Saturday, February 28, 2009

Obama’s Iraq and Afghanistan War

I am reassured by President Obama’s announced policy on Iraq and Afghanistan. I have no way of knowing weather we ought to get out or Iraq in 16 months or 19 months or 23 months. I have no way of knowing the size of the ideal residual force to leave behind. Nevertheless, based on what I think I know, I find Obama’s policy on both Iraq and Afghanistan reasonable and reassuring.

I was opposed to the invasion of Iraq from the very first. I always thought it was a rush to war that could have been avoided. The fact that there were no weapons of mass destruction seems to validate that the war was unnecessary. The attempt to tie Iraq to the 9-11 attack on America was deceptive. It certainly appears, as has been alleged, that George W. Bush was determined to invade Iraq from the time he was first elected and nothing was going to deter him from that decision. While I was opposed to going to war in Iraq, it also seemed to me that we were withdrawing from Afghanistan before the job was finished.

Despite being opposed to the initial invasion of Iraq, I did not think we could just pull out once we were in. Our invasion created chaos and instability and a withdrawal without creating a measure of stability could have led to a bloodbath, an expanded regional war involving several nations, and a strengthened Iran. Thankfully the surge, which Obama opposed, was a success and made a responsible withdrawal possible.

Obama’s current policy on Iraq is essentially a continuation of the Bush policy. Under the Status of Forces agreement Bush negotiated with the Iraqi government, all US troops will be out of Iraq by 2012. If McCain had been elected we would not have waited until the last minute to withdraw all of our troops, so a staged withdrawal under McCain would probably not look much different than what we are getting under Obama. Leaving up to 50,000 troops behind is not a complete withdrawal anyway. 50,000 troops is a still a lot of troops.

On the campaign trail, Obama repeatedly promised a withdrawal within 16 months and did not mention that that withdrawal excluded 50,000 troops. I am pleased that he is acting responsibly when it comes to national security and not honoring an irresponsible campaign promise. Despite Obama’s campaign pledge, he never was the most anti-war of the Democrats. He was much less pacifist than either Dennis Kucinich or Bill Richardson, who tried to outdo each other in their pledge to quickly exit Iraq. For those who voted for Obama, they had other choices if an immediate withdrawal form Iraq was their primary concern.

As soon as Obama had the Democratic nomination secured, he started moderating his campaign pledge of a quick withdrawal and started talking about acting in consultation with the commanders in the field and evaluating the situation in Iraq. As the candidate of the Party, he sounded more reasonable than as a candidate for the nomination. Now, as President, on national security matters he sounds not that much different from his opponent John McCain.

I fear that Afghanistan may prove a difficult war that drags on for a very long time. Nevertheless, I think we are doing the right thing. I hope we have benchmarks for achieving progress in Afghanistan and I hope we have clear objectives. I hope we have an exit strategy. I hope we have a good estimate of the cost of this war and do not have unrealistic expectation. I wish Obama would present a more detailed plan for Afghanistan and hopefully he will.

I suspect that if McCain was President and had announced he would leave a residual force of 50000 troops in Iraq and was sending more troops to Afghanistan that the anti-war crowd would be in the streets in massive numbers. Obama has such strong support among the electorate that hopefully the anti-war crowd will not gain traction and derail his announced policy on Iraq and Afghanistan. Hopefully the anti-war crowd has been marginalized and most of those who would normally be in that camp have been co-opted by Obama.

Today the cult of Obama is so strong and he has so much political capital that he can lead the American people anywhere he wants to take them. When flag-draped coffins start coming back from the war in Afghanistan however, I wonder how long the anti-war left will stay in his camp. I suspect that if things do not go well in Afghanistan that many of those who celebrated his victory will turn against him. I hope Obama has the strength of character to put America’s national security interest first even when the going gets tough and people are no longer cheering but are booing.

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Wednesday, February 25, 2009

The housing crisis: I saw it coming.

To tell you the truth, two years ago I didn’t know the difference between a credit default swap and a collateralized debt instrument, but I knew a housing crisis was brewing. I did not know how widespread it would be or the impact it would have on the rest of the economy, but I knew something was terribly wrong.

I have been Director of Housing Services for a non-profit housing counseling agency for the last sixteen years. For most of this time our primary housing service has been providing prior-to-purchase, housing counseling. We provide two types. We offer single session, eight-hour housing workshops, which we call “Fast-track." We also offer in-depth, long-term counseling, which we call “Homebuyers Club.”

Fast Track is for people who are already eligible for a home mortgage. People are often motivated to take the class because it is required in order to be eligible for certain down-payment assistance programs or preferential interest rate programs. In an eight hour class the client learns all they need to know about working with a realtor; getting a good mortgage; protecting their investment; purchasing homeowners insurance; getting a home inspection; down payment assistance programs; and closing on their home.

Our Homebuyers Cub program is quite different. It is for people who have serious obstacles to homeownership. While clients learn the same things as participants in the Fast Track, the focus is on getting people ready to get a mortgage. Most of the clients in our Homebuyers Club are single mothers. Most are African American. Most are low income. Clients attend class for an hour and a half, once a month, for a year. Many clients are still not ready after a year and they re-enroll and stay in class. For many of our clients it takes two or three years before they are ready to purchase a home.

In a Homebuyers Club, we not only teach the mechanics of home buying but, more importantly, we change people’s values and habits. We teach the virtue of delayed gratification. We teach people how to clean up their credit and improve their credit score. We encourage people to get a checking account and to stop using check-cashing services. We teach money management skills and encourage savings.

Many times, after being in a Homebuyers Club for a while a Club member may decide that, rather than pursuing homeownership at this time, they are better off getting their GED or skills or training that will enhance their potential to earn more money, and then at a later time try to become homeowners. Many participants in our Homebuyers Club never buy a house while in our program but make other positive changes that will improve their lives. While the primary measure of success in this program is the number of people who actually become homeowners, the number of people who improve their lives, yet do not become homeowners, is a greater number. I have always felt like we helped a lot more people than simply the number of people who became homeowners. Since the start of our Homebuyers Club we have had over 735 people become homeowners. Unfortunately, not many of these successes occurred in the past three years.

At one time we had sixteen Homebuyers Clubs and average attendance in each club was about twelve. Now we have four clubs and attendance is only about six per club. About three to four years ago attendance started dropping in our clubs, and when we offered new clubs we had few takers.

Managing a Homebuyers Club requires providing a lot of encouragement to participants. Clients can easily get discouraged. Prior to a meeting, clients get a reminder call and a reminder post card. If a client misses a couple meetings, we try to reach them to find out why they have not been attending.

It was about three years ago that I noticed a disturbing trend. I would call a client and the conversation would go like this: “I noticed you missed the last couple of Homebuyers Club meetings and I just wanted to see what was going on.”

“Mr. Rod,” the client would say excitedly, “I have good news. I bought a house.”

I would immediately have a sinking feeling in my stomach. I knew the client was not mortgage-ready. “Great!” I would say. “Tell me about it.”

The client would start describing her new home. Then I would say, “Tell me about the financing. What kind of loan did you get?”

More often than not, the client did not know. I would ask the client to bring in her mortgage papers for review. What I would find is that our clients were getting terrible loans. They would buy their homes with no money down. They often were getting 80/20 loans with the 80% loan a hybrid adjustable, with a low teaser rate fixed for three years and then adjusting every six months thereafter. These loans had high margins and payments that would adjust steeply after the end of the fixed period. The 20% loan was often fixed but with very high interest rates of 12% to 22%.

Most often the clients had no idea what they had gotten themselves into. If they would have just stuck with our program, they could have gotten a FHA fixed loan but they did not. The temptation to do it the easy way was just too great. Also, the clients were often misled and told they could refinance before the loan reset. They were told this as if it was almost automatic. They were not told that they would have to meet income and debt and credit standards in order to refinance their loan. It was presented as something they could do almost automatically.

After a while the problem was not that our clients were dropping out of our program and getting bad loans, they were never enrolling in the first place. They no longer needed us and the discipline our program required. With “creative financing” they could buy a house without saving any money or changing their habits. They could get a loan without becoming responsible. Income and credit were not necessary. Knowing the clients I was serving, I was shocked that anyone would give these clients a loan in their current circumstances.

I saw this crisis coming. It was like watching a train on a collision course; I knew without a doubt that many of these clients were going to default.

I still believe in the goal of helping poor people become homeowners. If done the right way it permanently helps people escape terrible environments. It causes people to be more responsible. It builds wealth. It lifts people out of poverty for generations to come. It changes lives. Helping low-income people climb out of poverty is good for society and is the right thing to do.

If done the right way, low-income people can be given assistance to help them become responsible homeowners and it does not have to lead to foreclosures. Handing out mortgages to undeserving people, however, who have not leaned new skills, behaviors, and values can be detrimental to society and it betrays poor people in the process.

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Monday, February 23, 2009

The Crisis of Credit Visualized

by Jonathan Jarvis


This animation does good job of illustrating the role of CDOs, credit default swaps and leverage in causing the current economic crisis. I find that many on the right want to blame the crisis on the Community Reinvestment Act and the push to expand homeownership and those on the left want to blame deregulation. The problem is more complex than either simple answer. This animation helps explain the complexity of what led to the current crisis.

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Sunday, February 22, 2009

Huge payout for UT president would be a disgrace

by Gail Kerr, The Tennessean, Feb. 22, 2009

Recent presidents of the University of Tennessee have not been very good to our state. But the state sure has been good to them.

The last three presidents have all resigned under fire. The most recent is UT President John Petersen, who unexpectedly announced he was quitting last week. Even though he did not have a contract, he is eligible to receive 16 months of pay for doing nothing. That amounts to more than half a million dollars, to hang out at home. (link)


This is a great editorial from Gail Kerr. She details the history of our pevious UT presidents who also were fired or forced out and how they also got golden parachutes.

As Gail says, "Giving John Petersen almost 16 months of pay to do nothing is shameful. It is an insult to every hard-working Tennessee taxpayer who is struggling to make ends meet right now."

Gail: Congratulation on this article. Please do not let this issue die. Hold the feet of the UT trustees to the fire. Call for their resignation. Make the candidates for Govenor take a stand on this issue.

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