Washington D.C., The Great Kitchen Garbage Disposal - Subprime Lending Revisited, Head Start, and High Speed Rail

There are a lot of famous quotes on stupidity:

Stupid is as stupid does. Forest Gump

Only two things are infinite, the universe and human stupidity, and I'm not sure about the former. Albert Einstein

In politics, stupidity is not a handicap. Napoleon Bonaparte

Evil isn’t the real threat to the world. Stupid is just as destructive as Evil, maybe more so, and it’s a hell of a lot more common. What we really need is a crusade against Stupid. That might actually make a difference. Jim Butcher

Far be it for me to ever let my common sense get in the way of my stupidity. I say we press on. Sherrilyn Kenyon

There is more stupidity than hydrogen in the universe, and it has a longer shelf life. Frank Zappa

We’ll stop there. Yes, there is a lot of stupidity in the world and unfortunately, the Washington political class seems to attract a lot of stupid thinking. Consider the latest stupidity emanating out of the Beltway from the Washington political class and what quote above most ably describes the stupidity:

1) Consider what the brainiacs in Washington want to do the housing industry according to an April 2, 2013 article in the Washington Post:

• The Obama administration stated it is working to get banks to lend to a wider range of and potential homeowners by taking advantage of taxpayer-backed programs.
• These loans/mortgages would go to a “wider range” of people and would be backed by government organizations, i.e. the American taxpayer, such as the Federal Housing Administration to insure home loans that default would not hurt banks earnings.
• This “wider range” is a code phrase for giving mortgages to people with bad credit and less chance of supporting a mortgage before getting foreclosed on.
• Federal housing officials are encouraging the Justice Department to provide assurances to banks that they will not face legal or financial recriminations if they make loans to riskier borrowers who meet government standards but later default.
• Government officials are also encouraging lenders to use more subjective judgment in determining whether to offer a loan, in other words give out mortgages to people that are less likely and unlikely to ever be able to pay them back, resulting in defaults and the American taxpayer picking up the tab.

Didn’t we just relive this horror show? Wasn’t it called the “Great Recession” where sub prime lending to people with questionable credit received mortgages from banks, who made large profits but dumped the risks on the Federal government via Fannie Mae, Freddie Mac, and the FHA, risk that was paid off by taxpayers? Didn’t that bailout cost the American taxpayer almost $200 billion with the final tab yet to come.

This insanity is especially stupid in light of recent news reports that reported the Federal Housing Authority was likely to need a $943 million taxpayer bailout to cover expected losses from mortgages it insured as the U.S. housing bubble was deflating during the Great Recession. The Obama administration reported this problem on April 10, 2013.

It would be the first bailout of the government's mortgage insurer in its nearly 80-year history. The FHA is required by Congress to keep enough cash on hand to cover all expected future losses and must take a taxpayer subsidy if its projected revenue falls short. And it could get worse. In November, an independent audit found that the FHA faces projected losses of $16.3 billion and was at risk of depleting its cash reserves. Guess who ends up paying for this shortfall?

So Fannie Mae and Freddie Mac have already choked themselves and the American taxpayer on mortgages that were given to and defaulted on by low credit and low income people. The FHA may need billions dollars more because it backed mortgages on bad mortgage customers. And the Obama administration wants to loosen current credit processes so more people with bad credit and poor chances of carrying a mortgage get a mortgage, to be backed in case of default by the taxpayer. Stupid, did these people learn nothing from the Great Recession and the underlying mortgage/housing/subprime issues that created it?

My best analogy for this shortsightedness is a kitchen garbage disposal. It’s like the stupid person who mangles his right hand in the garbage disposal and just as the scabs and scar tissue are falling off from that disaster that person puts his left hand right back into the garbage disposal. Stupid is as stupid does and that is exactly what the Obama administration is about to do with reenacting the subprime disaster.

2) Apparently, one of the proposals in Obama’s delinquent and ridiculous budget proposal is to provide Federal pre-school programs for every kid in America. But why should we do that when we know that the existing Federal pre-school program in America, Head Start, has been a financial, educational, and administrative disaster:

• A detailed study by Obama’s own Health and Human Services Department conclusively showed that any positive gains by kids in Head Start programs are lost forever by the end of the first grade versus kids that had not been in Head Start programs, with all other areas of variation being controlled by the study analysis.
• Another detailed study, again by Obama’s own Health and Human Services Department, looked at third and fourth grade students and compared students that had been in Head Start programs vs. that had not been in Head Start. That study found that in general there were no differences between Head Start kids and non-head Start kids and in some areas, non-Head Start kids were actually further along from an educational and development perspective, all other sources of variability being controlled.
• Numerous government studies have found rampant waste and fraud throughout the Head Start program.

So, the many promises of the Head Start program from an educational, cultural, and childhood development perspective have never materialized and the program has been administered in a sloppy, fraudulent manner. Thus, we have spent billions and billions of dollars over the Head Start years to run an overrated, glorious babysitting service with no redeeming societal benefit in return.

And given this backdrop, the President wants to vastly expand the concept of daycare to every kid in the country without being able to fix the existing Head Start program. He just has the grandiose concept with no plan on remedial action on how to prevent a more expensive Head Start disaster.

In this example, we still have our right hand stuck down in the garbage disposal (Head Start) and want to stick the left hand down it also (Obama’s proposal). But alas, in politics, stupidity is not a handicap.

The previous posts we did that explain the Head Start fiasco in more detail can be found at:

http://loathemygovernment.blogspot.com/2010/04/government-education-programs-that-do.html

http://loathemygovernment.blogspot.com/2013/01/failing-our-kids-again-massive-fraud.html

3) Our final example of stupidity also comes from the President’s budget proposal. Apparently, he still wants to build this national high speed rail line that will cost untold billions of dollars for questionable benefits. But before going down this garbage disposal, maybe he should fix the current Federal government railroad service, Amtrak.

Earlier this month (April 4, 2013 post) we reviewed an article from the March, 2013 issue of Reason magazine, an article that contained some interesting analyses of Amtrak, the distressed, Federally operated national train system:

• Amtrak is the most expensive way to transport oneself from city to city, on average costing consumers twice as much than commercial airline travel.
• The average American travels 15 miles a year via Amtrak but 15,000 miles a year via car.
• Amtrak per-passenger miles subsidies are more than nine times higher than subsidies paid to airlines and 20 times more than subsidies paid to car drivers.
• In 2012, Amtrak needed about $1.4 billion from the American taxpayer to run its operations.
• Only three of its twelve routes are profitable without taxpayer subsidies.

In our September 5, 2012 post we reviewed as New York Times article that described the insanity and waste in just one aspect of Amtrak:

• According to a New York Times article that was summarized in the August 17, 2012 issue of The Week magazine, Amtrak lost $834 million just on its food and beverage services over the past ten years.
• This comes out to about $83 million a year, or almost a quarter million dollars a day, 365 days a year.
• We found it amazing that any organization, even a government organization, can lose so much money so quickly just on food and drinks.
• The article blamed the astronomical losses on poor management, waste, and employee theft.
• Despite being in the train management industry for decades, it is apparent that the political class and the government agencies it operates have learned nothing on how to be efficient and effective.

Pitiful. Rather than learning from the Amtrak garbage disposal experience, billions wasted on an unprofitable rail line, imagine how much the American taxpayer would lose if the Federal government ever went ahead with their ill conceived and unnecessary high speed train pipe dream. Far be it for Washington to ever let common sense get in the way of its stupidity.

Einstein once said: “The definition of insanity is doing the same thing over and over and expecting different results.” We would substitute the word “stupidity” for “insanity” to summarize the state of the political thinking in Washington:

- Subprime mortgage lending to people with poor credit and poor chances of carrying a mortgage caused the Great Recession but Washington wants to go down that path again today.

- Head Start has been a disaster for over four decades and the Obama administration wants to do the same program on a grander scale, likely wasting a grander sum of money.

- The Obama administration wants to build a massive high speed rail line across the country even though the current Federal rail line loses over a billion dollars a year.

The Washington kitchen garbage disposal is alive and well, continually shredding taxpayer wealth every day.

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