. Neither of those men would object to voting for an LDS on religious grounds though both oppose the LDS church doctrine.

Hewitt and others also point out that if other Christians make Romney's religion an issue they are loading a gun likely to be aimed at them in the future. The main-stream media elites tend to be suspicious of all religion, as do many in the Democratic party. They have mostly felt restrained from making overtly religious attacks in the political arena. However should one religion attack another to prevent someone being elected, all restraint will be removed. We could expect anyone committed to his religion to face a maelstrom of criticism should he run for office.

All in all, this is a worthwhile book, providing a lot of information about a possible next president.

Wednesday, March 16, 2011

Nuclear Energy and Earthquakes

As pretty much everyone knows, the earthquake and tsunami in Japan has created serious problems with several of their nuclear reactors. Naturally people are wondering if this means that nuclear energy is unsafe. Of course the situation remains fluid and the answers are not yet in. However we can say some things for certain.

First, of course neither nuclear energy nor anything else is 100% safe. You could die in your back yard from a lightening strike, a heart attack, or even a meteor strike. Asking for total safety is the wrong question. The right question is if nuclear safety is safe compared to other sources. So far the answer seems to be that it is. The number of people killed by electricity producing nuclear reactors is miniscule compared to those killed by other problems. In fact the number of Japanese killed by that quake and tsunami far exceeds what the reactor problems are likely to cause.

Second, 'nuclear' is a witch word, a word that tends to end rational discussion. (cf All too many people react emotionally rather than rationally to the term. If we are to decide wisely about the future of nuclear energy we will have to overcome that problem and think about not only the dangers and benefits of nuclear reactors but about the dangers and benefits of not using it. This is back to the question of alpha vs. beta risk that I've discussed previously. (

Third, if we continue to use nuclear reactors we must learn from the past. If news reports are correct, General Electric ignored some of the recommendations of its own engineers who thought that reactor model was unsafe. The dispute was so severe that the engineers resigned. Also, the Japanese put those reactors within reach of a tsunami knowing that they live on the Pacific Ring of Fire, and area of extreme earthquake danger. Clearly that is not the place for a nuclear reactor.

So what is the upshot of all this? My conclusions are:

1. We should re-examine the nuclear program to see where improvements can be made.

2. We probably should continue developing nuclear energy, using reactors improved by what we have learned. Not to do so would leave us a choice of more fossil fuel burning or going back to the pre-industrial age when people died from lack of food, clean water, or shelter. The dangers from that almost certainly exceed the danger from a well-run nuclear program.

3. We should continue looking at other energy sources. Wind, solar and similar new sources are not yet ready to displace fossil fuels but we should continue research.

4. If we continue a nuclear program (which I suspect we should), we must require that such facilities be located away from known faults and where tsunamis and other known hazards cannot reach them. We must also require use of the best safety measures reasonably available.

And of course we can all do our part to help the people in Japan. They will need help for a long time.