Wednesday, February 18, 2009

My Open Letter To The President

Mr. President,

In your first press conference you made several statements that caught my attention. I am very curious if these statements have teeth or if they were merely more of the empty rhetoric ‘we the people’ have come to expect from our elected officials.

Early in the press conference you said that you would do “whatever it takes” to right the economy. You made a strong case for government intervention, but that we “are still going to have to attract private capital.” As you’re no doubt aware, it is estimated that there are about $12 trillion in offshore funds[1] held by individuals and corporations; some for use in conducting business in offshore locations, some simply to avoid paying taxes on these monies. These funds are expected to grow at a rate of $800 billion per year. If taxes were taken off of the table, Alan Greenspan estimates that it would only take months for a large portion of this money to return to our economy.[2] In light of the depth of this crisis, would you consider enacting a 12 month amnesty on tax for purposes of repatriating this money?

In the campaign you talked of bi-partisanship. You’ve reached out to Republicans and even added one (briefly) to your cabinet. Yet you made it a point to hang the blame for the economic crisis on the Bush administration, even attempting to absolve yourself from any culpability. You said “When I hear that from folks who presided over a doubling of the national debt, uh, then, uh, you know, I just want them to not engage in some revisionist history. I inherited the deficit that we have right now, and the economic crisis we have right now.” I’ll be honest; this comment got my dander up. You were a sitting senator for four years working alongside people like Senator Dodd and Barney Frank. You accepted money from Fannie Mae. On both sides of the aisle there was irresponsibility that contributed to the problems we’re facing. There were missteps from the Bush administration, but there are many hands dirtied by this mess, but more on that later. You’re our president now. Another American President was famous for saying “the buck stops here.” You wanted the job, you got it, now own it. When you scapegoat and the media scapegoats on your behalf it makes you appear weak and look like a victim rather than the president of the most powerful nation on Earth. Now more than ever we need a strong leader. Please, be that leader and get past the blame game.

Next, you said that “what got us into this mess initially were the banks taking exorbitant risks based on shaky assets.” That is true…but it is a symptom of the problem, not the problem itself. It’s well known that Fannie Mae encouraged this behavior, rewarding companies like Countrywide for writing prolific numbers of subprime mortgages which were sold off bundled in securities. Given that Fannie Mae, thought to be too big to fail, pushed this economy over the edge, are you willing to take action that many economists like Steve Forbes have been advising for years and break up Fannie Mae and Freddie Mac into smaller units so no single organization has such crippling power in the future?

The final remark was this one: “so if…if you wanna get…if you wanna buy a house…then puttin’ zero down and buying a house that is probably not affordable for you in case something goes wrong…that’s something that has to be reconsidered…so, uh, we’re gonna have to change our…our bad habits.” Again, to me this is a symptom of the problem and not the cause. While there were certainly irresponsible behaviors exhibited by some people, it is hard to blame people for acting within the boundaries the system provides. It is well known that the Community Reinvestment Act of 1977 is where the housing crisis began. The Home Mortgage Disclosure Act on 1992 shined a spotlight on lending practices. Flawed studies[3] made it appear that there was racial bias in home lending; when corrected to include not just race but creditworthiness the bias disappears. However, due to the scrutiny of the raw data, and the rewards offered by Fannie Mae (mentioned above) banks and lending institutions (notably Countrywide), began loosening underwriting standards and using ‘nontraditional’ credit analysis and income sources as underwriting criteria. Zero down mortgages (you called these out in your press conference), mortgage payments well in excess of the 28 to 36% of gross income standard, dubious or non-existent employment and credit histories became commonplace. Given what we know now, are you ready to take the emphasis off of the HDMA and back on reasonable underwriting standards?

These actions – a tax holiday on repatriating offshore money to flood the market with private capital, leading rather than playing a victim of the past, breaking up the mortgage cartel, and reinforcing proper lending standards – are simple moves that cost the government (and by proxy the taxpayers) nothing but would send a bold and decisive message to both sides of the aisle that in addition to the spending programs you’re going to stabilize the basis of the economy.

Thank you for your consideration in reading this letter. If you’re able to respond, I welcome your feedback. On a personal note, I have never sent a letter to the President before. This past year, the historic nature of the election and the increasing failure of Congress to represent the people have gotten me off of the couch and involved in the process. For that, I owe you my thanks.



[3]Liebowitz, Stan J, Anatomy Of A Train Wreck, National Review October 20, 2008 pp 36-38

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