Well, apparently the Feds are going to spend yet more money saving Citigroup. As a holder of Citigroup stock, I feel obligated tot hank each and every one of you for contributing to my retirement. I think it is a terrible idea, but since the government never listens to me, I feel the least I can do is thank you for basically giving me your hard earned money.
 
It did strike me that this whole bailout could have been avoided, and costs reduced, had the federal government been honest. Basically, we are seeing the outcome of three mutually reinforcing events. First, and foremost, the Community Reinvestment Act passed by the Carter administration and made worse by the Clinton Administration. Second, the Clinton administration's efforts to use inflation to bolster a sagging economy. And third, the Bush administration's efforts to do the same. Of course the real origins are in Nixon's closing of the gold window in 1973 and FDR's outlawing of monetary gold in 1934, but since everyone argues with me when I propose a gold standard, I'll ignore those for now and look at the proximate causes of our problems.

The Community Reinvestment Act, the real villain in our piece, is one of those typical soft-hearted, soft-headed liberal ideas. "A hand up, not a hand out" type of program. The idea being poor people are only prevented from getting a home because heartless bankers demand silly things such as a credit history and proof of an ability to repay, if the bankers could be convinced to make loans with less documentation, or none at all, then poor people could get loans and they would surely do their best to pay them off*. Clinton then went one better and reduced the standards even farther, also "encouraging" such loans by ordering Freddie Fannie to buy them up regardless of their lack of worth.

What I was thinking was, would we not have been better off had the feds just bought houses for these people outright? Considering the havoc these loans are wreaking throughout the economy, not to mention the absurd inflation oft he housing market these practices inflicted over the past several years, would we not have been better off admitting this is a simple handout to the poor, and just bought them homes?

It is rather like the war on poverty. Rather than continuing in perpetuity, as we have now since the Johnson administration, we would have been better off saying to any poor person "Here is $1 million, however, as you are now rich, neither you nor any of your descendants can claim poverty ever again." It would have cost us much less than the several trillion dollars we have now invested in the war on poverty. In fact, even if we could not actually enforce the exclusion of descendants, just paying $1 million to anyone who cries poor, in exchange for forever being exempted from any government aid, including social security, would be cheaper than maintaining the massive bureaucracies we now have. And, in reality, if we consider medical benefits, we may end up paying less by giving away $1 million than we would pay for a lifetime of paltry support payments. And we definitely save if you include the entire bureaucratic structure our current welfare system entails.

And that is the sad truth. In our zeal to appear to be "hard nosed" and "practical" we institute elaborate rules and complex systems which probably cost more than the money they save us. At some point it would probably just be cheaper  to throw money at the poor. Likewise, it would probably be cheaper to just accept some fraud than spend the money it takes to find it or prevent it.

Look at the current bailouts if you doubt me. of the $700 billion for the financial bailout, how much will go to recipients and how much will be involve din the administration of the program? And for the recipients, what will be the costs to comply versus the money they receive? Even worse, look at Obama's demands on the auto industry to get their rather paltry $25 billion bailout. Were they to comply with all his restructuring rules, including compliance with strong union rules and a "green" agenda, they would probably end up spending more in compliance than they would receive in bailout. If not immediately, then over the life of these projects.

It amazes me, but it appears no one in Washington has ever heard of cost benefit analysis. Then again, when you spend your life spending other people's money without a care about turning a profit, perhaps there is reason such thoughts never occur to you**.

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* Many on the left point to third world "micro loan" community programs as a analogy and argue that if it worked there, then surely the CIA could not be to blame. I will deal with this in detail in a post later today, but it overlooks two HUGE differences. In those third world programs there is an evaluation of worthiness by a close-knit local community and the repayment is enforced by the shame heaped on defaulters by their community. In our anonymous, shame-free culture, neither of those factors exist. So drawing an analogy to micro-loan programs is a as senseless as describing Baltimore street gangs in terms of the code of bushido.

** It doesn't help that they are mostly lawyers. lawyers are notorious for never thinking of the consequences of their suits. Such as the cerebral palsy suits against obstetricians (eg those that made John Edwards rich). They caused a fourfold increase in needless c sections, drove many obstetricians out of business, and did nothing to reduce the incidence of CP. Mainly because obstetricians had nothing to do with CP, but according to the lawyers, the suits were all about "improving public safety".