Again, It’s The Government

I want all the AIG bonuses paid, all $165 million of them. Congress, you see, just can’t seem to properly manage anything, other than managing blame-games when their own policies have caused unexpected circumstances. Back to the old, “It’s not my fault” routine. Hmm. Someone wrote a book along those lines.
So pay out those bonuses, even to the AIG employees working in the division that brought AIG to its knees. I do not want special taxes on the bonuses. I do not want any sort of government intervention. The government has already intervened too much. I admit I was as queasy as the rest of you over this news of these bonuses, then I did what I always do. I sat down and thought about the facts of the matter, trying to take my emotions out of the equation.
Now that the topic is out of the way, please just hear me out. It’s extremely rare that I do bullet points in articles, but there is so much wrong on this topic that I decided it would be much easier for any reader of the article if I use bullet points in this case. The bullet points won’t follow a timeline, because most of it is concurrent. Almost all of it was this week, with the blame flying from one place to another.

Background:

• The first AIG bailout, in fall 2008, came with very few strings attached. It was done in the form of a secured loan, the loan being collateralized by all AIG assets. The loan was $85 billion and allowed the US government to take an 80% equity interest in the company, which allowed veto of dividend payments.
• AIG has now received $170 billion dollars in bailout money, $30 billion of that coming as recently as the beginning of this month. Apparently, no one in the US Congress was aware of the potential “chaos” that was just down the road. Now that the non-chaos is upon us, those in Congress are trying to figure out how to “fix” it.
• Congress would not have cared the least bit about this if it hadn’t come out in mainstream news. Now they have to seem to be as outraged as the public the mainstream news is trying to incite anger in by pointing out more injustice in the world. Had the news been relayed only to members of Congress, most of them would have just given a puzzled look to the messenger and said, “And how is that important to me? It’s only $165 million.”
• AIG is under contractual obligation to pay the bonuses, or “retention payments.” These contracts were entered into before AIG fell apart. Unless the contracts are declared legally invalid at the time they were executed, or the employee did something illegal to fulfill the terms of the contract, those contracts are legally binding.
• Had AIG withheld the retention payments, which were paid last week, they would have been in violation of any legal contracts. That, of course, results in lawsuits, most likely a class action lawsuit in this case, due to the number or affected employees. That results in the lawsuit being won by the class, plus the legal fees AIG incurs defending it, plus the likelihood of the class being awarded reimbursement for legal fees. Taxpayers, now owning 80% of AIG, are on the hook once again.
• Congress had a chance to stop this if they wished. They instead chose to include an amendment in the recent stimulus bill that stated that any “contractually obligated bonuses [to entities that received bailout funds] agreed on or before Feb. 11, 2009,” would be excluded from executive pay provisions. Can we say, again, “Hey, AIG had some of those contracts!”
• The Senate dropped an amendment to the stimulus bill that would have required companies paying more than $100,000 in bonuses to either be subjected to a 35% excise tax, or to return the bailout funds.

Current happenings:

• What a mess. Now the public knows that AIG is complying with contractual obligations they were told to go ahead and comply with, and the public is infuriated. “The government must do something!” But the government already did do “something.” It just didn’t work out so well, as with most things the government does. Most of the people who are incensed over this don’t even realize that this is pocket change that will not have any effect on them, their children, or their grandchildren. They’re choosing to single out the “small change” indignities, rather than looking at the overall picture.
• Congress has to do “something.” They just can’t figure out what. The contracts were already in place, and Congress agreed the contracts should be honored, so what to do now? How to recover?
• One proposal is to tax the bonuses at 100%, negating them. Mr. Harry Reid has said about this, “Remember, we, as a Congress, are not defenseless. We can also do things.” They can obviously do a lot of “things.” Their “things” are what keep causing these messes. Do we really want Congress legislating something after the fact to take care of something they didn’t think of at the time, or that they want at that point in time? Do we want to live in a society where Senator Chuck Schumer can say that, if we don’t do it ourselves, they will force it upon us?
• How is any potential legislation to “recover” this money emergency legislation? Is there anything in this administration that isn’t an emergency, and that doesn’t have to be forced through Congress so quickly that the public, much less the members of Congress who are voting on it, don’t even have time to read it? Why wasn’t funding for a speed-reading course for all members of Congress included in the stimulus or the budget bill? Do we need a, “No Politician Left Behind” bill added to the appropriations for education funding?
• Another proposal is to undo the contracts, but that one isn’t viable. The government can’t undo contracts between private parties unless the terms of the contract are illegal. No, wait. Sorry about that. They apparently can. I just remembered that they recently gave the authority to judges hearing bankruptcy cases the authority to alter mortgage agreements. Maybe this is just a new trend of hope and change.
• At least some part of the bonuses was apparently paid out to foreign nationals, who aren’t subject to US taxes. I haven’t yet been able to verify that, but if it’s true, that money would be difficult, if not impossible, to recover.

The bulleted list is done now, and for any of you who haven’t fallen asleep yet, I’ll leave you with a few things now.

I received while I was writing this article an e-mail from Bob Casey’s office that addresses this issue. In the video, he said, “the American people have provided them help.” Excuse me? The only way I provided them help was through bad decisions of US Congress. No one solicited my opinion, and they didn’t listen when I objected.

He says they (AIG) “came to the American people.” I’ve never talked to anyone from AIG. He also says, “the American people gave them $170 billion dollars.” Sorry, Mr. Casey. I didn’t co-sign that note; YOU did.

I don’t know how Mr. Casey typically presents himself on video. I don’t remember ever having seen video of him before, but in this particular one, he doesn’t seem particularly lucid. I won’t speculate on that. If there was a reason for his lack of lucidity, whatever it was, I can understand it. If I were in the position of trying to defend this, I’d need to be as distracted as he seemed to be. I’d also need the teleprompter he was obviously using, but that seems to be the vogue thing to do now anyway.

So, for those who have been patient in your reading, I said all that to say this: I have a reasonable solution to this whole mess. It’s one that hasn’t been proposed by any much greater minds than mine, at least not as far as I’ve heard on the radio, television, or the Internet news. (Please correct me if I’m wrong here.)

The solution in this particular case is to take a brief break from the four-year holiday that I’ve decided to term “Hopey Changemas,” partly in honor of the brilliant author Mark Steyn. If we take a temporary holiday break, we can get back to the simple idea of responsibility, whether it’s personal or group responsibility, rather than avoiding responsibility, and the whole mess can be put aside quickly and easily.

There were 246 representatives and 60 senators who voted for the bill that excluded bonuses to companies that had received bailout funds. That works out to slightly more than half a million dollars each, so why not spread the debt among them, and let them pay it back?

It can’t be forced with lawsuits, due to sovereign immunity laws. (That means you can’t be sued unless you choose to allow yourself to be sued.) However, the involved parties in Congress want justice, and honorable actions, so why not choose to be just and honorable, admit they made a mistake in oversight if in nothing else, and willingly pay it off themselves?

That would show honor, and dignity, and allow us to cling to a hope that they do still have some of both.

Gina Breckenridge is the PACC’s newsletter editor.

The Wrong Choice For Solicitor General

by Tom Chambers
Letter to the Editor in the Daily Local

In July 2007, I wrote a Letter to the Editor that was subsequently published regarding Education institutions and the military. The purpose of my letter was to address the problem regarding the banning of ROTC programs and military recruiting on college campuses, particularly including many of our more elite universities including Harvard, Yale, Columbia, Stanford, Brown, Dartmouth, etc. Quoting further from this letter: The disdain shown the military on many campuses by the banning of ROTC programs over the past decades is well documented, and the military’s recruiting efforts have fared no better.

Now in 2009, there is the potential that a nominee for the position of U.S. solicitor general, Elena Kagan, a Harvard Law School dean, may be appointed by President Obama and, if so, it would be a travesty for all who believe in and support our military.

Dean Kagan has called military recruiting “discriminatory,” “deeply wrong,” “unwise,” and “unjust.” This nominee for solicitor general believes the military should be banned from campus. Kagan fought all the way to the U.S. Supreme Court to invalidate a federal law known as the Solomon Amendment, denying qualified students the opportunity to serve our country and infringing upon their constitutional rights.

For those not familiar with the Solomon Amendment, this law was passed in 1995 and signed by former President Clinton and, in essence, denies schools that bar military recruiters from campus any funds from the Department of Defense. The following year in 1996, Congress extended the law’s reach to include funds from the Departments of Education, Labor and Health & Human Services.

In 2002, the Solomon Amendment was strengthened further by interpreting it to require revocation of federal grants to an entire university’s subdivisions (its law school, for example). In 2005, Congress amended the law to explicitly state that “military recruiters must be given equal access to that provided other recruiters.

Believe it or not, and you can believe it because it is a fact, this possible appointee to the critical position of U.S. solicitor general, Elena Kagan, stood at the forefront of the fight against the Solomon Amendment. Kagan filed amicus briefs with the Third Circuit Court and the U.S. Supreme Court to try to justify institutional discrimination against the military. Fortunately, the U.S. Supreme Court unanimously struck down this argument. The court stated that the Solomon Amendment gives universities a choice: either allow military recruiters the same access to students afforded any other recruiter or forgo certain federal funds.

The question is – how can anyone with the established anti-military record of Kagan, a nominee who was labeled by the Washington Times as an “anti-military zealot,” be considered for such an important post as U.S. solicitor general? And since it is the primary responsibility of the U.S. solicitor general to see that the laws of the United States are enforced, how could Dean Kagan serve in this capacity when it comes to defending a law, the Solomon Amendment that she thinks is immoral and says she doesn’t believe in?

As a candidate for president, Barack Obama, in his remarks at the Service Nation Presidential Forum, Columbia University, Sept. 11, 2008, stated that the notion that young people anywhere, in any university, aren’t offered the choice, the option of participating in military service, I think is a mistake. Agreed.

And if Elena Kagan is eventually appointed as our U.S. solicitor general, it will be a huge mistake! It is hoped that Kagan’s appointment will never see the light of day. God bless our military for all their sacrifices on our behalf!

The Necessity for Action

by Rep. Samuel E. Rohrer, PA-128th District

The danger of being number 10 is that no one really knows who you are. George Washington was our first president; but how many can name number 10 off the top of their head? And Sir Edmund Hillary was the first person to climb Everest, but does anyone know who the tenth person was to reach the summit?

And then consider our amendments to the United States Constitution: most of us know the 1st Amendment verbatim, but do you know what the Tenth Amendment says?

“The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.”

Sometimes thought of as an afterthought, to “sweep up” anything the Founders may have forgotten, the 10th Amendment today is taking on monumental importance as increasing federal intrusion into state affairs threatens to completely destroy the balance between state and federal power.

In the Federalist Papers, authors Jay, Madison, and Hamilton labored to convince a monarch-shy colonial population that they needed a strong government to preserve a free, cohesive nation. The authors took pains to outline how the Constitutional structure of the government would prohibit the federal government from becoming big enough to overwhelm the powers of both the states and the democratic process. The 10th Amendment was foundational to this system of checks and balances, constitutionally restricting the federal government to covering issues related to commerce, national defense, the postal system, and the like.

“Power begets power,” though, as the saying goes, and the federal government slowly began expanding its powers. One of the most effective and insidious ways that the federal government has taken over control of state affairs is by first passing a mandate and then offering federal money to states with significant strings attached.

Whether the issue is welfare, Real ID, No Child Left Behind, or health insurance programs, tantalizing packages have been dangled in front of state governors and legislators, promising to stop the budget gap or expand a politically successful program. States have taken the money, and over time, the requirements and restrictions on those state funds have slowly but surely changed the direction of state policy.

Instead of developing programs to fit the needs of state citizens and altering them to best use the state resources, programs are instead clumsily built around the federal funding requirements, so the state does not lose a single available dollar. This significant paradigm shift should be a wake-up call to every citizen not only in Pennsylvania, but also across the nation.

Therefore, because the Supreme Court allowed the federal government to offer funds on conditions, states have subjected themselves to Washington. This submission completely distorts the checks and balances inherent in our Constitution, and enshrined in the 10th Amendment.

In order to raise awareness of this improper delegation of power, I have joined with representatives, senators, Democrats, and Republicans from over 30 states and introduced a resolution into the Pennsylvania General Assembly that reaffirms Pennsylvaniaâ?™s constitutional powers under the 10th Amendment. This 10th Amendment Resolution (House Resolution 95) is little more than a restatement of the last amendment to the Bill of Rights, reminding state legislatures that the federal government must no longer be allowed to commandeer our rightful authority.

As difficult as it is to believe someone could oppose a resolution as plain as reaffirming a basic tenet of our Constitution, sadly, opposition is too often the case in our state legislatures. This issue, however, is gaining traction among American citizens who are unwilling to sit back while Washington blatantly ignores their voices.

Supporting the 10th Amendment Resolution is a grassroots effort if ever there was one. I encourage you to spread the word and contact your family, friends and relatives, in and out of Pennsylvania, and encourage them to speak up. This issue will not go away—and it gives a voice to those who have grown frustrated and disillusioned with our federal government.

The 10th Amendment Resolution simply yet powerfully affirms our belief in the constitutional structure of our government. Join me today in that affirmation.

Rep. Rohrer will be holding the “10th Amendment Rally for the State of Independence” on Monday, March 16 at noon in the Rotunda of the State Capitol. Please make plans to join him there. Visit www.samrohrer.com for more information.

Making Irresponsibility Affordable

by Gina Breckenridge

Sometimes I still find myself amazed by my own naïveté. I had read a lot of speculation about what would be included in Obama’s foreclosure “crisis” plan, now termed the “Making Home Affordable” plan, but I held some small amount of belief that much of it simply was speculation. I also mistakenly thought that the 31% rule was going to be applied to net income. That’s higher than my preference of 25%, but still workable in some circumstances.

Since it is once again “imperative that we continue to move with speed,” I’m going to outline some of the problems with “Making Home Affordable.” I know that many people are having trouble keeping up with and absorbing all the news with everything happening so quickly, and I’m beginning to believe that the members of the Obama administration are not only acting with speed, but also taking speed, and that’s what’s preventing them from being able to engage in rational thought.

The disturbing but least egregious part of the proposal is the intent to modify mortgage payments by either reducing interest rates, extending the term of the loan, reducing principal, or a combination of these, to no more than 31% of the borrower’s gross income.

I won’t bore you with all the figures, but I actually sat down and calculated that. I was very generous in my calculations, assuming a household income of $65,000 per year, which is considerably higher than the national average. Also, state tax rates can vary from 0% (seven states) to as much as 10.3% (guess where that is), and some states use marginal rates, as the federal government does. It wasn’t possible to come up with a meaningful median, so I used the PA tax rate of 3.07%.

I factored in federal, state, Social Security and Medicare taxes, and allowed only a small bit of additional payment for escrow, such as taxes and insurance. I did not take into account any city or county taxes, or unemployment insurance. The final figure was a staggering 40% of net income, which would be making Dave Ramsey roll over in his grave if he weren’t, fortunately, still with us to tell people to stop being stupid with money.

Although some families might be able to swing a mortgage payment that’s 40% of their take-home pay, that’s highly unlikely with many of these mortgages. A very large percentage of troubled mortgages are subprime and were given to borrowers with substandard credit scores and little to no down payment. In other words, they already had a history of not saving for a home, and not paying their bills on time. Of the borrowers who have had loan remodifications in the past year, when all this started, well more than half are already back in default.

The most egregious part of the program is the proposal to allow bankruptcy judges to modify mortgage contracts. If you read no other part of this article, please read this part and understand the implications.

This administration is proposing to allow judges to arbitrarily alter legally-binding contracts made between businesses and consumers. If the business doesn’t willingly alter the terms, a judge can tell them they must. Let that sink in for a minute.

Beyond that, Fannie Mae and Freddie Mac are already covered in other parts of the proposal. This part would almost exclusively cover subprime mortgages, most of which are held in mortgage-backed securities owned by private investors, hedge funds, insurance companies, etc. This means the debt is not held by one entity, but has been chipped apart and sold to millions of investors. If a mortgage servicer modifies a loan based on a judge’s order, two things happen. The mortgage servicer is a ripe candidate for a lawsuit filed by shareholders, and the federal government has violated the Fifth Amendment by taking that which is private property without just compensation.

I won’t go into the details of many of the troubled mortgages being 80/20 loans, other than to say what that means is the borrowers took out an 80% loan, then borrowed the down payment for the other 20% because they didn’t have it or didn’t want to put it up. The administration hasn’t yet come up with a plan for dealing with the secondary loans, but I’m sure something creative and bold is in the works.

Please don’t get me wrong. I hate seeing responsible home buyers lose their homes. I have empathy for those who are in foreclosure due to job losses, medical expenses, or anything else that wasn’t foreseen. What I have no sympathy at all for is people who were irresponsible in home purchases and are intent on dragging the rest of us down with them.

Speaking of personal responsibility, part of the Obama plan is to extend these benefits only to “responsible” home buyers. I can’t wait to see how they end up defining the word “responsible.”